e-Procurement at

Cathay Pacific
Airways:
Ezgi Bozkurt
e-business Can elens
Murat irci
valuation Jrmie Germond

Outline
I.

Facts

III. Old system

V. CXeBuy an electronic procurement system
a.

Expected benefits

b.

Implementation

c.

Impact

d.

Future plans

VII.e-Procurement valuation

Cathay Pacific commercial

http://www.youtube.com/watch?v=yvFjtH-4OwY&feature=relate

Facts

I.

Foundation: 1946

Flagship airline of Hong Kong Special Administrative Region (HKSAR)

Over 50 destinations, 30 countries, 70 aircrafts

Ratings:

- worlds No.2 carrier by Best Airline Trans-Pacific

- best airline in Asia in a global poll (2001/02)

In 2001

11.3 million passengers

Turnover: US $3.8 billion
Employers: more than 14,000 worldwide

Vision: make Cathay the most admired airline in the world

Philosophy:

compete on product and service rather than price (even in bad times)

New Business Class

(longest and widest strech-flat seats in the sky, exclusive bar etc.)
only airline with high-speed data network for in-flight-email

II. Old system

Procurement of goods and services

Non-technical
- office supplies
- in-flight consumables

technical
- aircraft equipment
- spare parts

- fuel
- information technology
- marketing services

EMPACS (Engineering Maintenance Planning and Control System)

All paper based purchase orders were raised by this system

inventory management system

750 suppliers of non-technical goods and services worldwide on EMPACS

Wide variety of requisitioning and purchase order processes

Both paper based processes and stand-alone system-based workflows

II. Old system

SHARE

retrieve information from

for reviewing stock quantities
information

EIR

EMPACS
FMIS

send electronic instruction

Use information
To determine
Quantities to be ordered

FACTS

captures unit charges

incurred by aircraft

once verified

Requisitioning
staff

gather data from

+

APPO

Match individual
charges with invoice
entries

II. Old system

Airline Purchasing Department (APD)

Since 1996

50 staff served five major user departments:

Marketing

Fuel services
Information Technology
Ground Services
In-flight Services

Responsibility

All non-technical purchases

Sourcing of goods
Negotiating supply agreements
In some cases placing of orders

II. Old System

Order placement prior to CXeBuy
User
paper requisition via fax or e-mail
department

Printed
through the
IBM
mainframe at
Quarry Bay
(20km away
from
Cathays
head office)

APD

generate
Identify

Purchase
order

EMPACS

Enter information

supplier

III. CXeBuy

A new era starts in October 2000

Philip Chen (Cathays Director and Chief Operating Officer) announces intention to invest US$256
million over 3 years in Internet-related technologies

vision to be Asias leading e-business airline

Over

30 projects identified and grouped in 5 areas:

Passenger
Cargo

Procurement
CX team (helping staff to increase productivity and acquire new skills)
Future Opportunities

Some Projects: new flagship Website, new Cargo Website, an online travel exchange, Aviation e-marketplace called

Aeroxchange (jointly with 12 other international carriers)

III. CXeBuy
CXeBuy- a new procurement system
What? Electronic procurement system: enables the users to access electronic catalogues and transmit orders through
internet to more then 400 suppliers.

Main goal:

applying Internet-based tools to build the most efficient purchasing process and capability in the industry

Strategy: web-enable the procurement of goods and services for five of the airline spend categories
(in-flight service, cargo, information technology, marketing and office supplies)

How? First Oracle Internet Procurement solution (OIP) ever implemented by Oracle for an airline

Benefits?- Streamline and enhance procurement process

-Provide better information
- Provide access to new suppliers
- Help Cathay to better control its expenditures

- Reduce cost of purchasing

- Strengthen Cathays position and leverage its purchasing power

Why Oracle? Other e-marketplaces Cathay wanted to connect with were using Oracle platform

Predicted savings in operating expenses approx. US $ 38 million per year (inventory reduction US$10 million)

Taking non-technical procurement out of EMPACS

III. CXeBuy
Expected benefits
For APD

Improved supplier and spend information

A more efficient supplier sourcing process that generates value-added
Reduced Request for proposals and Request for Information costs
Increased market visibility

For user departments

Easier to use
More product information in a more accessible format
Customized product and supplier information to meet individual and departmental requirements
Faster order fulfillment

For suppliers

Easier and direct access to Cathay buyers

Lower cost of sales
Access to new markets
A more efficient order-handling process

