Cathay Pacific soars above e-market turbulence

Faltering starts, cost over-runs, negative reactions from suppliers and general uncertainty over business models are grounding many e-marketplace hopefuls. But at Hong Kong airline Cathay Pacific Airways Ltd., the story is much brighter.

The airline appears to be off to a flying start with its private e-procurement exchange, CXeBuy. Cathay's initial concerns about attracting suppliers are proving groundless, according to general manager for airline procurement Greg Hughes. Nearly 100 have climbed aboard the new system and newcomers are joining at the rate of two a week, he says.

CXeBuy is one of five key e-business projects to which Cathay has committed A$500 million (US$245 million)over the next three years. Others are passenger systems, cargo, internal human resources and e-business investment joint ventures.

In contrast to expensive delays and extended debates over business plans which characterize many open exchanges, CXeBuy enjoyed a no-fuss, no-muss gestation period, Hughes says. Cathay implemented a live pilot of the e-procurement platform in 60 days and is currently rolling out a production version company-wide, starting from its Hong Kong headquarters.

The internal system is the pivot around which the airline is building its connections to a web of horizontal and vertical e-exchanges. Although the system was developed using Oracle's Internet Procurement suite, that does not lock Cathay into Oracle-based exchanges. "We made it a condition that our technology partners committed themselves to providing on-ramps to different systems," says Hughes.

Even so, the first exchange to connect with Cathay's new e-procurement platform will be an Oracle-based vertical exchange, Aeroxchange. Testing is already underway with Aeroxchange, which claims to be the airline industry's largest B2B e-commerce exchange and numbers 10 major airlines in North America, Europe and Asia as founding partners.

The procurement platform should be fully integrated with Aeroxchange next month, Hughes says. "'Integrated' for us means that goods can be procured through our catalogue -- receipt into our inventory will trigger a payment through our financial system with the whole process being done online."

Besides global vertical exchanges like Aeroxchange, Cathay Pacific is participating with local horizontal e-markets such as Pacific Century CyberWorks Ltd.' MartPower. By 2004 it expects to conduct 35 to 50 percent of its purchasing through such internet channels.

To avoid a free-for-all with employees trawling dozens of exchanges for goods and services, all communications with vertical and horizontal exchanges will be done through CXeBuy. "We don't want nine or 10 different points of contact with employees looking at 50,000 different catalogue items," says Hughes.

"Our purchasing people will do that work and arrange punch-outs of only the goods and services we want to buy. They will look at upstream catalogues, negotiate terms and conditions and draw the appropriate items off other exchanges back into our platform."

Longer term, Cathay intends to use its exchange partners to host its catalogues. "We would prefer not to host every supplier on our platform. A proof of concept was needed but in future we will be moving them more and more onto the exchanges."

Cathay has been surprised at the depth of supplier support. "We did think supplier adoption was going to be an issue but we haven't found that to be the case." Areas like electronic matching of purchase orders with receipts means "the whole relationship is conducted faster and more efficiently".

Hughes believes horizontal exchanges will be able to charge transaction fees although "only if they demonstrate a value that is greater than what they charge".

Items being provided so far cover a broad range of categories from customer products such as crockery and food through to paper clips.

CXeBuy arrived on time and under-budget because the airline treated the project more in terms of business process re-engineering than as a question of technology, Hughes says. "We didn't define it as a technology process but as something where we were structurally re-engineering the procurement process. Shifting manual processes to a new environment, which means change management ... that is the biggest issue for any e-business project."

In Cathay's case, the right result was delivered by allotting 50 percent of resources to business process re-engineering, 25 per cent to technology and 25 per cent to project management.

Outside the procurement area, Cathay Pacific has established online supply chain links with business such as the servicing of auxiliary power units for its jet fleet. All servicing and maintenance documentation for the units is available online, giving Cathay real-time information on when the units will be back in service.

Story courtesy The Industry Standard.

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