FRAMINGHAM (03/31/2000) - The nation's leading aerospace companies have joined forces with software suppliers Commerce One Inc. and Microsoft Corp. to create what is expected to be the largest and most complex business-to-business e-commerce Web site ever built.
A new venture owned by the participating companies will develop and operate the Web site. The goal is to streamline the way aerospace companies buy parts and services as well as to automate how they sell and support airplanes, weaponry and spacecraft.
"In the future, for all aerospace companies, the entire business will be run on the Web," says Howard Aylesworth, who tracks e-commerce initiatives for the Aerospace Industries Association in Washington, D.C. "We're looking to better integrate ourselves with our customers and suppliers and to have a seamless way of doing business."
The companies involved in the venture - Boeing Co., Lockheed Martin Corp., Raytheon and BEA Systems - do business with national governments, hundreds of airlines and more than 37,000 suppliers that will be invited to join the Web marketplace. Together these companies spend $71 billion per year on goods and services.
Announced this week, the aerospace e-commerce venture is modeled after similar efforts in the automotive, energy and telecommunications industries. In all of these deals, rival companies team up to create electronic marketplaces where they can pool their purchasing power to get discounts from their suppliers and earn transaction fees on sales.
In another example, 15 of the nation's largest electric and gas companies last week formed a consortium to build an Internet business exchange with suppliers.
The consortium expects to announce an independent company in June, followed by the creation of the business-to-business marketplace.
"These consortia are putting competition aside to recognize the cost savings they can get by automating their supply chains," says Kit Robinson, senior director of corporate communications with Commerce One. "Beyond the cost savings, they can generate revenue from transaction fees and subscriptions. And they're going to float new companies around these efforts so they can benefit from the market capitalization of Internet ventures.
"The old economy leaders are seeing these deals as a way to participate in the new economy," Robinson says.
What's special about the aerospace initiative is the complexity of the manufacturing process and the amount of ongoing technical support. A typical commercial airplane, for instance, contains as many as six million parts and is supported by millions of pages of technical documentation.
"The real cost savings will come from having a more realistic way for airlines to establish how many spares or parts they need to keep in stock and to let them place orders in a just-in-time fashion," Aylesworth says. "What the industry hopes to do is use the power of the Internet to make the operations process as lean as possible."
The aerospace Web site will run on Commerce One's MarketSite Portal Solution software and will join 30 other exchanges on MarketSite.net. MarketSite is a standards-based trading platform that integrates electronic catalogs and supports the exchange of purchase orders. The system plugs into business services such as taxation, payment and shipping. Commerce One's software runs on Microsoft's Windows 2000 and SQL Server.
The aerospace companies will move their existing e-commerce efforts to the Commerce One site when it launches this summer, but they do not expect to reduce the size of their information technology departments as a result.
Boeing, for example, will migrate its successful PART Page, which earns $1 million per day by selling spare parts to airlines.
The four participating companies each own a stake in the exchange, which will be adjusted depending on their use of the site during the first three years.
Twenty percent of the venture is open to other industry participants and employees. Commerce One has taken a 5 percent equity position.
"Increasingly, you're going to see industry-hosted marketplaces, where all the major companies and their suppliers participate in the marketplace and also own shares in the marketplace," says James Kobielus, an analyst with The Burton Group. "This is very much the way to go."