Airline b2b exchanges promise to transform the way carriers source, buy and sell parts, but the cost of building up a broad customer base has already proved too heavy for some hopefuls

What impact will the new breed of business-to-business (b2b) exchanges have on airline maintenance, repair and overhaul? And how do they fit alongside the online offerings of the aerospace manufacturers and other parts suppliers? At least one barrier to answering these questions is that the exchanges themselves are still young, particularly in terms of building their promised functionality and customer bases.

Cordiem, backed by a mix of leading airlines and aerospace names (BF Goodrich, Honeywell and United Technologies), is still piloting its maintenance and engineering procurement and planning applications. It is likely to continue to do so at least until the end of the year. Aeroxchange, now with more than 30 airline members on board, has had an inventory marketplace up and running since February, as well as a function that allows supplier catalogues to be searched, but is still early in the process of the systems integration with airlines and suppliers needed to make these applications really effective.

Aerospan, meanwhile, has more or less been withdrawn from the race to become a public e-marketplace. Other start-ups had not even got this far. Aerospan's owner SITA said in September that it would no longer attempt to create a "neutral" industry-wide solution. Instead, says Aerospan chief executive Duncan Alexander, the aim will be to build a private exchange. He says that the marketplace, which had only been operational since January, was seeing 60-70 searches for parts a day by the summer, with an increasing number leading to requests for quotes (RFQs). Some 80 airlines were claimed as users and 115 suppliers had loaded up their inventory, but the cost of building this user base was proving expensive.

When airlines do try out the functionality, however, they often get a disappointing response. The experience of Air France Industries (AFI) is typical. AFI's purchasing director, Jean-Luc Prache, says that when it tried a reverse auction for pre-worn engine and airframe parts on Aerospan and earlier this year, the speed of the replies was impressive when compared with its traditional legacy system, which relays requests to suppliers by telex. That said, he received too few of them to make the auction meaningful. "It seems many suppliers had staff at their telex machines but not at their web terminals," he comments.

The exchanges themselves claim that this is still early days and both functionality and transaction levels will soon build up. A few rays of optimism do come through from the Airline ITTrends Survey 2001 carried out jointly by Airline Business and SITA earlier this year among senior ITexecutives at the world's top 200 carriers. The survey suggests that 35% of carriers have used a b2b marketplace, with overhaul and spares high on the list. Some 26% have already linked to a spare parts provider and 14% for maintenance work. And another 45% said they planned to use such b2b applications in the near future suggesting that there is a market for someone.

Killer applications

Yet the exchanges still desperately need to find "killer applications" - those that will make the technology indispensible - to overcome what all agree is a certain degree of airline apathy. But which applications would they be?

Most independent experts think that spares procurement is a logical place to start - particularly non-catalogue spares, which cannot be sourced through OEM sites. Prache says 35% of AFI's parts sourcing is non-catalogue and sees time savings - as much as lower prices - as the main benefit an exchange can offer. "Our legacy system already links into suppliers by telex, but on the web you can contact all your suppliers at once, and consolidate the information much more quickly," he points out.

Prache also sees exchanges as a better way to connect to OEMs and other parts suppliers. "They can provide a single interface to all the OEM websites, which are focused on their own products or suppliers, which may not be the same as ours," he says. "Using an exchange will enable you to compare and contrast across the full range of your suppliers."

Exchanges also have the potential to offer a way to update prices and parts references automatically for catalogue parts. "This would save us a huge amount of the time that we currently spend updating our own database and in manual interventions on orders with the wrong data on them," Prache says, adding that to be effective the exchange would have to offer AFI updates on its own negotiated prices with suppliers, not just the catalogue list prices.

AFI's enthusiasm for exchanges might be expected, as it is a founder member and a driving force behind Cordiem. Ron Stewart, global managing partner of the transportation and travelpractice with consultancy Accenture, however, wonders if procurement process savings alone will be enough to attract other airlines."The exchanges have a lot of plans, but the question is are the carriers signing up for them?" he asks. "My perception is that the carriers don't seem to be embracing the medium for this kind of business opportunity."

One reason is that airlines have easier ways to save money. "Many already have internal procurement initiatives under way, such as reducing the number of suppliers they work with and negotiating longer-term contracts," Stewart says. "These offer more immediate benefits than working with exchanges, and do not need the $5-10 million cost in systems integration that are needed to work with the Cordiems or Aeroxchanges, especially at a time when investment capital is in short supply."

There is also the human dimension - maintenance staff need to be retrained to use any new system, an expensive and disruptive process. And other carriers, Stewart reckons, are simply fence-sitting - waiting for others to try exchanges and make the early mistakes.