III. CXeBuy
Weakness:
New system lacks inventory management function which EMPACS used to have

CXeBuy integrated with EMPACS in 2001

+ connected with APPO, FMIS and Cathays MIS

Ultimate objective:

future connectivity with suppliers

through common technology

platform

Get the suppliers who were supporting CXeBuy to eventually move on to the e-marketplaces

shifting the burden of maintaining an electronic catalogue from Cathay to the e-marketplaces

III. CXeBuy
Implementation
3 phases over 14 months

1st phase:
identified

scope of pilot project defined, key

stakeholders

2nd phase:

configured and parameterized

solution for access by
over 100 Hong Kong
based users and a larger supplier base

3rd phase:

ramping up the number of suppliers,

with other Cathay systems

full integration

III. CXeBuy
Issues through the processes of customization and parameterization

Streamlining the number of suppliers

Eliminating suppliers who have less value -> only 400 suppliers were carried over CXeBuy

Cataloguing

400 electronic catalogues were created

4000 items available

Removed ambiguities over part standards

-> Product specifications, drawings etc.

Incorporating the spend authorization protocol

Clarification to
Who would have access to the system
What info and which catalogue they would have access to
Spend limit authorization structure

Business Process Reengineering (BPR) of procurement practices

Collating purchasing intelligence data to assess actual spend by department or user
BPR team designed new business processes to-be ordering processes
Training programmes

Systems integration

Need for full integration with EMPACS and FMIS so that the purchase process could be linked with the goods-receiving and goods-payment process

Stock requisition info was interfaced between CxeBuy and EMPACS daily.

III. CXeBuy
Impact
APD:

More free time for strategic issues

increase

in negotiation power (purchasing intelligence)

Decentralization of ordering processes

Direct delivery to departments

Invoice matching handled online through CXeBuy

in 2001: 4600 orders through CXeBuy parallel with EMPACS until 2002

March 2002: 1,330 orders made solely by CXeBuy

At the end of 3rd phase: total procurement via CXeBuy US $50 million

III. CXeBuy
CXeBuy is not cost effective for complicated and

intangible items

Before: expected that 67% of procurements are affected

Later: scaled back

Efficiencies of CXeBuy

Automation of requisition

Reduction of order cycle

Major improvements:
High number of transaction of goods with relatively small value

III. CXeBuy
Roll-out started in Hong Kong
March 2002: global roll-out commenced with

Australia (6 airports)
Total 48 airports around the world

Begin with multi-port countries

After Australia: Japan (5 airports)

III. CXeBuy
Future plans
Plan to broaden it to include participation in

vertical and horizontal e-markets

Creation of new position: manager of e-

purchasing, content administration, catalogue

aggregation team

IV. e-procurement
valuation

Evaluation of benefits

Easy

Hard
Impossible

IV. e-Procurement
valuation
First Method

Six keys business benefits:

1. Reduced procurement administration cost
2. Improved information intelligence
3. Improved compliance with corporate spend policies and supplier contracts
4. Shortened req-to-cheque cycles
5. Strengthened negotiating muscle with suppliers
6.Freeing up of purchasing staff to engage in strategic tasks

IV. e-Procurement
valuation
Methodology 4 steps:

Identify the relevant benefit measures, according to the 6 keys

Agree on the capture mechanisms and target with APD managers

and CxeBuy user departments

Carry out data capture

Analyse the results

IV. e-Procurement
valuation
Advantages
Critics
Use the results to assess

the need for

redeployment of
resources

Administrative burden

(time, money, lack of

personnel)

No aggregation possible for

Instill a sense of

accountability in the
department heads

the results because each

department selects the
methodology voluntarily

IV. e-procurement
valuation
2nd method: Balanced Scorecard
Assesses:
Financial gains: cost reductions (staffing, inventory...)
User satisfaction
Procurement process with alignment overall business

objectives
Future potential for improvements, value creation and

adaptability to change

IV. e-Procurement
valuation
Advantages
Critics
Financial gains: cost reductions
User satisfaction: reduced time engaged

in routine and often mundane

tasks,better time management

Level of analysis should

be at the process level

where the benefits are
apparent

Procurement process alignment with

overall business objectives

Future potential for improvements, value

creation and adaptability to change

CXeBuy should not be

assessed as a standalone system

The End

Thank you for your

attention!
Questions?