Case Study – Boeing Australia Limited

Boeing Australia Ltd. (BAL) is a relatively new privately owned company and a global extension of the U.S. firm, the Boeing Co. BAL has continued to develop capabilities in the areas of space and communications, site management, and upgrade and maintenance of military aircraft and equipment. Historically BAL has had a myriad of systems encompassed in its diverse systems architecture which was predominantly site-centric in nature. The main issue is the processes. There are redundancies resulting in low productivity and high processing time in procurement processes.

Especially after the appointment of the National Procurement Manager in 1999, various short-term improvements that ensured continuous business improvement were put into place like rationalization and management of suppliers, introduction of credit card purchasing and the formation of the Materials Management Process Council (MMPC). Up to year 2002 BAL had chosen to follow the executive management directive to avoid upgrading its procurement system in the light of its relatively small size and budgetary constraints.

However, the long term strategy of the company now focused on instilling operational efficiencies which circulated around the decision of implementation of reverse auctions as practiced at the Seattle US office. The challenge was to determine whether an e-procurement tool was the correct path for the company to take considering gains in productivity either through cost savings or by reduced processing time.

Part 3: Systemic Issues
1.BAL has unique legacy systems across its four key divisions and 12 sites: Nature: Operational and StrategicTerm: Short and Long Term BAL has maintained autonomous operations across its four main divisions and its 12 sites across Australia. They found and executed their own work, reported the same measuring criteria in financial dollars, project performance and project quality terms as well as a range of other KPIs required for BAL’s balanced scorecard. These factors showcase vast amounts of inconsistencies and loss of total cost of ownership which can be brought down if the requirements were consolidated.

2.Complicated Information Systems Architecture resulting in exponential costs: Nature: Operational and StrategicTerm: Short and Long Term

As illustrated above, there were multiple systems that were performing similar functions. There was redundancy in the process as a whole. A considerable amount of time and duplication of efforts was leading to huge costs being incurred on a daily basis. BAL’s systems architecture was based on a “buy-in” strategy where the tools in action captured above were purchased off the shelf. If the applications did not interface with the other applications used, BAL invested in programming to enhance functionality and where possible automate processes.

On an average if the costs of the systems were to be calculated, BAL has invested approximately $160,000 in the purchase of the systems.

3.Leveraging off the buying power of the parent company increases cycle time and does not materialize expected leverage: Nature: Operational and StrategicTerm: Short and Long Term

The National Procurement Manager introduced the short-term improvements to the procurement process. However, the plan to leverage off the buying power of the parent company in the US has many pitfalls including a major challenge of overcoming the US government’s export procedures which starts by determining whether the item needs US Commerce Department’s approval or US State Department’s approval based on the nature of the export. BAL has to ensure the necessary procedures for obtaining export licenses in the absence of which delays can be so significant that they can nullify the competitive advantage gained by the leverage. So a new tool to leverage purchases needs to be adopted.

4.Selection of Suppliers is a challenge and limits equal opportunity: Nature: Operational and StrategicTerm: Short and Long Term

BAL suppliers generally needed government accreditation. Occasionally the Commonwealth of Australia would recommend that BAL use certain suppliers for certain purchases. Although the decision was left to BAL, the company supported the Commonwealth in want of better suppliers. Such a supplier selection process was not based on competitive bidding which gave equal opportunity to all the vendors to participate in a particular bid. Part 4: Environmental and Root Cause Analysis

In the view that BAL is considering to upgrade its procurement platform to include reverse auctions, it is important to understand what benefits an e-procurement system can bring to the organization. What are functional in the company at present and why are they insufficient?

BAL has a “system architecture issue” at present. The company has numerous systems that are based at each site location depending on the separate function of that particular site. This complex systems architecture is leading to inconsistent and non-integrative systems. This in turn prolongs the cycle time by the functions performed by systems like OPP scheduling system (for planning of labor hours) and Automatic Time-recording system (personnel work time on shop floor and office, labor time for each job), eMatrix (project initial contract, SoW, drawings, correspondence) and Western Data Systems (ERP) (to track contracts, materials resource planning (MRP), W-I-P, project costing, procurement, inventory, payables and Labor hour planning).

At least an amount of $160,000 has been expended to acquire the systems in place as follows:

Information Tools in action:
•ProPricer – $8000 at least
•OPP scheduling system – $129 at least per annum
•COBRA – $30,000 at least
•eMatrix -$30,000 at least
•Western Data Systems (ERP) – $100,000 at least
•Automatic Time-recording system – $30,000 at least

Such a vast expense on the systems purchased needs to generate enough profitability and efficiency of service for the extremely politically important customer Australian Defense Force.

The total cost of ownership also cannot be determined effectively as each site has its own way of functioning with its own system and procurement functioning. It was not until the National Procurement Manager introduced the “credit card purchasing system”, that the purchasing activity was tracked resulting from disconnect between the online ordering tools and the backend system.

The company used to leverage off the buying power of the US parent company, however longer cycle time due to delays and complications resulting from the US export policy can nullify the competitive advantage gained by the leverage. So the need to locate and adopt a new tool to leverage purchases arises. At the very least, means to implement a rigorous and efficiency driven system needs to be devised.

A budget of approximately $100 million has been allotted for procurement expenditure by BAL for year 2002. Out of the $100 million, approximately a $50,000 can be assigned to the procurement of an e-procurement system.