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HKU271

ALI FARHOOMAND

Boeing Australia Limited:

Assessing the Merits of Implementing a
Sophisticated e-Procurement System

Formed in late 1996, Boeing Australia Limited (BAL) was a relatively new company and a
global extension of the US firm, The Boeing Company. BAL developed capabilities in the
areas of space and communications, site management, and the upgrade and maintenance of
military aircraft and equipment. As BAL grew, so did the legacy information system it used
for both internal communications and external dealings with customers. BAL, however,
faced difficult decisions as it sought to upgrade its procurement systems and processes to
improve operations. In early 1999, BAL recruited a new National Procurement Manager,
Russell Menere, whose immediate task was to look for gains in productivity by improving
procurement processes, either through cost savings or by reduced processing time. To meet
this objective, Russell initiated a number of short-term improvements. These included the
rationalisation of a large number of BAL’s suppliers; improving BAL’s relationships with its
key suppliers; the introduction of a credit-card purchasing system for low-value, large-volume
consumables, and the adoption of electronic ordering processes with BAL’s larger suppliers.

In 2002, with new opportunities available through e-business technology, Russell needed to
decide what BAL’s next step should be. Should BAL invest in a new system that would
simplify the procurement process across different divisions and support complex interfaces
with suppliers? Alternatively, should Russell recommend that BAL continue to sit on the
fence and seek short-term improvement tools for integration with its existing legacy systems?
Could BAL afford to wait, given that the main requirement of its major customer, the
Australian Defence Force (ADF), was timely information in support of military readiness and
the national security of Australia? Russell thought that one of the biggest challenges would
be to find an appropriate system that could provide mutual benefits to BAL and its suppliers
within budget constraints. To precisely define BAL’s requirements, Russell felt that it was
necessary to map the Company’s existing procurement system, and this was done through the
use of a Materials Management Process Council (MMPC).

Peta Ashworth prepared this case under the supervision of Dr Ali Farhoomand for class discussion. This case is
not intended to show effective or ineffective handling of decision or business processes.
© 2003 by The Centre for Asian Business Cases, The University of Hong Kong. No part of this publication may be
reproduced or transmitted in any form or by any means - electronic, mechanical, photocopying, recording, or
otherwise (including the Internet) - without the permission of The University of Hong Kong.
Ref. 03/170C 1 August, 2003

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03/170C Boeing Australia Limited

Company Background
BAL’s history dated back to 1937, when an Australian group, Commonwealth Aircraft
Corporation, was licensed to build the NA-33 training aircraft for Northern American
Aviation Incorporated. Further contracts to manufacture warplanes led to the formation of the
government-owned Aerospace Technologies of Australia (ASTA), which in 1995 was sold
for A$40 million to the company, Rockwell Systems Australia.1

By 1995, Rockwell Systems Australia had developed capabilities in the areas of ship systems
and electronics, so aircraft production, modification and servicing became a good extension to
its business. BAL was officially formed on 6 December, 1996, when Boeing acquired
Rockwell’s aerospace and defence business, which included most of its Australian operations.

In 1998, BAL made a strategic move to relocate its head office from Sydney, New South
Wales, to Brisbane, Queensland. BAL occupied 10 floors within the Brisbane head office
where over 400 employees were engaged in central administration, finance, purchasing,
engineering, logistics, technical publishing, management information systems and project
management functions. These supported the four key divisions that made up the organisation
[see also Exhibit 1]:
1. The Military Aerospace Support Division provided engineering services in the areas of
design, development, integration and testing of upgrades/modifications to aircraft for the
Australian Defence Force (ADF) as well as engineering support to scientists and
researchers of the Defence Science and Technology Organisation’s Aeronautical and
Maritime Research Library.
2. The Commercial Aviation Services Division, in conjunction with Boeing Airplane
Services, a unit of Boeing USA, was developing Commercial Aviation Services to
provide integrated fleet management within the Australia, New Zealand, South Pacific
and Asia region and a Centre of Excellence Training Facility.
3. The Knowledge Systems Division provided innovative solutions for ground-based
command and control, communications, intelligence, surveillance and reconnaissance
capabilities for customers.
4. The Space and Communication Services Division sought new ways to provide
communications support services for customers, in designing advanced defence satellite
communications solutions and other research and design to develop information
management and decision-making tools to enhance the business of BAL’s commercial
customers.

