Aerospace Industry Bullish on E-Business.

• Author: Erwin, Sandra I.
• Position: Brief Article

Can online marketplaces deliver high efficiency and lower costs?

The aerospace industry's frantic race toward higher productivity and profits has triggered another feverish contest in the world of Internet-based trading exchanges.

The proliferation in recent months of business-to-business (B2B) exchanges the aerospace industry is symptomatic, on the one hand, of the growing interest in Web-base market-places that link buyers and sellers directly, without the traditional middlemen. On becoming tools to achieve specific corporate are as the other hand, B2B exchanges increasingly are becoming tools to achieve specific corporate goals--such as increasing sales, improving customer service and cutting back on excess inventory.

Many executives in the industry believe that the aeropace B2B environment is too complex for a one-size-fits-all solution. Some companies, for example, carry enough clout in the industry that they may not pressure to join exchanges. Some industrialists simply don't believe that a corporation's presence on Web exchanges necessarily translates into higher sales.

Aerospace industry giants, meanwhile, have been rushing to launch independently owned exchanges--which allow them to join forces with their competitors and combine their buying power--without having to merge outright with each other.

There is broad consensus, additionally, that the conference that aerospace executives are placing on B2B exchanges is tied to the prospects of higher efficiency and lower costs of executing transactions.

"E-commerce eliminates non-value-added activity," said Phil Condit, chairman and chief executive officer of the Boeing Company. Electronic transactions, Condit told reporters, translate into a 25 percent surge in productivity.

Boeing is one of the four founding partners of Exostar, a B2B exchange for the aerospace and defense industries. The other three are Lockheed Martin Corporation, The Raytheon Company and BAE Systems. The chief executives from all four firms briefed reporters at a news conference in Farnborough, England.

Exostar said Condit, "will provide both external and internal gains in efficiency for both buyers and sellers."

The exchange, whose creation was announced in March, was expected to open for business in late September. Headquartered in the Washington, D.C. area, it is an independent corporation. The four current participants are the industry's most powerful firms. They collectively have more than 37,000 suppliers and $71 billion in commercial and government sales. The annual sales volume for the entire aerospace and defense industry is about $400 billion. "We have critical mass," said John Weston, CEO of BAE Systems.

Exostar's interim CEO is Kent Swanson, who is a partner at Andersen Consulting.

"We invite companies of all sizes from around the world to participate," said Vance Coffman, chairman and CEO of Lockheed Martin. "We have 100 people setting up and staffing Exostar in the Washington, D.C. area. ... We are bringing supply-chain management into the digital age and doing so on a global basis."

The supply chain is an industry buzzword that represents the various buyers and sellers involved in the aerospace market. It includes:

* The original equipment manufacturers: These are specialized companies that design and manufacture engines, avionics, landing gear and other aircraft systems.

* Aircraft manufacturers: These constitute a small group of players, such as Boeing and Airbus.

* Parts and component suppliers: These are thousands of vendors worldwide.

* Aircraft operators: Commercial, cargo and charter airlines.

* Maintenance, repair and overhaul centers: Facilities either owned by airlines or other organizations.

* Distributors: They provide services such as inventory management or order processing.

Online Marketplace

During the past several years, B2B Web-based operations have evolved from simple sources of supplier information to online marketplaces, with many buyers and many sellers, all focused on the industry's offerings. Exchanges, in theory, were designed to match those buyers and sellers more efficiently and to lower their overhead costs via paperless commerce. They also claim to offer small companies opportunities to be on an equal footing with larger ones.

"We are doing this because it will snap the...