Industry Learns To Factor In People
By: Michael Mecham/San Francisco
Reprinted from the aviationnow.com website.
San Diego-November 5, 2001 - As consolidation continues among aerospace's dot.coms, the winners are the ones that don't let technology get in the way. Two years after the first Internet pioneers began applying electronic commerce to aerospace, the industry has relearned a hard truth: To lead others, they have to be ready to follow.
For Bill Morales, CEO of TradeAir, an aftermarket parts specialist, providing connectivity and visibility on a Web site aren't enough. His trading team spends an inordinate amount of time following up Internet clicks to make sure parts are shipped. He now sees wisdom in establishing some old-fashioned br /icks-and-mortar relationships with parts suppliers. "People need a connection with real people to make things happen," he says.
Avolo President Warren Meyer found that the industry is pragmatic. "People want their problem solved. They don't want technology."
ESIS, a San Diego-based network exchange that processes data for more than 17,000 suppliers and 200 major manufacturers and airlines, handled $1.4 billion in purchase orders in the third quarter by taking care of other people's paperwork. "Suppliers do not want to integrate" with prime contractors, President Derek L. Baggerly said. "They want their orders." So ESIS does the integration for them.
The nine-month-old Aerospace Hardware Exchange provides a real-time marketplace to suppliers of fasteners, bearings and other non-glamorous bits and pieces that account for 50% of an aircraft's parts but only 5% of its value. AHX may be a niche player, but it doesn't expect to find success by acting like a maverick. It is seeking network alliances to crosslink its platform for wider audience reach. Last month, it signed an agreement with Cordiem LLC.
Despite these examples, however, size and connections do matter. Private marketplaces run by original equipment manufacturers (OEMs) for their own customers and suppliers have defied some gurus who said a couple of years ago that the Internet would turn aerospace parts into commodities, eroding the value of traditional br /and names. Just the opposite has occurred. OEMs are using their own Internet sites to strengthen customer relationships and build efficiency with suppliers.
Notwithstanding the strength of well-run OEM sites, the A&D grapevine is rife with rumors that backers of the industry's biggest exchanges--Aeroxchange, Cordiem and Exostar--are having second thoughts.
One dot.com with big backers has closed its marketplace. Aerospan bowed out on Sept. 7, four days before the terrorist attacks blindsided an airline industry already deep in recession. The company's backers, principally industry digital network leader SITA, had invested $20-25 million in the venture. But its board felt that too many of SITA's 750 airline members were sitting on the fence, according to Marketing Director Charles Withrow. When it ceased trading, Aerospan had 83 airlines and 120 suppliers as customers. Withrow said Aerospan intends to continue as a host of others' systems, such as the trading exchange it recently helped MTU set up.
PERHAPS DIVIDED LOYALTIES were part of Aerospan's problem. Eighty percent of SITA's board members were covering their bets by backing other exchanges. This br /ings to mind an observation by David L. Oppenheim, who runs e-business operations at Cessna Aircraft: "I see the aerospace exchanges as still trying to find out what they want to be when they grow up."
But management consultant George P. Shaw is surprised at how well the industry's biggest OEMs have moved into e-commerce. "I think they recognized there were areas where they could take cost and cycle time out of their interactions with other companies," said Shaw, who heads Accenture's aerospace and defense manufacturing practice. Accenture served as midwife for the birth of Exostar, the industry's largest exchange, which is backed by Boeing, Lockheed Martin, BAE Systems, Raytheon and Rolls-Royce.
"The major exchanges have got it right in terms of building the infrastructure once instead of doing it many times," Shaw said. He sees exchanges as part of a 30-year evolution in collaborative commerce that began with financial solutions in the 1970s and, by the 1990s, saw industry's leaders installing enterprise management software that could br /ing order across a sprawling corporation. Now those same corporations are trying to further their quest for efficiency by using the Internet to manage supply, collaborate on commerce and improve customer relations. It's likely to take another decade for these to bear fruit, especially the latter, since most of the industry has barely heard the term "customer relationship management."
