E-Biz at GE Aircraft Engines

Many are called, but few are chosen. That seems to be the story of aerospace e-commerce so far, with one or two notable exceptions. Leading the pack are Boeing and GE, with the engine manufacturer perhaps out in front.

In typical fashion, GE does nothing by halves, nor timidly.

"Our objective is to totally transform our business," GE Aircraft Engines president Jim McNerney told Show News. Converting the $12 billion company "from analog to digital" will not only transform the way it interacts with its customers, but will drive internal productivity savings he estimates at $300-500 million over the next several years.

This will help GEAE remain the lowest-cost producer as the market increasingly regards engines as a commodity and drives their prices lower.

While many talk about "Exchanges" and draw up grand plans for web-based trading vehicles, GEAE has gone ahead and done it, and is showing its system here at Farnborough.

Spending $25 million this year and investing a total of $40 million to get e-biz up and running has already paid off. "We have run 428 auctions to date this year (to buy supplies) and have already saved $69 million," e-Business Leader David Overbeeke told Show News. That means GEAE is paying 18% less than a year before, almost three times the "deflation" it achieved by smarter purchasing in 1999, but still not enough to match the price deflation on aero engines.

"If there's one thing we have to do, it is to drive deflation," he said. "If I don't save $150 million to 200 million a year, I'm in the hole."

E-biz at GEAE, he said, has to pay its way. "We drive it hard. If you pump in $5 million to set up e-biz, you'll spend five million and get nothing. The point is, you have to tackle the big issues right. That's why we don't have 50 people in our e-biz unit, we have 300."

Overbeeke took GEAE's system live on January 7. Today 80 customers are active, with another 70 wired up and ready to go. Among them: airlines, independent engine shops, GEAE partners on major or minor joint ventures (including MTU and IHI), repair services, and manufacturing. Web-based transactions are ahead of target at $200 million, and are expected to exceed the goal of $1 billion by year-end. At least two airlines have already ordered spare engines over the web, he said, and customers should total 300 by the end of December.

"We have a business model here: this is not a bunch of guys with earrings and ponytails slapping away at computer keyboards," said Overbeeke. "This is a very disciplined business approach to driving our business faster and leaving our competition further behind, because our goal is to be number one. No ifs, ands or buts about it."

An e-biz system, he insists, has to have a three-pronged approach. "If you don't tackle your frontside, backside and inside, you're missing something. You had better have your employees know as much about what your customers are doing as your customers. And then if you're going to spend all this money on fun and functionality, how are you going to pay for this? You had better drive internal productivity, deflation and back end customer connectivity.
"We will reallocate 200 people in the supply chain area alone this year as our 1,200 vendors use e-biz. Do you know we are saving $1-1/2 million alone on no longer providing blueprints-they are on the web?"

GEAE tackled the three-pronged approach with three portals:
o CWC: the Customer Web Center, also known as the sell side. It is split into two elements: the Internet, with access for everybody on www.geae.com and Extranet sites, customized for each customer. "This is the vast majority of the interaction with our customers," said Overbeeke. "It's not get on to the website and plug and play; our customers want specific functionality for their own operation. This is a la carte-not the whole meal together. The portions are different, the flavors are different."

o SCWC ­ the Supply Chain Web Center, known as the buy side. GEAE's 1,200 suppliers have Extranet sites here for scheduling, forecasting, drawings, auctions, and all other data they might need or be required to supply. "Whatever we ask our external vendors to do, we ask our internal shops for the same," said Overbeeke. "At the end of the day we're looking for the information to flow through the company from the back end of the business to the front end."
o EWC ­ the Employee Web Center, which makes company data accessible to all employees.

GEAE has gone to great lengths to allow customers, no matter what level their own computer technology, to participate through a heavy investment in "connectivity."

Now Overbeeke is concerned that the advent of 15 different "Exchanges" will lead to 15 different industry standards for protocol, making few of them interoperable. The GE system is so advanced-and up and running-it could set the industry standard, he pointed out.

GE isn't going to participate in an "exchange" if it means providing competitors with its technology. It will, however, consider being "a store in the mall" -- providing it can find the right mall and there is an advantage to its own customers, Overbeeke said.

By John Morris