Relocating the four divisions under one roof allowed BAL to achieve synergies through more
centralised and standardised operations, and also allowed employees to feel they were part of
a single, larger team. However, the four divisions were still autonomous in many ways. They
found and executed their own work, and reported the same measuring criteria in financial
dollars, project performance and product quality terms, as well as a range of other measures
required by BAL’s balanced scorecard.2

In 2002, BAL had over 3,000 employees. In addition to their head office, BAL had
operations in 12 different locations around Australia. These locations were strategically
aligned with the locations of its major customer, the ADF.

1
US$1=A$1.70
2
See Kaplan and Norton (1996) for more information on the “Balanced Scorecard” approach.

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03/170C Boeing Australia Limited

Customers
Everybody still thinks of Boeing as Boeing aeroplanes. Here in Australia we
don’t have much to do with commercial aircraft. We are mainly site
management, military aircraft and space and communications.
- Russell Menere, National Procurement Manager

BAL’s major customer was the Australian Defence Force (ADF), which included the Royal
Australian Air Force (RAAF), the Royal Australian Navy (RAN) and the Australian Army.
The ADF employed approximately 51,500 full-time personnel. The government had
estimated that the ADF spent approximately A$12 billion dollars annually to meet its most
important objective, which was to ensure the defence and security of Australia. The services
required by ADF of BAL varied according to the nature of the military service. Some
examples of on-going contracts included:

! Management and maintenance of military sites on behalf of the ADF. For example, at
Amberley Air Force Base in Queensland, BAL provided most of the life-cycle support
activities including maintenance and upgrades on F-111 aircraft. BAL had a similar
arrangement with the ADF Helicopter School operating out of the RAAF Base, Fairbairn
in Canberra and other sites.
! Modifications and upgrade projects such as the F/A-18A/B Weapon System Hornet
Upgrade Project at Williamtown, New South Wales. Here a fleet of 71 aircraft were being
upgraded to meet the requirements of the ADF’s Air Defence strategy, which included
upgrades to communications, navigations and flight computers.
! Providing the RAAF with an Airborne Early Warning and Control (AEW & C) system
based on the Boeing 737-700 aircraft. Initially four aircraft would be provided to the
Commonwealth of Australia and would allow the RAAF to track both air and sea targets
simultaneously through the use of advanced electronic radar.
! Providing two new ground-based air defence, command, control and communication
systems at RAAF Tindal in the Northern Territory and at RAAF Williamtown, NSW.

All the military organisations had unique legacy systems. They required BAL to populate
these systems with the necessary data to enable the military to monitor the status of the
aircraft or submarines BAL had been working on. They also required BAL to continually
update its military readiness systems. In addition, the Commonwealth expected suppliers to
be certified. This meant BAL needed to closely monitor any procurement activities that
supported the provision of services to the ADF.

…our advantage is that we have relatively few but large customers. This
allows us to be very customer-focused and helping our customers to improve
their business is what we strive for every day.

Boeing’s information systems help us to execute our core business beyond

our customer expectations and using this to leverage new business is the key
to our growth and profitable future. Our business system, together with our
people and processes, are a key component of Boeing’s capability and
strategic advantage.
- Klaus Sbresny, Manager, Management Information Systems

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Systems Architecture
BAL’s information systems architecture encompassed 12 different sites around Australia,
which were connected by a frame relay Wide Area Network (WAN) [see Figure 1]. Each
site had at least one NT server that provided appropriate Local Area Network (LAN) services.
The head office was the hub for the WAN and the gateway for the US connection into the
Boeing Corporate firewall at Seattle.

