Anjali Lakra PGP/20/314 Case Submission - MBM

1. What are the benefits of the e-procurement systems for the Airlines Purchasing Department?

There were a lot of benefits expected for Airline Purchasing Department. Some of these are:

Reduction in the purchase price

Reduced inventory cost as lesser inventory is stocked now
Reduced Request for Proposal and Request for Information cost and hence reduction
in transaction cost
Reduction in order cycle time
Improvement in order accuracy
Time saved in procurement
Real-time availability of standard & ad hoc purchasing information
Improved supplier data and price visibility
There is more information on product in a more accessible format
Personalized information to meet individual/departmental requirements
Negotiation of prices done centrally from preferred suppliers
Improved supplier and spend information in accessible format (info on new suppliers)
A More structured supplier-management
A more efficient supplier sourcing process that generates value addition
Increased market visibility

2. Mention the concerns of key managers in Cathay Pacific regarding the e-procurement system
implementation?

CXeBuy, as an e-procurement system, lacked the inventory management function that was
previously supported by EMPACS
Streamlining the number of suppliers Decisions had to be made to forgo supplier relationships
with those that were of less value in terms of the range of product offerings and price
differentiation
Cataloguing Terms for maintenance of the catalogues had to be negotiated with suppliers and
the e-marketplaces
Incorporating the spend authorisation protocol To ensure that the requisition-to-payment
process could be electronically executed in an efficient and timely manner
Business Process Reengineering of procurement practices Continuous process development
along with change management should be ensured
Systems Integration CXeBuy should be completely integrated with EMPACS and FMIS
The implementation team was in the process of identifying and transferring onto the system.
The airline was also in the process of rolling put CXeBuy to its outputs worldwide where
deployment was warranted
The valuation of the e-procurement was great issue because of accuracy of the figure and time
it will take. There were also concerns regarding what should be measured and how, and the
usefulness of the information collected
The integration of CXeBuy as vehicle automating requisition and ordering was complete
however it would take time before a substantial user and supplier base could be established to
reap the full benefit

Anand Singh (PGP/19/004) Case Analysis

Anjali Lakra PGP/20/314 Case Submission - MBM

The challenge was to achieve greater cost saving as Aeroxchange had recently achieved
30%cost saving on a recent aggregation, with four other airlines, of order for blankets.
During the implementation of CXeBuy there were intention to build a data warehouse to bring
together spends and supplier form the three procurement systems used by Cathay
Project cost: There were 27 full time workers on this with specialist from Oracle and PwC

3. What kind of financial metrics can be used to quantity the benefits?

Financial metrics can be of two kinds which could quantify the benefits from implementing
CXeBuy-

1.Financial Basis (Cost-Benefit Analysis) This can be a reduction in terms of labour, costs,
distribution, ease of use of the interface, departmental benefits, supplier benefits etc. Each of
these heads can be quantified using appropriate sub-metrics and weighted averaged to arrive at a
final metric figure for financial benefits.

2. Time reduction basis (Amount of time saved in completing a purchase order) for each
department and the company as a whole, quantified in real terms

The six key business benefits from implementing the e-procurement system could be classified under
the following heads:
1) Time
a. Improved information intelligence for reporting purposes
b. Improved compliance with corporate spend policies and supplier contracts
c. Shortened req-to-cheque cycles
2) Money
a. Reduced procurement administration costs
b. Strengthened negotiating muscle with suppliers
3) Opportunity Cost
a. Freeing up of purchasing staff to engage in strategic tasks

Case already suggest using category 1) Time savings as a financial metric, and gives a sample
calculation in Exhibit 10 showing the reduction in transaction cost from HK$ 205.8 to HK$83.0.
Apart from Time, two other possible metrics, from our above classification, could be:
2) Money amount saved from reductions in administrative costs, and the money saved by
negotiating better deals due to the extra bargaining power.
3) Opportunity Cost value of the other strategic tasks that are now accomplished using staff
freed up by CXeBuy

One can try to weigh the benefits with cost (cost-benefit analysis):

Cost Benefits

Anand Singh (PGP/19/004) Case Analysis

Anjali Lakra PGP/20/314 Case Submission - MBM

19 external consultants and Inventory reduction (about US$10

Oracle specialists to be posted
Internal and external
communication channels
8 Cathay staff and 8 PWC staff
required full-time for 9-14
months
Hardware and software required
m)
There is integration of requisition
and payment process
Automation of the non-technical
purchases (US$385 m)
Easier for user to use and
understand
Corporate buying power can be
leveraged
More information on expenditure
and the supplier performance is
available
Faster order cycles

4. How Cathay can used the Balanced Scorecard technique to measure the short term and long term
benefits delivered by CXeBuy?

The Balanced Scorecard technique could be used to look at performance of CXeBuy under the following
target categories:
1) Enterprise level
2) Project level
3) Process level

In the short term, process level analysis would yield immediate valuations of benefits and savings in
terms of:
1) Financial Gains: cost reductions (staffing, inventory, etc.)
Cathay can use the balanced scorecard approach in the following dimensions in the short run
Immediate Financial gains on implementing the CXeBuy (reduction per Purchase order in
costs)
And Efficacy of the Internal Business Processes as per the desired alignment with the Business
Objective (reduction per Purchase order in time, plus efficiency across categories and
departments)

In the long term, project and enterprise level analysis of the larger system, not just CXeBuy as a
standalone would show benefits in:

User satisfaction: reduced time in routine and mundane tasks would lead to more time for greater
control over working environment and thus better service

Procurement process alignment with overall business objectives

Future potential for improvements, value creation and adaptability to change

Anand Singh (PGP/19/004) Case Analysis

Anjali Lakra PGP/20/314 Case Submission - MBM

5. How can Cathay's e- Procurement strategy contribute to its mission?

Cathays e- Procurement manages, thanks to the web, to enable the procurement of goods and
services for five of the airline spend categories (in-flight service, cargo, information technology,
and marketing and office supplies). Companys mission is to be Asias leading e Business airline.
e-procurement will help Cathys to increase its resource output in following ways:

The total expenditure is expected to come down by more than $30 Million.

The various approvals required for placing the purchase order would be reduced thus saving time
and reduced inventory levels

The employees would now Fnd Tme to manage the suppliers and measure their eciency rather than
going behind product approvals

The delivery of goods is made directly to required department, removing the need for orders to be
separated for distribution

Indeed, through Cathays e-Procurement strategy and valuation we can identify six keys business
benefits that show they how contribute to its mission:

Reduced procurement administration cost

Improved information intelligence

Improved compliance with corporate spend policies and supplier contracts

Shortened required times to cheque cycles

Strengthened negotiating muscle with suppliers

Freeing up of purchasing staff to engage in strategic tasks

Anand Singh (PGP/19/004) Case Analysis