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August 22, 2007

Modern B2B technology has enabled British Airways (BA) to enjoy significant cost savings since 2001. Overall, British Airways has successfully implemented BPP (best practice processes) to better streamline its procurement function, while at the same time gain insight over its spend needed to deliver measurable and quantifiable results.

Mike Arenth, General Manager for Ariba says “many years ago, BA has recognized early in the cycle that spend management is the fastest, most efficient way to greatly reduce costs, boost profits and gain a definite competitive advantage in today's global markets.”

He added “BA didn’t hesitate in starting on the journey to spend management and has since quickly moved toward excellence.”

Almost eight years ago, BA was spending more than £4 billion a year with suppliers. The company urgently needed to re-examine its procurement function to achieve an overall savings target of at least £1.4 billion by 2006. “Seven years ago, procurement in BA was well established, but buying procedures were very inconsistent, staffing levels were extremely high, and about twenty-four percent of spending was with non-preferred suppliers,” said Tim Richardson, General Manager of Procurement Operations, BA.

More than six years ago, manual strategic sourcing was introduced, which quickly started the change process, and progress accelerated rapidly with the introduction of new technology four years ago, that enabled a systematic closed-loop approach to sourcing and procurement.

BA has since selected Ariba as its B2B partner on this task and began a full implementation of Ariba’s spend management solutions, including Ariba Buyer™, Ariba Analysis™ and Ariba Contract Compliance™.

But as a whole, the wide-spread use of Ariba wasn't immediately welcomed at BA. Maverick buying was still rampant until procurement began contacting staff members who attempted to order goods without using the new system.

Richardson said “this was all part of a systematic compliance program that started sending a signal to people that this is how things would be done from now on.”

And it has delivered results since. By February of 2005 compliance to the ordering system was almost 98 percent.

However, still not 100 percent happy with simply streamlining some processes, BA again raised the bar. The company announced three 'golden rules' that would allow it to better manage its spend and transform procurement from a tactical process to a strategic one.

First, all orders must be raised and registered through Ariba Buyer.

Second, only preferred suppliers can be used.

Third, for any purchase over £100,000 the full strategic sourcing process must be followed to the letter.

Whereas BA had used technology in the past to tackle areas of direct spend, it had never looked at using modern B2B technology to improve indirect procurement, despite the fact that it accounted for up to £1 billion in spend.

Since implementing Ariba’s solutions, BA has changed and has seen impressive results beyond just savings:

1) Reduction in UK preferred supplier base from 14,000 to 2,500
2) 80 percent of purchases now processed electronically

“Overall, procurement today is a lot less about processing orders and a lot more about strategic sourcing and finding the best quality products at the best price.

Silla Maizey, Procurement Director at BA said "Ariba Spend Management has helped us achieve our basic goals.”

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Source: B2B Exchange