Circuit Access CIR PCs

Brisbane - Seattle 1.5Mbps 1.5Mbps 400
Brisbane - Amberley 256Kbps 128Kbps 200
Brisbane - Avalon 192Kbps 32Kbps 35
Brisbane - Fishermans Bend 1Mbps 256Kbps 300
Brisbane - Barton 128Kbps 16Kbps 12
Brisbane - Williamtown 64Kbps 32Kbps 12
Brisbane - Jervis Bay 64Kbps 16kbps 3
Brisbane - Mascot 64Kbps 32Kbps 10
Brisbane - BIC 64kbps 16Kbps 5
Brisbane - Exmouth (Dial-Up) 40
Fishermans Bend - DSTO 64Kbps N/A 3
Barton - Fairbairn (ISDN) 64Kbs N/A 8
Barton - Belconnen (Dial-Up) N/A 2

To Seattle
To
Canberra Area via SITA
To
Brisbane
Exmouth Brisbane

12
Barton Amberley
200 Brisbane 400
8 2
Fairbairn Belconnen

Melbourne Area 12 Williamtown

Sydney Area
To
Brisbane
Sydney To
Brisbane
3

Canberra Jervis Bay

Fishermans
35 300 Bend
Avalon
5 10
Mascot
BIC
3
DSTO
Melbourne
Last Updated: 23 Aug 00

Figure 1: Boeing Australia’s National Frame Relay Network

Source: Boeing Australia Limited Proposed Server, Storage and Thin Client Strategy

At each of its sites, BAL had a combination of “touch labour”3 consisting of engineering staff
(who interpreted contracts, designed products, came up with bills of material for
manufacturing or engaged in systems engineering for any software BAL built) and
administrative people. As a result, BAL needed to provide a standard suite of business
applications, engineering applications and desktop applications, which were configured to the
requirements of individuals within the organisation.

Our strategy has been to develop a corporate suite of integrated business

applications that are specifically tailored to support the specialised process
requirements of the aerospace industry. These systems are available to our
employees on-line at all sites and are used every day as productivity tools in
contract execution and as a source of information for decision-making and
business performance management.
- Klaus Sbresny, Manager, Management Information Systems

3
The people with the spanners who do the work on-site.

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03/170C Boeing Australia Limited

BAL employed a top-down management approach, otherwise known as management by

policy deployment. It was likened to a pyramid where the board or senior executives arrived
at a vision for the Company and set overarching targets and objectives. As a result of those
objectives, the next layer in the pyramid, the more central and functional units, had to look at
those overall targets and objectives and align what they would do to achieve them. Although
BAL was a private company, its vision and values were influenced by its parent company in
the United States. For example, in 2001, The Boeing Company’s vision was “People working
together as a global enterprise for aerospace leadership.”4 This filtered down the organisation
to the various divisions, which in turn committed to the following visions:

• “To become the only world-class Military Aerospace Support organisation in the Asia-
Pacific”5
• “To create Shareholder Value through the Provision of Customer-focused Space and
Communications and Systems Support solutions”6
• “To build lasting relationships with the primary customer, the Australian Defence Force,
to leverage of current well performing projects to further the overall business activities of
Boeing Australia Military Aerospace Support”7

From these visions, the business units, manufacturing, sales and marketing and software
engineers would set more specific objectives for the year concerning profits and other quality
outcomes. To assist BAL in bidding for projects, a tool called “ProPricer” was used. To
detail the planning of labour hours required for a project, an “OPP” scheduling system was
used, while the financial equivalent of the OPP system, “COBRA”, was the cost performance
tool that helped BAL to estimate and measure its performance on each project [see Exhibit
2]. Another system called “eMatrix” was the data management tool, whereby anything to do
with a project including the initial contract, scope of works, drawings, any correspondence
and other data were captured electronically.

