Web Purchasers Seek Network Help
By: Michael Mecham/San Francisco
Reprinted from Aviation Week and Space Technology Magazine.
San Francisco-August 21, 2000 - Despite all the attention that Web sites have been garnering, buying parts and supplies with computers is hardly new to the aerospace industry.
Electronic data interchanges--between customers and original equipment manufacturers and between OEMs and their suppliers-have been in place since the early 1990s. But EDI networks involve direct connections between parties. They are costly to install, maintain and staff. The Internet offers a cheaper alternative since little more than a PC and a browser are required. But as many manufacturers have discovered, bringing their supply chain on board the Internet bandwagon can require them to buy expensive software and translators.
Cessna Aircraft, Bell Helicopter-Textron, Honeywell Aerospace Engines and Systems and Boeing Canoga Park (Rocketdyne) have all determined that their best answer is to outsource the problem. In a market with three or four competitors, all chose ESIS Inc. of San Diego.
ESIS automates its supply chain ordering process so that data received in SPEC2000, X12, Edifact or other standards are handled uniformly regardless of whether they arrive through direct EDI connections or Internet networks.
"Major aerospace companies haven't been successful at getting their thousands of suppliers up-and-running in a timely or cost-effective manner," ESIS cofounder Carole A. Baggerly explained. "They've been able to implement a couple a month in five years. We can implement 5,000 in three months."
Harmony Order Management (HOM), ESIS' common application system, includes saving basic purchasing and response documents to a supplier's system, e-mail notifications of data that demands action, e-mail links to within a document between buyer and seller, analysis tools for change orders or schedule planning, and work flow tracking.
Started in 1992, ESIS has data for 140 aerospace customers, either directly or as customers of its customers. In all, some 17,000 suppliers are doing electronic commerce with its customers, Baggerly said.
She said the problem for suppliers trying to comply with requests to digitize their systems is one of cost and complexity. "They say, 'I don't want to pay for it,' plus they get different requests from different OEMs."
Robin Giebner, a senior systems analyst at Honeywell Aerospace Engines and Systems, explained an OEM's problem. It was trying to get its supply chain onto EDIs by using value-added networks (VANs) and translators, but its suppliers couldn't afford a lengthy and highly technical installation. Her plant held seminars for about three years, but only achieved about a 20% acceptance rate.
"Just to get [VANS] set up was $3,000, plus monthly translation fees." Giebner said. "Only suppliers as big as we are tried to do it."
Once it turned to ESIS, Honeywell brought suppliers on board by paying for their conversion to the system. Its ESIS contract covers more than a dozen different transactions, including quotes, bids, advance shipment transactions and purchase orders.
"We have 300-700 suppliers that are continuously active in handling data going back and forth every day with us," Giebner said. "If we didn't have ESIS we couldn't do it. If something doesn't work, they call ESIS; they don't call me because ESIS runs the whole house."
The system works so smoothly that within five minutes of Honeywell cutting a purchase order, a supplier will see it. Besides receiving an e-mail notification of the order, the HOM system sends a year-long planning schedule that builds in discrete delivery dates.
Since ESIS' installation this spring, Giebner has written a white paper for My Aircraft, the e-marketplace Honeywell has initiated with United Technologies and BF-Goodrich, on how the system has driven costs out of Engines and Systems supply chain.
Steve Newton, director of materiel systems, compliance and administration for Bell Helicopter, faced problems similar to those that Giebner described. After looking at several systems, ESIS was selected for Bell Helicopter Canada in Mirabel and Bell Helicopter Textron in Fort Worth.
"It's cheaper than conventional ways of getting work orders out of here, either as paper or EDI," Newton said. With HOM, Bell expects to replace its entire EDI supply chain data-exchange system.
Describing the system as user friendly, especially for change orders, Newton said Bell is now implementing an ESIS bar coding system for tracking shipments. These moves are part of a strategy to use more collaborative systems with suppliers to reduce transaction costs. "We'll ship against a master contract rather than using so much processing with individual suppliers," he said.
Dave Oppenheim, director of indirect materials at Cessna Aircraft, said the planemaker's suppliers were the ones who pointed it toward ESIS because they didn't face upfront costs with its installation.
He described a torturous process that the industry has gone through trying to overcome problems that PC-based software has had translating EDI code. With earlier systems, "we still ended up with a clerk having to key the entries back into the system," he said. He dismissed such efforts as little more than "an expensive fax."
When he began instituting ESIS two years ago, Oppenheim worked closely with Cessna's information technology department to create a company-wide enterprise system. "Within 90 days of the setup, we had seven transactions that could go EDI or on the Web," he said. The company now has 1,200-1,300 suppliers using the order processing system.
"My adoptions rate has been above 92%," he said. "That's one thing I don't see with all those B2B marketplaces. When it's free [to suppliers], it's a no-brainer."
Cessna has grown from an $800-million to a $2.2-billion company in the last five years and its employment levels have doubled in the past six years. ESIS and other systems have allowed Cessna's purchasing department's employment levels to remain flat through this growth cycle, which has included major strategic initiatives, he said.
Kim Carroll also faced manpower issues when he installed ESIS at the former Rocketdyne. "We had difficulty finding the manpower internally to really get our electronic commerce initiatives started," he said. "By the way Carole [Baggerly] is organized in the service she provides, she took a lot of that out of our hands. She was the only one who provided those kinds of services. Others sold the software, but they didn't want to be bothered phoning all your suppliers and getting them started up."
Boeing Canoga Park now has some 360 suppliers active on the system covering 70% of its direct and indirect purchases. Baggerly said ESIS often gets a "two-fer" contract when it undertakes a contract such as those it holds from Honeywell, Boeing, Cessna and Bell. It's paid the first time by the OEM who uses ESIS to network with its suppliers, but after they get used to the system the suppliers call ESIS in to set up the Internet network with their suppliers.
Carroll can understand that. "If a supplier has multiple customers coming through Carole's portal, everything looks the same," he said. "It can get an order from Rocketdyne or Honeywell or whoever; it all looks the same and there's no conflict with his own data."