Exostar: The Trading Exchange Revolutionizing A&D
Exostar is a new electronic marketplace for the aerospace and defense industry. Launched by BAE Systems, Boeing, Lockheed, and Raytheon at the Farnborough Air Show in July 2000, Exostar is an independent business entity, designed to serve the needs of suppliers and buyers throughout the global A&D industry. Exostar is up, running, and providing valuable, cost-cutting efficiencies to all its customers.
The Business Situation
B2B commerce is driving revolutionary change throughout the industrial world - enabling game changing capabilities for all participants. According to researchers, an e-marketplace's easy access to customers around the world typically yields a 5% to 10% increase in revenue sources, with an additional drop of 2% to 10% in sales and marketing expenses. Because as much as 45% of indirect corporate spending is "rogue buying" (purchasing outside corporate purchasing contracts), an e-marketplace's automated approval process will reduce rogue buying, which researchers estimate will increase revenues for approved suppliers by an estimated 20% to 35%. Further, and more critically, exchanges can dramatically improve the way in which firms collaborate across the supply chain, improving quality, cycle times, and cost performance.
At a time when many industries were shifting away from traditional point-to-point interactions - phone, letter, fax - and toward a new e-marketplace model built around supplier relationships, the four industry leaders recognized an opportunity. Jointly accounting for some $72 billion worth of annual purchases, Web-based transactions seemed the obvious choice for conducting future procurement.
In response to this dramatic change from business-as-usual buying and selling, each company began work on an independent exchange initiative. It didn't take long for the companies to recognize that the preferable course was to work together to create a single e-infrastructure. Better, working together, would lead to the creation of a far more powerful and efficient e-marketplace. So, in March 2000, the four companies announced their intention to create a new exchange for the A&D industry.
Thus began an ambitious association among the industry's leading A&D competitors to pioneer a better way of doing business through technology and collaboration. An exceptionally short six months later, Exostar debuted - a new company that helps companies become more effective players in the $200 billion global A&D marketplace.
A New Company Takes Flight
Exostar is a neutral and independently incorporated enterprise that provides an open Internet trading exchange for A&D suppliers and buyers of all sizes, from commercial aviation to defense and space systems, around the globe. The company's mission is simple: Create an improved way of doing business through an Internet-enabled, secure marketplace. But Exostar has far more ambitious goals that include delivering unprecedented business value through transactional efficiencies, helping constituents collaborate on product design and program management, providing a full spectrum of direct and indirect procurement parts and industry-specific services, and create an environment for all trading participants to work together to build supply chain synergies.
That Exostar supports both aerospace and defense is one of the many unique attributes setting this marketplace apart from rival sites. Exostar is not just about airlines, or just military, or just parts; Exostar involves a wide range of trading partners within the A&D industry. Supplier participants include major subcontractors and sub-assemblers, original equipment manufacturers (OEMs), carriers that supply parts and maintenance services, parts manufacturing approval companies, and suppliers of component, commodities, small assemblies, and indirect goods. By the same token, buyers include both primes and sub-contractors, as well as sub-assemblers, governmental agencies (Departments of Defense and Ministries of Defense), international and regional carriers, and general aviation companies.
The number of participants within each of these constituencies and the amount of equipment they manage is staggering. For instance, there are approximately 790 airlines/operators in 220 countries. These operations manage 13,000 commercial jetliners, 7,000 airplanes for regional carriers, 270,000 general aviation aircraft, and 84,000 military aircraft. It is a small wonder that in-service support is a monumental task.
Assisted by Commerce One as the technology provider and Accenture as the solution strategist, developer, and integrator, the four Exostar founders set out for all participants to profit from broad access to the enormous global A&D marketplace. In support of this objective, the exchange's best-in-breed, integrated applications provide a complete set of supply chain and product development services. The marketplace's open architecture lets Exostar trading customers quickly join the exchange and benefit from a common way of doing business.
Exostar's capabilities let participants perform a long list of services, including one-stop shopping online, auctions, search electronic catalog, initiate requests for quotation (RFQ) and bids, place purchase orders and issue releases, send advanced shipping notices, view and track orders and shipments, manage change orders, create invoices and payments, and obtain general product information, services, and specifications. Exostar will also be announcing broader capabilities in the area of collaborative design and program management, and developing further capabilities in Supply Chain Management.
Figure 1 - The Exostar eMarketplace for A&D
(see Larger Image)
Real-Time Bidding
Foremost in its set of capabilities, Exostar provides online auction services. Prominent industry analysts forecast that auction sales will grow exponentially by 2002. According to Keenan Vision, Inc., a San Francisco-based Internet analyst firm, B2B auction sales will explode from $8.8 billion in 1999 to $88 billion in 2002, representing 26% of total e-commerce sales.
Clearly, online auctions will be a valuable asset to A&D. Hence, Exostar Auction Services fully automate real-time bidding for existing procurement or liquidation processes. The service supports the most popular auction formats, which can be enhanced by creating business rules to meet the user company's need, including English, Yankee, Dutch, and Sealed Bid auctions. The service's real-time pricing replaces the conventional buying/selling approach of trading at fixed and pre-determined prices. This lets buyers and sellers leverage the market forces of supply and demand to dynamically set prices, bringing an unprecedented level of profitability, control, and simplicity to corporate procurement and liquidation. In fact, Exostar's Auction Services is the only offering in the market today designed for multinational e-commerce.