The information generated from the systems described above became the work packages that
would then be fed into the Enterprise Resource Planning (ERP) system. BAL used Western
Data Systems’ (WDS) ERP package - Compass Contracts - for materials and resource
planning, work-in-progress management, project costing, and subsets of supply chain
management including procurement, inventory and payables. It would schedule all the
labour hours required, plan for materials already on-site and those to be procured in addition
to any tool sets required, and so on. These then became the Key Performance Indicators
(KPI’s) used on the balanced scorecard, which measured whether objectives were met and
milestones such as timeliness, customer satisfaction and performance bonuses (for
completing work on time) were achieved.

An automatic time-recording system kept track of work performed by both the engineers in
the office and workers on the shop floor. All the work orders were bar coded and employees
were assigned work orders, depending on their skill set, on a periodic basis. Employees would
then scan in the barcode for their assigned work order and swipe in their personal staff ID
card. The system would then record the time between logging on and logging off a job. It
also calculated the labour time for each job and fed the data into the information systems,
which BAL had classified into the three groups: ERP, Financial Management and People
Systems [see Exhibit 2]. The information was then used for different purposes. The reports
generated from the ERP were used for programme management, customer reporting and
supplier management. The financial management reports helped to manage the business
internally and the human resources information assisted in labour and people management.
4
The Boeing Company, 2001, Annual Report, p 9.
5
http://www.boeing.com.au/DIVAerospaceSupport/MASf111cAUP.htm, 26 June, 2002.
6
http://www.boeing.com.au?DIVSpaceCommunications/SCVShome.htm, 10 March, 2002.
7
http://www.boeing.com.au/DIVAerospaceSupport/MASbussinessdev.htm, 26 June, 2002.

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The strategy BAL adopted in building its systems architecture was to buy-in applications,
such as those described above, off-the-shelf rather than develop them in-house. Ideally many
of the applications supported interfacing with other applications. However, if they did not,
BAL would programme the interfacing between the applications to further enhance their
functionality and where possible automate some of the processes. This provided BAL with
more accurate and timely information and indirectly helped BAL enhance its productivity.

Roles and Goals of the Procurement Management Team

The National Procurement Manager, Russell Menere, joined BAL in 1999. He brought with
him a wealth of experience in the supply chain process, having previously worked in
purchasing roles for two large car manufacturers, Ford and Toyota, and as the Director of
Manufacturing for an automotive supplier. The National Procurement Manager was the only
person in BAL’s procurement team with country-wide responsibilities, and he reported
directly to BAL’s Chief Financial Officer, Stephen Williams [see Exhibit 3]. He had the
responsibility of overseeing procurement activities across all of the functions within BAL,
and managed four people in the procurement team within head office on a day-to-day basis.
Another six people reported to the National Procurement Manager on a functional basis, but
were located at different sites. They also reported directly to their on-site managers.

The priority of the National Procurement Manager had been to look for any gains in
productivity via procurement through either cost-savings or reduced processing time. In 1999,
the procurement system was very manual. People had to raise a purchase requisition for
everything they wanted to buy. This was then followed by a purchase order, with quotations
sought from a minimum of three approved suppliers. Once a person was authorised to make
the purchase, he/she would then physically place the order to purchase the goods, receive the
invoice, process the invoice, receive the goods and make payment. All of these individual
steps formed part of the procurement process and most of the information would be manually
input into the system, creating room for error. The process was also very time-consuming.
Pressure had arisen from the need to streamline existing processes to allow BAL to stay ahead
of its competitors and to meet the requirements of its major customer, the ADF.

Therefore, the procurement management team embarked on a continuous improvement

programme wherein improvements to legacy systems were examined and new applications to
the systems architecture were considered for adoption. Short-term improvements led by
Russell included the rationalisation and management of suppliers; the introduction of credit-
card purchasing, and the formation of the Materials Management Process Council (MMPC).

