Nothin' But An E-Thang

It has happened faster than Harry Potter. B2B-business-to-business-and e-commerce have gone from total obscurity to household word status so rapidly that anyone not directly involved is asking why everyone else is making such a fuss about it.

E-commerce is what happens when a commercial transaction takes place over the Internet. Order a book from Amazon.com, and every exchange of information occurs over the Internet. Amazon is an example of very pure E-commerce because there is no non-Net communication necessary: payment is made over the Net, using a credit card.
E-commerce divides into two basic categories with distinct differences. Amazon, along with airline websites, is a business-to-consumer site, or B2C in dot.com industry jargon. Business-to-business, or B2B, sites and portals connect business suppliers to their customers.

There are two aspects of B2B that cause sober aerospace executives to get excited and wave their arms around. The first of these is that the Internet is a very good medium to do what the aerospace and air transport industries do today: that is, buy a vast variety of goods and services, from 100,000 lbs thrust engines to cases of Chardonnay, from an enormous range of suppliers spread around the world, resident in all 24 time zones and speaking different languages. The fax machine was a breakthrough in this respect; the Internet does the same thing rather better.

But the second aspect of B2B is more powerful. The Internet allows buyers and sellers to relate in different ways. John Rosenfeld, E-commerce general manager of General Electric Aircraft Engines, cites a U.S. service, AutoBytel, as an example in the B2C realm. Using AutoBytel, a customer can research a new vehicle, buy it at the best price, finance or lease it and insure it, in a single operation-a task that would previously take days.

"Find the biggest inefficiency," he says, "and that's where the dot.coms sprout." B2B, by automating a process of gathering information-for example, qualified suppliers and their prices-that was once laborious and repetitive, has the potential of creating the kind of near-perfect market that was once confined to single narrowly defined locations.
In short, B2B can improve the efficiency of the market. Nobody knows quite how inefficient the aviation and aerospace supply chain is today, between the cost of paperwork and administration and the fact that nobody has time to strike the perfect deal. Nobody knows how much of this inefficiency can be reduced by B2B. But the volume of the market is so massive that even a few percent is enough to launch a major industry: the key players in just two B2B operations launched this year spend more than $100 billion annually on goods and services.

Coincidentally, B2B has appeared on the scene just as aerospace needs it more than ever. Those of us who have not been living in a sealed bunker under Area 51 for the past ten years know that aerospace industry customers have been feeling their oats and have started to buy engines, avionics, other equipment and even aircraft as commodities. The fact is that you can name almost any aerospace product and there are several qualified and competent suppliers for it. These products are also more reliable and durable, which is good for the customer and bad for the profitability of the industry's parts business.

Faced with lower margins and an eroding ability to command high prices from quasi-captive customers, aerospace companies have turned to services as an engine for growth and profits. This has dovetailed with the trend among operators: airlines want to sell seats, not fix engines. GE Aircraft Engines now makes almost half its revenue from services. Even the Eurofighter Typhoon's customers have decided to transfer almost all off-base maintenance to the fighter's builders.

B2B is at its best in a service-related business because it combines the ability to automate repetitive processes with the ability to respond rapidly to urgent needs.

Among the world's largest companies, both within and outside aerospace, General Electric has thrown itself most wholeheartedly into the B2B revolution. GE's chairman Jack Welch has said that the Internet is the company's "number one, two, three and four" priority. Any new service that the company provides will be web-enabled by definition.
In January, GE Aircraft Engines rolled out its first "customer web center." By early June, 150 customers had access to these sites and the company expects to reach a total of 300-400 customers in this way. The customer web center takes the way that large companies usually relate to their customers and turns it inside out. There are no separate sites for GEAE support, sales, contracts and so on. Instead, each customer has its own customized site which provides access to all the points where it does business with GE. Within the customer company, access to the website is also customized so that individual users can reach all the information that they need.

The GE service includes online technical documentation. At start-up, GE had six engine types online, with 100,000 pages of manuals, service bulletins, spares catalogs and the like for each engine. In the case of spares catalogs, the customer can search for a part by number or order a standard package of parts required for a specific operation.
Customers have direct access to GE's services. If a customer's engine is in GE's shop, the customer can check on its progress at any time. If the GE service center technicians break down a customer's engine and find damaged components, the technicians photograph the parts with a digital camera. The customer can zoom into the digital image and see any visible signs of damage-the next best thing to being there. A customer who needs help from GE's on-wing service team taps into the database that runs the on-wing centers.

"You know how much capacity there is in China, in terms of people, tools and parts," says Rosenfeld. "You can confirm the price and schedule for an on-wing service instantly."

If a customer is enrolled in GE's maintenance cost per hour (MCPH) service, GE offers online invoicing. The customer simply enters the flight hours and cycles monthly and the system generates an invoice. "Previously, it was a 30-day cycle time; now, it's 30 seconds," says Rosenfeld.

Within the site, GE integrates "productivity wizards." These are optional applications that will (for example) allow a customer to see how a specific modification will affect an engine's shop visit rate and its time on wing, and to calculate the payback in terms of the operator's own utilization pattern.

For the customer, a corporate B2B site such as GE's reduces paperwork and time spent in communicating with the supplier. In a case of urgent need, such as an aircraft-on-ground situation, B2B provides the fast answers that the operator needs to plan its own response.

Boeing now wants to be seen as not just an aircraft manufacturer, but as a "total customer solutions" provider. "Today, and increasingly in the years ahead, industry leadership means more than just supplying airplanes," comments Seddik Belyamani, executive vice president, Boeing Commercial Airplanes.