This service enables two categories of auctions:
- Forward Auction: Suppliers auction off excess inventory and receive market price for surplus goods
- Reverse Auction: Buyers post RFQs for goods and services they are interested in purchasing and invite suppliers to bid on-line
The Auction Services are quite sophisticated. The trading partner originating the auction has control over most aspects of the auction, including user access, win parameters (such as price, payment terms, and sales volume), access privileges (who bids, how much can be bid, what items participants can bid on, whether the bids are open/hidden), auction run time, opening bid price, reserve prices, and bid requirements. Auctions can easily be customized with graphics in multiple formats (such as PowerPoint, EPS, JPEG), multimedia files (such as MPEG, AVI), or documents (such as Excel, Word, or Word Perfect). The auction originator can customize each auction's terms and conditions before it starts, as well as customize the auction rules to fit the originator's business needs.
As with the trading exchange in general, suppliers and buyers using Exostar Auction Services face no up-front costs to buy new servers or databases, nor do they need to hire and train software developers and database administrators to support Exostar. Complete control over every aspect of the auction is managed through an easy-to-use, browser-based, point-and-click system - no proprietary client required. The auction setup process is made easier by an Auction Wizard, which provides a step-by-step guidance to auction participants.
For buyers, Exostar's Auction Services eliminates many of the manual tasks and hand-offs involved in sourcing, thereby improving the overall efficiency of sourcing and shortening supplier negotiation cycles. These, in turn, lead to the dramatic reduction in the cost of sourced goods. Sellers benefit, too; they can cost-effectively liquidate obsolete and excess inventory or undesirable merchandise, and access an expanded market of buyers. Typically, sellers realize sales prices of 30% above book value.
Key Business Benefits
Buyers and sellers from across the A&D industry now conduct all of their business in one comprehensive, open, and secure marketplace. OEMs use Exostar to procure parts for production. Airlines use it to order after-market parts. Service providers use it to connect with new and existing clients. And representatives from a wide variety of A&D companies use the exchange on a daily basis to buy and sell the materials they need to run their businesses.
From order placement and shipping to billing and payment, the exchange ensures that all transactions are expedited quickly, cost effectively, and securely. Yet because the essence of Exostar is to avoid commoditizing its constituents' offerings, each participant maintains its unique brand positioning and differentiated services.
The benefits this provides A&D buyers and sellers are many:
- Lower transaction costs and cycle times
- Reduced inventory levels through improved demand forecasting and better visibility
- One-stop shopping
- Easy identification of qualified sources, availability, and pricing
- Expanded, branded access to a global market
- Real-time collaboration on product design
- Improved supply chain management across the extended enterprise
- Ensured protection of proprietary and sensitive information
For major sub-contractors and sub-assemblers, Exostar brings together all the elements they need to buy and sell: companies, products, personalities, relationships, and information. Because Exostar streamlines and standardizes the ordering process for these suppliers, they find their customer order management costs falling significantly. Just one example of the magnitude of these benefits: Boeing estimates that the site will help the aerospace giant cut related administrative expenses by about 25%.
For component and commodity suppliers, insiders point to drops of 90% or more in the cost to process a purchase order (PO), and reductions of 50% in average order cycle times. Exostar's automated purchasing system also reduces cycle times and helps reduce inventories for all supplier participants. In addition, quality information management is improved by leveraging Exostar's central supplier database.
For small assembly suppliers, Exostar offers a global marketplace, which leads to broader market opportunities and easy access to new customers. The same holds true for OEMs, who are constantly seeking the broadest possible aftermarket.
For carriers that supply parts and maintenance services to airlines, Exostar's standardized mechanisms speed processing, cut expenses, and minimize order duplication. Moreover, online auctions and easy access to global buyers will help move inventories more quickly, resulting in dramatic operating-cost reductions and working capital savings.
Some of these same benefits - interaction among and relationships with global customers and suppliers by providing a common, virtual meeting place - apply to buyers as well. Buyers are expecting huge savings on indirect expenditures through the easier enforcement of corporate standards, reduced rogue spending, standardized ordering processes, and leveraged buying power that comes from Exostar. Additional benefits will accrue as greater functionality is added to Exostar. In particular, future supply chain collaboration tools will help reduce inventories, slash expediting costs, increase efficiency, and improve on-time performance; collaborative design tools will help improve product quality and reduce design cycle times and costs.
On the military side, Departments of Defense (DoDs) and Ministries of Defense (MoDs) increase efficiency, reduce transaction costs, slash on-hand parts inventories, and tighten search and overall acquisition-cycle times - all within a secure e-commerce environment. Exostar also enhances government use of emerging commercial e-commerce practices, while supporting government initiatives, such as the U.S. DoD's paperless contracting, use of FAR Part 15, and compliance with Integrated Data Exchange requirements.
International and regional carriers gain an on-line marketplace of global suppliers, which leads to improved access to pricing and product availability information. Real-time inventory data from multiple suppliers makes it possible to identify and source parts more quickly. Additional savings come from reduced invoice/PO processing costs through the elimination of paper-based transactions and from standardizing and streamlining parts-ordering processes. These savings work together in cutting the errors and the time needed to correct those processes, ultimately slashing maintenance costs in general.
And for general aviation buyers, Exostar saves time and money with one-stop shopping to compare pricing and check parts availability, often reducing part procurement costs by 5% to 10%. Large general aviation buyers can reduce invoice/PO processing costs further because associated paper-based transactions are largely eliminated.
Value Delivered
In less than six months, Exostar evolved from a good idea to a unique e-company that helps members of the A&D community buy and sell more efficiently, as well as work together to design and move products more proficiently. In time, this same e-commerce model will be applied to other industry sectors, with some of the same results in procurement process automation and transactional efficiencies, supply chain collaboration and tracking, global visibility, and profit making.