Short-Term Improvements to the Procurement Process and

System

1. Rationalisation and Management of Suppliers

Leveraging off the Bargaining Power of the Group

Having The Boeing Company as its parent company meant that BAL had the opportunity to
benefit from supply deals negotiated through Boeing. This was the case with a supply of Dell
Computers: Boeing managed to negotiate much better prices for the group than would have
been possible if the individual businesses had pursued their own deals with Dell.

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One drawback that limited BAL’s opportunities to leverage off its parent company’s buying
power was the US government’s export procedures. Anything associated with military use
required an export licence that was obtained from either the US Commerce Department or the
US State Department, depending on the nature of the item. The Commerce Department
focused primarily on dual-use items that could be used for both military/strategic purposes
and commercial applications. If a product appeared on the Commerce Control List (CCL),
which in general contained items controlled by the Export Administration Regulations (EAR),
it may have required a licence. The State Department’s Office of Defence Trade Controls
(DTC) licensed defence services and defence munitions articles. As an end user, BAL had to
first verify it was eligible for a licence, which meant Australia was not subject to any country-
specific sanctions and that BAL did not appear on any of the US “Prohibited Parties Lists”.8
BAL also had to verify what the item would be used for.

Other documentation required for exporting items included:9

! Shipper’s Export Declaration
! Commercial Invoice
! Certificate of Origin
! Bill of Lading
! Insurance Certificates
! Packing List
! Import Licence
! Consular Invoice

Being a foreign company, BAL had to ensure that the necessary procedures for obtaining
export licences, outlined above, were in place as time delays could be significant. If these
delays were substantial they could have eroded the competitive advantage gained by
leveraging off its parent company’s purchasing power.

Rationalisation of Suppliers
One of BAL’s first undertakings was to analyse its supplier situation. After conducting some
internal research, Russell found BAL had approximately 3,100 suppliers conforming to the
old “80/20 rule”: 80 per cent of the value of purchases was with 20 per cent of its suppliers.
Furthermore, 80 per cent of transactions with suppliers had a value of less than A$2,000 and
were mainly for consumable sundry items such as stationery and facility services. Based on
this finding, Russell set a new policy to rationalise BAL’s supplier base over six years to
reach a target of 600. By 2002, the number was down to approximately 800 approved
suppliers, and this rationalisation resulted in direct cost savings for BAL.

I am a great believer in locking in and getting close working relationships

with individual suppliers. That is why I have the policy of rationalising
suppliers so that the more work you give them the more opportunity you get
to achieve a mutual cost advantage. Reduce costs for us and increase profit
for them.
- Russell Menere, National Procurement Manager

Selection of Suppliers
A key element in BAL’s new procurement policy was to ensure any “flyaway” items
purchased or manufactured had complete traceability. 10 , 11 Consequently, BAL needed to

8
Ask the TIC, Export Controls, Export America, July 2000 p 1, http://web.ita.doc.gov.ticwebsite/FAQ’snsf, 5 November, 2002
9
Ask the TIC, Export Documentation, Export America, November 1999 by Jim Robb, Trade Information Center, Trade
Development, Updated January 2002 by Patterson Brown, http://web.ita.doc.gov.ticwebsite/FAQ’snsf, 5 November, 2002

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03/170C Boeing Australia Limited

verify whether its suppliers were authorised and qualified to produce the necessary parts.
BAL suppliers generally needed government accreditation. Occasionally the Commonwealth
would recommend that BAL use a certain supplier for certain purchases. Although the
decision to use a supplier remained at BAL’s discretion, it would tend to go with the
recommendation unless there was a better alternative.

BAL’s estimated procurement expenditure was likely to be approximately A$100 million in

2002. To better manage the process of procurement, Russell broke down the suppliers into
commodity groups. Those commodity groups included stationery, transport/freight,
technology-based products, telecommunications, industrial, packaging and so forth. The
commodity groups were then recorded in the system using a letter of the alphabet for each
commodity group, with the total number of groups limited to 25. By arranging the suppliers
into commodity groups, Russell could see how many suppliers BAL had in each group, how
much money was spent on each, and who BAL’s main suppliers were [see Exhibit 4].
Opportunities were identified for further rationalisation of the supplier base.

