MARY KIRBY / WASHINGTON DC
Aerospace business-to-business exchanges believe their services have become even more important as the industry struggles in the post-11 September downturn
Survival in the aerospace business-to-business (B2B) e-commerce sector has been a tough battle resulting in many bloodied noses, but those who have stayed the course believe their prospects are brighter.
The three remaining major e-marketplaces, Aeroxchange, Cordiem and Exostar, are confident that 2002 will be the year when the economic advantages of their offerings will be realised. All report increased interest in their services since 11 September, as buyers and suppliers turn to online exchanges to improve procurement efficiencies while cutting costs.
Interest in the B2B trading exchanges - still in their infancy - has been slow to take off, however, with the industry seeing its share of casualties. Technology issues have also bugged many e-commerce hopefuls, but Aeroxchange, Cordiem and Exostar, say they have overcome initial hurdles to improve functionality. The three companies now claim to have in place the infrastructures to transact the kind of big business essential to ensure longevity.
"Our priorities are unchanged by 11 September. In fact, the need for the type of product that Exostar delivers has been highlighted by 11 September," says Exostar's chief executive Donald Bielinski. Buyers and suppliers are now even more keen to control costs and reduce cycle times, he says.
Exostar, owned by BAE Systems, Boeing, Lockheed Martin, Raytheon and Rolls-Royce, went live in September 2000. Unlike Aeroxchange and Cordiem, which focus mainly on the commercial aviation sector, Exostar was designed as a wider aerospace/defence marketplace.
Exostar's five founding partners have 250 procurement systems and do business with 40,000-50,000 suppliers. Exostar's goal is to connect those procurement systems electronically with suppliers, an area in which it has had some success. For example, R-R, the newest Exostar partner, is already sending out planning schedules electronically on Exostar to its suppliers so they know when to ship ordered materials. R-R has 200 suppliers using the exchange in North America and this figure is set to go up to about 1,000 when the manufacturer's European operations are brought on line in the first half of this year, says R-R's director of e-business Tim Walton.
BAE says it is taking time to realise the benefits of e-business. "We spent most of last year really trying to understand our procurement systems, how we're upgrading those, and the architecture we need to use so we have a coherent programme of architecture. What we're now seeing is a real acceleration of activity," says director of e-business Chris Coupland. BAE used Exostar for "quite a lot of auctions in 2001", he says, allowing the manufacturer to do in a couple of hours online what would have taken three to six months before.
Exostar's recently updated site offers indirect and direct procurement capabilities, and is standardised with aerospace fields. "Real efficiencies are realised when, for example, you look on Exostar and see what is needed for a Boeing 747 C check and then check your inventory levels and integrate seamlessly with procurement," says the company.
This year Exostar is expanding beyond the relationships of its founding partners and suppliers to connect second and third tier suppliers. The service boasts 8,000 suppliers, but expects to have 20,000 suppliers using the system by the end of the year.
Airline-led service
Airline-led Aeroxchange, founded by 13 airlines including Air Canada, All Nippon Airways, FedEx, Lufthansa and Northwest Airlines, now has more than 30 members and says demand for its services has increased since 11 September. Chief executive Terrence Rendleman says that airlines are seeking a less costly method for acquiring parts and managing their supply chain.
In response to airline demand, Aeroxchange recently released version 2.1 of the marketplace, offering improved strategic sourcing services and better search, negotiation and buy tools for aviation parts, services and repairs. The e-marketplace permits trading partners to list, sell, compare and buy from a consistently updated database of new, used and overhauled inventory. It allows the search of active inventory allocations by part number and location from participating airlines in time critical situations.
But while procurement options on the site have improved, Rendleman admits that integrating an airline's back-end materiel management system to offer real- time direct procurement capabilities is "a lot tougher than any of us thought".
He adds: "Building the technology to do the sourcing is easy. Integrating with the airlines is tough because their legacy systems are so peculiar they were built in the 1970s." With its "antiquated legacy systems" Northwest Airlines, for example, has been able to benefit from Aeroxchange's multi-tier integration approach that allows users to develop their legacy system and move to different degrees of integration depending on capability. "We're using middleware to pull together the right data from our systems and enable us to integrate with Aeroxchange. It hasn't been as costly as we thought it would be because it hasn't taken as long," says Northwest senior vice-president technical operations Andy Roberts.
Apart from an initial direct procurement transaction conducted between founding partner Cathay Pacific Airways and supplier Wencor West at last year's Paris air show, Aeroxchange has so far only managed to conduct proof-of-concept transactions with its partners. But the company says it has now begun the integration process with several more airlines and expects to have three or four of its 13 founders fully capable of direct procurement by the end of this quarter.
Cordiem, too, has seen an upturn in demand. Cordiem is an airline- and supplier-led venture formed by the merger of Honeywell/United Technologies-led MyAircraft and airline marketplace AirNewco, which included Air France, American Airlines, British Airways, Delta Air Lines, Continental Airlines and United Airlines.
Financial benefits
Chief executive David Linton says several partners have written into their 2002 outlooks the financial benefits they expect to realise by using Codiem's services. Having completed a new product release - Cordiem 2.7 - last November, the company is confident it can meet the increasingly sophisticated e-commerce needs of its airline and supplier partners.
Cordiem offers forward and reverse auction tools, extensive search engines and tactical procurement tools for the maintenance, repair and overhaul business, as well as a browser-based procurement tool. It expects two of its partners to conduct direct procurement in the near future.
Like Aeroxchange, Cordiem has met with similar obstacles when integrating the back office systems of its customers to offer direct procurement capabilities. "We always had in our business plan that the integration products in Cordiem would be a multi-year adoption process," he says.
Cordiem is in the middle of 3.0 release preparations, but Linton says it will feature only minor upgrades. "We don't have to have any big releases any more. We've got what we want," he says.
Linton adds: "2002 was always planned to be a year with significant increase in sales and we have the backlog to support that. We stand a good chance of making money in 2002, the first really successful commercial year."
Source: Flight International