Boeing launched a new website, called myboeingfleet.com, earlier this year as a single source of online maintenance, engineering and flight operations data for employees. The password-protected site consolidates the company's current online offerings-Boeing Digital, Web BOLD and Flight Technical Services Online-and serves as a platform for new and expanded airline support services.

In the Boeing site, an airline maintenance engineer can ask to be notified when new service bulletins are published for specific airplane models or certain sections of an airplane, and the site will automatically generate those notices on the user's page.

Airbus has not established on-line services on the same scale as Boeing-which is not surprising, in view of the fact that Airbus' worldwide operational fleet is still far smaller than Boeing's. However, it has launched Airbus On-Line Services (AOLS), the Airbus portal to a comprehensive selection of customer support tools. AOLS provides access to engineering drawings, online service bulletins, help with buyer-furnished equipment and operating manuals.

Boeing is also a key player in developing what it claims to be the largest online aerospace and defense global trading exchange, in a joint effort with BAE Systems, Lockheed Martin, Raytheon and Commerce One-one of an emerging group of companies dedicated to providing e-commerce tools. The four founding companies buy a total of $71 billion in goods and services every year.

Boeing and its teammates are not alone. GE's venture and myboeingfleet.com are examples of one type of B2B site, developed by and for a specific company to help its customers. The venture combining Boeing, BAE Systems, Lockheed Martin and Raytheon, however, is intended as a forum where other buyers and sellers can exchange information and make deals. Honeywell and United Technologies have joined forces on MyAircraft.com.

In an electronic marketplace of this kind, a customer posts a requirement for products or services, be it an engine overhaul or a part for a new product. An interested supplier can access, online, all the information that is needed to make a definitive offer: schedules, locations, specifications (including digital definition data for a part) and quantities. The customer can then review the bids and select a supplier online. Suppliers can link their online catalogs to the site, allowing customers to search for a specific product from dozens of suppliers worldwide.

These marketplaces are potentially very efficient. The market is open and "rogue" pricing is harder to get away with. Small suppliers can reach customers on the other side of the world, or in business areas where they do not usually operate. Customers can solicit a large number of realistic bids in a short time.

Airlines, which buy an immense variety of goods and services in hundreds of different locations, have also joined the B2B game. In April, six major airlines-British Airways, American Airlines, Air France, Continental Airlines, Delta Air Lines and United Airlines-announced plans to create and operate an Internet marketplace linking carriers worldwide with qualified sellers of airline-related goods and services. The U.S.-headquartered venture will handle business worth approximately $32 billion per year. Goods bought and sold through the portal may include items such as fuel and fuel services, aircraft components, avionics and engine components and maintenance services.

Not everyone, however, agrees that all E-commerce sites are good for everybody. If a site is owned by airlines or aircraft companies, will their suppliers find it helps them? If there are cost savings and efficiencies, will they be shared or harvested by the site owners? What is to stop customers from using E-commerce bids to beat down supplier prices?

Concerns like these are behind the formation of independent sites. In the interests of full disclosure, it should be noted that the Aviation Week group, of which Show News is a part, is a team member in one of them: the group is providing news content to Skyfish.com, an aerospace industry portal which combines a trading hub with an industry information source. Skyfish is due to launch this summer.

Two other sites were announced at Asian Aerospace 2000 in February. SITA and AAR Corp unveiled aeroSPAN.com. SITA is a leading provider of airline telecommunications and IT solutions, and AAR is a major supplier of spares and services. At the same time, a group of aerospace and airline executives announced aviationX.com.

The two start-ups exchanged some harsh words at Singapore. aeroSPAN leaders stressed the founding companies' 100 years of combined industry experience and described their rival as "a group that has no knowledge of how this industry works", while aviationX leaders noted that "distributor and supplier-centric offerings are distrusted" and promised to provide "a truly independent, stand-alone storage site for people's precious proprietary data."

Just this month however, was forced to change its business strategy announcing that it would become a vendor of e-business tools, citing the difficulty of establishing critical mass in the face of competition from industry-owned sites.

The AviationX development seemed to fulfill predictions made in June by Ludo Van Vooren, senior VP of business development at PartsBase.com, one of the longer-standing independent B2B sites, founded in 1996. Van Vooren suggested at a conference in Bellevue, Washington, that sites formed by aerospace and airline consortia are doomed to failure. The problem, he said, is that no company will join a site owned by a direct rival, because to do so would boost a competitor's business. Consequently, such sites will not draw the critical mass of buyers and sellers that they need.
Von Vooren said that for E-commerce to succeed, industry will have to develop modern and global standards for data transfer and identification, and ensure that sites share the savings between buyers and sellers.

Despite the enthusiasm for B2B, therefore, there are still some serious questions about how the new technology will develop. Will one-company sites be superseded by consortium sites, or become subordinate to them? Will suppliers benefit from supplier-consortium sites? There is clearly some concern that massive B2B sites could bring customers together to create a virtual monopsony-the inverse of a monopoly, a market in which there are many suppliers but only a single customer.

Issues of data control and security loom larger as B2B heads into its next stage: business-to-business integration (B2BI). Rosenfeld of GE calls this "the biggest challenge" in B2B. B2BI connects the world of B2B to the internal systems of the supplier and the customer. It can automate the payment of accounts, and allow the supplier to integrate operations very closely with the customer. For example, the customer can see exactly when a part will be delivered and the supplier knows exactly when it will be needed. This may be very helpful in day-to-day operations, but it also leaves neither side with many secrets that have not been shared over an Internet connection.
Only two things are certain: Harry Potter and the Goblet of Fire will be a best-seller, and the E-commerce picture will have changed before Paris 2001.

By Bill Sweetman