Rationalisation of the supplier base created benefits of economies of scale. By assuring

suppliers of increased business, BAL had greater bargaining power to negotiate for better
prices, which in turn boosted its bottom line. Dealing with a smaller number of suppliers
allowed BAL to increase the trust of its suppliers, which was important for the more effective
management of business-to-business supply chains. Streamlining the number of suppliers
also enabled BAL to effectively measure its suppliers’ performance.

Managing Supplier Relationships

Russell classified supplier relationships into four areas: day-to-day; strategic; bottleneck and
critical to the business. In doing so, he actively sought to establish strong relationships with
suppliers who were critical to BAL’s business and those larger ones who were tactically
important to BAL. Russell’s aim was to ensure the majority of BAL’s procurement processes
became standard processes that fell within the “day-to-day” category of relationships. As part
of this strategy, BAL launched a supplier management programme whereby it gave its
suppliers feedback on how well they performed; the suppliers in turn gave BAL feedback on
BAL’s performance.

The long-term objectives of introducing a supplier feedback system were to drive down costs,
improve delivery times and achieve a better quality of service from suppliers. As part of the
feedback process, BAL began actively measuring its suppliers. Initially, it had been difficult
for BAL to find consistent ways to measure the levels of service from suppliers given the
wide range of commodity groups, suppliers and varying methodologies employed by each
supplier. Since institutionalising a consistent supplier measurement process, BAL had been
able to implement a quality system that resulted in outstanding suppliers being recognised
through different “BAL Supplier Awards”. The most outstanding was the “gold” award. The
first awards were presented in November 2002. The plan was to have all of these awards
recognised and endorsed by the US parent company and thus to add value to the suppliers
receiving them. Suppliers could also use this recognition to attract further business from other
customers. BAL found that the introduction of its supplier monitoring system almost
immediately improved the levels of service it received from individual suppliers.

10
“Flyaway” was an internal technical term that BAL used to describe something that it fit on to a customer’s product like the
F1-11 or that went onto a submarine – it was something actually delivered as opposed to consumables.
11
“Traceability” meant BAL needed to keep track of the information supplied with every part so that if there was a fault in any
military equipment it would be able to trace the fault back to its point of origin.

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2. Introducing Credit-card Purchasing

With some of its larger suppliers (including Dell, Boise Cascade and Blackwoods), BAL had
the capability to place orders electronically. Orders placed with these companies were
characterised by high volumes but relatively low values. The suppliers established Web-
based tools that enabled BAL to order online, thus reducing order-to-delivery cycle times.
However, these online ordering tools were not connected to BAL’s back-end systems. Details
of each order had to be physically entered into BAL’s ERP system, because BAL’s legacy
systems did not support interfacing with the suppliers’ Web browsers. This caused an
unnecessary duplication of function. As a result, Russell resolved to find alternative tools that
would improve efficiency by reducing duplication. One such tool was a credit-card
purchasing system.

The idea behind the introduction of the credit-card system was to simplify the purchasing
process of low-value consumables. Most of the items purchased by BAL were non-critical to
the business, in terms of traceability. Therefore, even though it was recommended that all
buyers place their orders through the ERP system, there was no real need to record low-value
consumables in the ERP system. The idea of the credit-card system was to take consumables
purchasing outside the ERP system, as these did not need to be recorded in as much detail as
those items requiring traceability.

The credit-card system enabled BAL purchasing staff to make purchases and pick up
transactions electronically, process them electronically through their application systems and
then make payments via the banking system. The advantage of using credit cards was that it
became a one-step hierarchical approval process. The single human interface was the online
authorisation process. As the person who had the credit card did most of the work (i.e.,
placing the orders, verifying etc.) and duplication was reduced, this initiative streamlined the
purchasing process considerably. An important consideration to make this initiative work
was to ensure that the amount BAL spent on consumables did eventually appear in the
accounts. BAL implemented a tool that allowed its system to update this information
automatically.