Morales' observation on human nature doesn't negate Shaw's perception of where the industry is headed. But it is a reminder that progress can be uneven. Dot.com veterans report that airline station managers may use the Internet to seek a part when they've got an aircraft-on-ground emergency, but chances are they'll telephone or fax to confirm that the part is really available and really has been shipped.
Peter Longo, Pratt & Whitney's vice president for technology, and David br /antner, its director of e-business, are in the thick of the dot.com revolution. br /antner runs e-spares.com, Pratt's private Web site that allows airlines and overhaul shops to buy new and used engine parts, track shipments and get technical document support. E-spares has more than 200 customers online and another 500 in the queue.
"We think that site hit right on the mark," br /antner said.
E-spares' development has been closely tied to Pratt's progress in building its information technology capacity. The company is instituting SAP's enterprise research planning (ERP) software as the backbone for its business processes. SAP is needed to give all of its aftermarket service centers the same functionality as its engine assembly shops. Installation is complete at the OEM level and at two of its biggest overhaul shops. But the process will take another couple of years to implement at four other overhaul centers and 30 repair shops.
Installing a core business software is essential to making the system work in terms of supporting technical data, common work instructions and common business transactions, Longo said. "In the end, it's at the hard core of lean manufacturing--standardize, standardize, standardize."
Because he views software integration as essential to empowering Pratt's use of the Internet, Longo prefers the term "digital revolution" to e-commerce. It is a better description of how a single computing architecture stretches across the company.
His revolutionaries don't march in lockstep, however. One of Longo's challenges is overcoming the comfort factor people feel toward software they are familiar with. "Legacy systems just never go away," he laments. One of his "to do" tasks is to shut them down.
brantner said Pratt is patient about the development of Cordiem, the only exchange that is owned by buyers and sellers of aircraft parts. If Cordiem's only accomplishment is opening up available inventory to member airlines, it has value, he said. "It gets Pratt closer to its customer."
Cordiem, which is backed by nine carriers, United Technologies (Pratt's parent), Goodrich and Honeywell, will make its second major software release this month, CEO David linton said. The company focuses on asset management collaboration and counts big online auctions among its successes. The most notable was british Airways' recent sale of eight JT8D 737-200 powerplants which attracted 18 bids. The engines went for $2.8 million. BA Procurement Manager Ralph Lees said the auction cut the bid-to-selection process time from four weeks to three days. Aeroxchange gives access to some 2 million lines of inventory to 32 carriers. Aeroxchange says its greatest interest is in reverse auctions. Spokesman Edjuan Bailey said a recent example concerned a screening of 25 suppliers to cover some 5,000 consumables that three member carriers wanted. Six were qualified for bidding and split orders worth about $2 million.
EXOSTAR'S MEMBERS ALSO are fans of reverse, or procurement, auctions, having held some 300 thus far. But their greatest focus is on the Internet's instant-connect potential to reach suppliers and program partners. Nine thousand of its founding members' highest volume suppliers are online. The goal is 20,000. As more sign on, potential payoffs for OEMs and suppliers alike grow, Exostar Vice President Ludo van Vooren said. "Suppliers want to connect to one place to reach everyone because it allows them to build their own contractor basis."
In large measure, it's up to Exostar's founders to br /ing their suppliers onto the system. Van Vooren said their approaches vary. Lockheed Martin requires companies to apply directly if they want to become suppliers. Once accepted as a subcontractor, they are expected to make their connections via the Exostar network. In contrast, Raytheon plays a cheerleading role for Exostar by trying to persuade suppliers to use it.
About ESIS
ESIS Inc., founded in 1992, is a full-service e-commerce outsourcing provider for companies and their
trading partners. A leader in its field, ESIS counts over 17,000 e-commerce partners and 200+ major
manufacturers as users of its web-enabled application, the Harmony Order Management (HOM) System.
The company offers a complete suite of e-commerce application services to enable its customers to
integrate their data without the expense of developing new in-house applications and analysis programs.
The HOM System allows for instant, value-added e-commerce implementation and is designed for suppliers
of any size. ESIS processes over 3.5 million transactions and over $6 billion in purchase orders for
its clients each year. ESIS customers include Boeing, Honeywell, Bell Helicopter, Cessna Aircraft,
and Embraer.