Supply Chains: In the Nick of Time

Cutting-edge supply-chain management is emerging as the cornerstone of successful E-business. But managers at companies as diverse as Cathay Pacific, Chung Nam Watch, and Nike are finding that not only is the pace of change fast--it can get furious, too.

Dot-coms may be history and tech stocks in retreat, but CFOs are ever keen to find ways to boost productivity through investments in information technology. If anything, the downturn just makes the pressure to make the best strategic investments greater than ever. Certainly, the pace of innovation has not slowed. Finance managers need look no further than supply-chain management (SCM) for proof that the IT sector — and in particular the much-maligned Internet — is still very much alive and kicking.

Indeed, some industry watchers believe that while business-to-consumer (B2C) E-commerce has its merits, emerging supply-chain software tools for business-to-business (B2B) collaboration and online procurement will prove to be the Net’s real killer app. A recent survey of senior executives by US-based AMR Research found that 84 percent of companies plan to sustain or increase their budgets for supplier management systems in 2001, despite the unfolding economic slowdown.

Managers at Hong Kong carrier Cathay Pacific Airways certainly seem to be sold on the idea. Buoyed by record annual profits in 2000 and an award for world’s best airline Web site from UK-based business travel information company OAG, Cathay has embarked on an ambitious three-year, US$250 million assault on its supply chain, aiming to wring millions in costs out of the system by moving up the IT ladder. As a first step, the US$4.5 billion airline is taking procurement of thousands of items, from stationery to mechanical parts, online.

Cathay has also signed on as a member of several E-procurement marketplaces. One of these, Aeroxchange, was set up last year by a consortium of 12 major airlines. Companies in the aviation industry can use the Web site to build and search interactive catalogs, conduct online auctions, make requests for quotations, and complete transactions.

The idea is that Aeroxchange will provide a collaborative environment that lets all the players forecast future requirements and respond effectively by adjusting their manufacturing and inventory management processes to match real demand. Cathay has also signed on to Hong Kong-based PCCW’s MartPower, a more generic marketplace where companies from different sectors can source from each other online.

To integrate the whole program, the airline recently spent two months installing Internet procurement software from California-based Oracle, chosen because it would integrate Cathay’s accounts and receivables systems with these E-markets. The result should give Cathay a real competitive advantage.

“We are one of the first airlines in the world that connects to marketplaces from our own purchasing platform,” boasts Greg Hughes, Cathay Pacific’s general manager of airline purchasing.

The system, dubbed “CXeBuy”, is currently being used by a select group of Cathay staffers and suppliers in Hong Kong who can communicate directly over the Internet. Following the completion of the pilot phase, Cathay will roll out CXeBuy to operations across the region and then globally. The Oracle-based system standardizes and simplifies Cathay Pacific’s procurement processes, according to Hughes, and puts the airline in a better position to leverage its corporatewide buying power. He says suppliers will also benefit from a more efficient, integrated, payment process. Better yet, a purchasing intelligence tool will provide Cathay with improved information on expenditure and give the company an eagle-eye view of how its suppliers are performing.

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