3. Formation of the Materials Management Process Council

As part of the initiative to improve productivity, and in response to complaints by internal
customers about inefficiencies in the purchasing process, BAL formed a Materials
Management Process Council (MMPC) in 2002. The MMPC was to look at all materials
being purchased by BAL across the country. The first objective of the MMPC was to
examine BAL’s total supply chain and to study procurement processes used at the different
sites. Rather than pursuing ad hoc changes to suit one customer at a time, it was decided time
should be spent reviewing the entire procurement process across the divisions, thus taking a
holistic approach.

The MMPC comprised approximately seven people from across the divisions who were
involved in contracts management, management information systems, procurement, quality
control, accounts payable and other functions of the business. The MMPC’s first task was to
measure the baseline to establish the practices adopted at each location and to use that
knowledge to standardise and simplify processes where they could. This exercise allowed
BAL to find out where all its existing capabilities and limitations were and where changes
needed to be implemented.

Where to now?
Up to 2002, BAL had chosen not to rush into upgrading its procurement system. The
directive from executive management at BAL was to sit on the fence until an appropriate tool

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that suited BAL’s needs became available at an affordable price. Although there were
sophisticated procurement systems available on the market, BAL could not justify such an
investment due to its relatively small size and budgetary constraints. The focus of attention
had been limited to finding solutions that would improve the performance of BAL’s legacy
systems in the long term.

I don’t have the production volume requirements that justify setting up

linkages with our suppliers across the board. The biggest challenge is
finding a tool that suits us and is not going to be too expensive for our
suppliers because, at the end of the day, if you increase costs for the suppliers
you are going to wear it. Even if not directly, it will come to you indirectly
through their overheads and things.
- Russell Menere, National Procurement Manager

In the longer term, it was envisaged the MMPC would be able to recommend and establish
strategies for BAL to implement across the supply chain. This development took BAL to the
next phase of instilling efficiency in its operations, which included examining advantages
achieved using reverse auctions with suppliers, a practice employed by Boeing in the United
States [see Exhibit 5].

10

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EXHIBIT 1
THE FOUR KEY DIVISIONS OF BAL

Military Aerospace Support Division Commercial Aviation Services Knowledge Systems Division Space and Communications Services
Division Division
As an integral part of the Boeing To be the Boeing regional support centre We will be our customers’ preferred To create Shareholder Value through the
Company, we will be the leading providing integrated fleet management to partner for innovative and affordable Provision of Customer-focused Space
regional provider of world-class quick airlines; and through superior command and control, communication, and Communications and Systems
response Military Aerospace Support performance and intimate customer intelligence and surveillance system Support solutions.
solutions to our customers’ needs knowledge enhance the environment for solutions for military and government
future aircraft sales. applications.
Customers Projects Current Competencies Customers Projects Customers Projects
Royal Australian GPS Project Avionics Australian Defence Airborne Early Australian S & CS Business
Airforce Force Warning & Department of Development
Control Project Defence
“Wedgetail”
Australian Navy FA 18 Hornet Aircraft modification (military) Vigilare Air Services Maritime
Upgrade Australia Communication
Group
Kalkara UAV Logistics Management High-frequency Austar Commercial
Systems Support Modification Information
Update Systems
Programme
Nomad Utility Structures Grainco
Aircraft
Boeing Amberley
F111 – Weapon
Systems Business
Unit

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This document is authorized for use only by Binh Dang in ENGG8114 S1 2025 taught by Vik Kortian, Macquarie University from Feb 2025 to Jun 2025.
For the exclusive use of B. Dang, 2025.
 03/170C Boeing Australia Limited

EXHIBIT 2
BAL’S INTEGRATED SYSTEMS ARCHITECTURE

ProPricer
Bid & Proposal
WDS Compass Contract
MRP
Production Recourse Planning Programme Management
eMatrix
PDM/CM WOM
& Customer Reporting
WIP Management & Project Costing