More serious, perhaps, is Stewart's suspicion that airlines are adopting an "if it ain't broke, don't fix it" mentality. Exchanges may offer better procurement functionality, but are they really so much better than existing ways of doing things that they will drive airlines to change? Dave Sisson, chief executive of parts supplier, AirLiance has his doubts. "Buying new parts from OEMs is already relatively efficient," he says. "And, as for catalogue parts, much of the data that the exchanges offer has always been available from other sources - SPEC2000, CD-Rom, paper catalogues and so on."

Among the traditional ways of sourcing parts is Inventory Locator Service (ILS), which has been matching buyers with parts for 22 years. It also is now embracing the web. ILS says 72.5% of the 36,857 transactions it processed on one day in August came via its website, and claims to be the "aviation industry's most experienced, largest and most active e-marketplace".

The exchanges counter that they can offer more functionality. "ILS merely lists the parts and who has them, but with an exchange you can put in a request and get back a reply from a supplier," says Alexander. "You can also see traceability documents and get a wealth of information in four to five clicks that would have taken hours to do before."

The snag, however, is that, this information is only available if suppliers integrate their systems with the exchanges, and getting suppliers signed up has proved a major challenge. Too much for SITA and the Aerospan exchange. However, its enthusiasm for the Aerospan functionality has not been diminished and it is now approaching the exchange's client base to see whether customers or partners would like to buy or license the source code to build their own internal supplier networks.

By contrast to the public exchanges, it is worth noting that Exostar - an exchange set up by manufacturers Boeing, Lockheed and Raytheon to source parts for their own use - has already signed up 4,000 suppliers and is targeting 40,000 more.

Integrated solutions

This prompts some to suggest that exchanges will need something more powerful than mere procurement functions to get airlines interested. Steve Casley, principal with consultancy Back Aviation, reckons the real killer applications will be the marriage of procurement with maintenance planning functions. He foresees a day when service parts planning, replenishment planning and budget optimisation tools will merge seamlessly into inventory search and buying capabilities, and then into online procurement itself.

"You could look, for example, on Cordiem and see what was needed for a C-check, and then check your inventory levels and integrate seamlessly into procurement; that is where you will get the really fabulous efficiencies," he says. "This is an old-fashioned industry and moving from phone and fax to online orders would give definite benefits in itself - maybe 40% of the potential productivity gain. But to get the real efficiencies, you need to integrate planning and procurement." Casley singles out Cordiem as having articulated this vision most clearly, but the other exchanges set out similar long-term goals.

Although having withdrawn from creation of Aerospan as a public e-marketplace, SITAis indeed turning attention to integration and planning. Alexander is clear that the "change of focus"from public to private exchange will allow SITAto concentrate on "other initiatives in the airline maintenance arena". Aerospan already has a tracking product which follows rotables through the repair process, and SITA has been busy buying or linking up with providers of other relevant functionality. In July, it bought RPA, the makers of a maintenance scheduling and planning tool currently used by 26 customers including DHL and KLM.

One problem with this scenario is that many larger airlines already have standalone maintenance planning tools, and will be reluctant to part company with them. Prache at AFI, for example, says it intends to keep its Merlin-based legacy system, which both manages the maintenance process and co-ordinates EDI procurement. So, AFI looks to exchanges to add procurement functionality to those programmes. He thinks most carriers with existing maintenance planning systems will take the same attitude, at least until such systems come to the end of their natural life.

He also points out that maintenance departments and companies tend to have different needs and processes and so need a planning tool adapted to fit. "I think it would be difficult to have an online planning tool that would work for every airline - it would need to be flexible to each different company," he says. "However, it might well appeal to smaller carriers."

Prache also offers two further useful insights into airline thinking. One is that, despite Air France's involvement in Cordiem, AFI looks at each aspect of its functionality with a strictly commercial eye. "There are lots of sub-processes in procurement - RFQs, RFPs, tendering and so on - and the added value of an exchange is not the same for each," he says. "We need to see that the value added is real in comparison with the cost of using the system, as that will clearly drive our use of these services in the future." So far, he says, no exchange has demonstrated sufficient time savings or cost savings to merit their use. He believes, however, that it is only a question of time before they do.

Another problem is that Prache does not expect all of AFI's 1,300 suppliers to be signed up to one exchange. "Some will go to one exchange and some to another, and some OEMs will want to work through their own websites," he says. Thus usage of an exchange will, in the short term at least, be as much driven by which suppliers are signed up to it as any difference in functionality.

Source: Airline Business