BOEING AUSTRALIA LTD.

CASE REPORT BY IMRAN CHAUDHRY

Executive Summary: Boeing Australia Limited (BAL) was formed in late 1996, relatively new company and a global extension of the U.S. firm. The Boeing Co. developed capabilities in the areas of space and communications, site management, and the upgrade and maintenance of military aircraft and equipment. As BAL grew, so did the legacy information system it used for both internal communications and external dealings with customers. BAL, however, faced difficult decisions as it sought to upgrade its procurement systems and processes to improve operations. In early 1999, BAL recruited a new national procurement manager, Russell Menere. His immediate task was to look for gains in productivity by improving procurement processes, either through cost savings or by reduced processing time. To meet this objective, he initiated a number of short-term improvements. These included the rationalization of a large number of BAL's suppliers, improving BAL's relationships with its key suppliers; the introduction of a credit-card purchasing system for low-value, largevolume consumables and the adoption of electronic ordering processes with BAL's larger suppliers. In 2002, with new opportunities available through e-business technology, Russell needs to decide what BAL's next step should be. Should BAL invest in a new system that would simplify the procurement process across different divisions and support complex interfaces with suppliers? Should BAL continue to sit on the fence and seek short-term improvement? Could BAL afford to wait? The main issue would be how to implement and obtain cost effective e-procurement system that is integrated with current legacy systems. I would recommend that now this not the time to sit on the fence and wait, as this would run the risk of strategic disadvantages. The BAL should adopt and implement cost effective e-procurement system that can be interfaced with legacy information system, as the IT infrastructure of BAL is their core strength. This will help to improve business process and operations, cost saving by reducing processing time, rationalization of a large number of BAL suppliers and maintaining relationship with key suppliers.

Statement of Issue: Low productivity and high processing time in procurement processes is main issue in the BAL business process The strategic relationship with large number and key suppliers is not maintained There are financial and budgetary constraints to invest in a new expensive procurement system ADF is BALs main client and being military organization ADF has its own legacy system that requires BAL to communicate via in-house data exchange ADF has requested a continuous improvement path in all areas of contract and the current legacy system at BAL is not supportive enough to provide real time availability of web based data on project status An upgrade to the procurement system would affect the staff in the procurement department directly and will require training of staff and there is always resistance to a change In order to continue to increase customers values BAL has to remain strategically competitive Analysis: Main operations of Boeing Australia Limited are site management, military aircraft, and space and communications. BAL has relatively few but large customers. Australian Defence Force is the major customer of BAL. The Australian Defence Force includes Royal Australian Navy, Air Force and the Army. All these military organisations have unique legacy systems. They require BAL to continually update its military readiness systems. Australia is part of Commonwealth countries and Commonwealth rules and regulations expect suppliers to be certified. Therefore BAL needs to closely monitor any procurement activities that support the provision of services to ADF.

With relatively few but large customers BAL is very customer focused but the current procurement processes appears to be laborious, manual and repetitive. There is room and opportunity to streamline and make the procurement process more effective and automated for the long run successful operation. After analysing the BALs current procurement situation I have come to the following analysis. Credit Card Purchase: The credit card purchasing strategy has been successful in reducing procurement process and order to delivery cycle times but it is currently limited to indirect spend only. The spending at BAL has categorised into direct spend and indirect spend. BALs indirect spend adds up to 80% of total procurement transactions, but only 20% of the dollar value spent. Credit card purchase strategy is a good start to streamline procurement processes but it does not focus on the ways to streamline supplier bidding, negotiating and evaluation. Current negotiation for indirect spend items presently use too many resources and is time consuming. Most of indirect spend items do not have to meet rigid specifications and also available from a number of suppliers. Secondly direct spend accounts for 20% of procurement transactions and 80% of the total spend. Therefore, direct spend are subject to mandated tractability, rigid specifications and are considered a critical and strategic buy. These items are also subject to certification of supplier. Managing Supplier Relationships: The objective of rationalizing the number of suppliers from 1,300 in 1999 to 800 in 2002 and ultimately 600 in coming years has enabled BAL to start the implementation of more in depth supplier management practices. The ADF mandated requirement of tractability of fly-away parts has initiated the process of certifying all suppliers. Information Systems: The current legacy systems of BAL though functional but does not have the capabilities of meeting the ADF requirements for real time, web based status reporting on contracted projects. Material Management Process Council: The formation of MMPC at BAL is a strategic step to examine supply chain and procurement processes. The members of MMPC from different departments would 4

provide cross-functional support to measure the baseline to establish the practices to streamline and simplify the procurement processes. Reverse Auction: It is mentioned that Boeing US uses reverse auctions to procure items. The question here is will reverse auctions work for BAL due to the requirements for certified suppliers and their geographic location. Lead times could be affected and undermine existing relationships with strategic suppliers. Alternatives/Options: One option is to react now, as it is not time to sit on the fence and wait. The BAL should adopt and implement cost effective e-procurement system that can be interfaced with legacy information system An alternative is to continue on the same course that Boeing Australia Limited (BAL) is on. BAL has been on the correct path with regard to building their systems architecture. There is a need for a more sophisticated procurement process and the issue of a procurement application may be found within their current processes. They have processes in place to rationalize whether a new by-in application or an in-house developed program would be best. Within their current systems there might be an appropriate off the shelf application that would work for BALs procurement needs. Another alternative would be bulk buying in tandem with US Boeing. This appears to be a cumbersome process. BAL could get over the licensing hurdle by applying for it and maintaining their export licence. With a sleeker process system the resources may be freed up to enable one staff to take on this roll for BAL. A process could be implemented to handle this. The use of a customs broker would also incur charges but they may mitigate the cost of having someone at BAL responsible for the process.

Recommendations: I would recommend that now this not the time to sit on the fence and wait, as this would run the risk of strategic disadvantages. The BAL should adopt and implement cost effective e-procurement system that can be interfaced with legacy information

system, as the IT infrastructure of BAL is their core strength. This will help to improve business process and operations, cost saving by reducing processing time, rationalization of a large number of BAL suppliers and maintaining relationship with key suppliers. The bottom line is that BAL has to do something now. The perfect program may not exist but my recommendation would be to purchase the procurement module and continue the work of the Materials Management Process Council to explore better ways to streamline the procurement process for BAL. Recommendations implementation plan The responsibility to evaluate the new sophisticated procurement system and its strategic impact, implementation and training will be assigned to MMPC, Material Management Control Council. The job of management will be to proceed with caution to ensure that the knowledge base and people who have the historical knowledge of the department are not alienated or lost with the implementation of new sophisticated procurement system. They are an important assest and their experience will be critical to deciding which system or processes are valuable.

Monitor and Control: Monitor and control Conclusion and management plan

Conclusion: In conclusion, the difficulties BAL is currently experiencing with regard to procurement processes should be seen as a great opportunity to initiate a strategic approach to upgrade its procurement system. This would enable BAL to successfully meet the business requirements of its key and major customers. If a new sophisticated system is implemented successfully and in a timely manner, this will help BAL to improve its business process and operations, cost saving by reducing processing time, rationalization of a large number of BAL suppliers and maintaining strategic relationship with key suppliers.