OPP/Cobra SCM
Proj Schedule/EVM MRO/Procurement/Inventory/Payables
Supplier Management

WorkPlace
e - Time Recording
Oracle
Financial Management Business Management
e - SFTR
Shop Floor Data Capt Supermodeller
Budgets/Forecast/Fin Reporting

ProMaster
Payroll/Labour Management
e - Procurement
Aurion
HR Management

CATIA Payroll
People Management

Eng Tools Security

Not Shown MIS - Part of Boeing's

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This document is authorized for use only by Binh Dang in ENGG8114 S1 2025 taught by Vik Kortian, Macquarie University from Feb 2025 to Jun 2025.
For the exclusive use of B. Dang, 2025.
 For the exclusive use of B. Dang, 2025.

Boeing Australia Limited

BAL’S EXECUTIVE ORGANISATION CHART

EXHIBIT 3

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03/170C

This document is authorized for use only by Binh Dang in ENGG8114 S1 2025 taught by Vik Kortian, Macquarie University from Feb 2025 to Jun 2025.
 03/170C Boeing Australia Limited

EXHIBIT 4
BAL’S COMMODITY GROUPS AND SPEND VALUES AS AT DECEMBER, 2002

Number of Suppliers used per Commodity Group

70 67

60

50
42
40
Series 1
30
21
20 15 16
14 14
11

Number of Suppliers used

10 6 7 7 6 6
3 4
2 2 1 1 1 1 2 1
0
A B C D E F G H I J K L M N O P Q R S T U V X
Commodity Code Groups

Spend per Commodity Group

Commodity
A B C D E F G H I J K L M N O P Q R S T U V X
Code Group
Value of
Spend 1,145 316 535 4,608 5,731 6,966 181 4,355 44 30 13,819 657 5,045 116 272 494 804 7,356 28 2,140 59 1,923 2,941
(HK$’000)

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This document is authorized for use only by Binh Dang in ENGG8114 S1 2025 taught by Vik Kortian, Macquarie University from Feb 2025 to Jun 2025.
For the exclusive use of B. Dang, 2025.
 For the exclusive use of B. Dang, 2025.
03/170C Boeing Australia Limited

EXHIBIT 5
REVERSE AUCTIONS

The Boeing Company in the US used a product called e-buy, which they developed in
conjunction with Rolls Royce, BAE Systems, Lockheed Martin and Rolls Royce. E-buy was
an electronic purchasing tool that worked on the principal of reverse auctions. The three
objectives for The Boeing Company in utilising reverse auctions were to reduce cycle times,
determine the market price of goods, and in turn reduce the overall cost of goods. The Boeing
Company reported that over the 30 reverse auctions they piloted in 2001, the cost savings
averaged between 15 and 20 per cent.12

Although BAL had yet to utilise the reverse auction tool, it would probably allow them the
benefits being achieved by The Boeing Company, especially when procuring many of the
smaller consumable items where there was low risk involved. A typical example would be if
BAL wanted to buy stationery, it could put out a bid profile to suppliers in the marketplace.
The bid profile would include what items were required and a copy of the applicable terms
and conditions, and would state what time the reverse auction would begin and close.
Suppliers would then bid online for the contract until the closing time, when BAL could then
evaluate the bids and select its supplier. Even though reverse auctions could be used for the
more specialised items, which required traceability, many of the advantages of the reverse
auction process would be lost if used for these. This was due to the time BAL would need to
verify the backgrounds of suppliers and match these with the requirements of the customers.
Also, BAL would lose the ability to open the bid profile to unlimited suppliers.

12
Erickson (2002) as cited in Baldwin, H. 2002. Are Reverse Auctions a Step Forward? Overhaul and Maintenance,
Washington, April 2002.

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This document is authorized for use only by Binh Dang in ENGG8114 S1 2025 taught by Vik Kortian, Macquarie University from Feb 2025 to Jun 2025.