Purchasing

 
 
By eweek  |  Posted 2001-03-26 Email Print this article Print
 
 
 
 
 
 
 


: a Solution?"> Purchasing: a Solution?

Purchasing is one back-office function that American plans to move onto the Web. Every year, American spends $2 billion on jet fuel and another $3 billion on everything from parts to pretzels. To increase its supply chain efficiency and get better pricing on commodities it needs, American will move its purchasing to two B2B portals, Cordiem and Jet-A.com. Jet-A is a consortium backed by six major oil companies and 22 airlines, including American. Cordiem is backed by industry suppliers, including B.F. Goodrich, Honeywell and United Technologies, as well as Air France, American, British Airways, Continental Airlines, Delta, Iberia Airlines, SAirGroup, United Air Lines and United Parcel Service.

Jet-A will allow the airlines to digitize the cumbersome process of tracking jet-fuel inventories and airplane fuelings. Whenever fuel is put on a plane, as many as four paper tickets are generated that must then be handled by different entities involved in the process. Jet-A hopes to streamline the accounting process and allow the airlines and oil companies to have real-time Web updates on each fueling, as well as to track fuel inventories at each airport.

Cordiem offers similar promise with regard to a wide array of products and services. The airlines would like to purchase everything from catering services to engine parts on the site. One key value airlines look to reap from Cordiem is its promise to purchase and manage aircraft parts, which are highly regulated and must be tracked from cradle to grave. Every time a part is put on a plane or moved from one location to another, it has to be recorded. Using Cordiem, the airlines hope to create continually updated databases that will show where specific parts are, how long they have been in use and when they should be repaired or replaced. That information will then be shared by the companys accountants, purchasers and mechanics. The same information will be available to the airlines maintenance contractors and parts suppliers, a move that the companies say will allow them to reduce their inventory and speed deliveries through the supply chain.

American already does a great deal of its purchasing electronically. About 70 percent of its parts and other goods are bought using electronic data interchange networks. The other 30 percent are purchased using phone and fax. The company estimates that by using Cordiem, it can shave $10 off the cost of each EDI-based transaction and $57 off the cost of each phone/fax purchase. John P. Rau, managing director, purchasing, at American, refused to say how much American hopes to save by using Cordiem. However, he said the company expects to save "a significant amount just on transaction costs alone, not to mention that we think we can get better prices as a result of streamlining our processes."

But American faces big challenges. The company must update its legacy computer systems and integrate them into a companywide Web-based system. At present the company has 8,000 employees that occasionally buy things like office supplies and routine maintenance items. Each one of those employees will need access to the Net and each must be trained to use the new system. In addition, the company has 150 full-time commodity managers who must be trained to use Cordiem and Jet-A.

Since each of those buyers is already used to ordering materials with Americans EDI system, "we dont believe the change for those 8,000 users will be significantly different, which is a big advantage for us," said Nancy L. Walker, manager of strategic planning, corporate purchasing, at American. All of Americans buyers are "used to inputting order information. Now they will be able to do it quicker in a shopping-cart type of environment," on the Web, Walker said.

Integrating the hardware and software needed for the shift to Cordiem will take two to three years, Walker said. American will depend on PriceWaterhouseCoopers and Sabre to integrate an Ariba Buyer software package into its Enterprise Resource Planning system.

American chose Ariba Buyer in large part because Ariba, along with i2 Technologies, is providing the software for Cordiem. The two software makers were chosen because "they are the leaders in the industry," Rau said. "I2 is clearly the leader in supply-chain-management functionality. And Ariba has been the leader in the whole purchase-order-processing area," he said.

In addition to the B2B integration challenge, American plans to tie together many of its databases. To do so, the company will use enterprise application integration software from Vitria Technology. "Right now, we have 25 computer systems that have point-to-point connections," Walker said. Vitrias software will act like a bus that ties all of those systems into Ariba Buyer and Cordiem, she said.

Rau and Walker expect to begin using Cordiem some time in April to buy items like office supplies and other things used in the routine operation of an airline. And while American is confident it can integrate its computer systems to take advantage of the B2B portals, Michael Burkett, a senior research analyst at AMR Research in Boston, has doubts. Integrating the airlines legacy systems with the new portals and getting all of its suppliers to integrate their systems with Cordiem and the other purchasing sites will take at least a year, perhaps even longer. "The airlines are going to have a harder time doing this than they think," Burkett said.



 
 
 
 
 
 
 
 
 
 
 

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