Divesh

PGP/24/387

Managing Business Markets

E-Procurement at Cathay Pacific Airlines

Case Analysis

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

The benefits of the e-procurement systems for the Airlines Purchasing Department are as
follows:

• It was expected that CXeBuy to handle 35%-50% of non-technical purchases accounted for
approx. $385 million. It would also enhance their corporate buying power and suppliers
would benefit from a efficient requestion process.
• The purchase and approval process would reduce from seven steps to two only leading to
significant increase in the process efficiency.
• It would also increase their visibility in the market and access to new markets.
• It would also reduce their total expenditure by more than $30 million / year by 2030.
• Also, some of the APD staff can be freed up to engage in strategic sourcing and managing
of suppliers.

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

The concerns of key managers in Cathay Pacific regarding the e-procurement system
implementation are as follows:

• Streamlining the number of suppliers- They had to forgo a certain number of suppliers
those were of less value in terms of their product offerings and price differentiation.
• Cataloguing – The terms and condition for the maintenance of all the catalogues needed
to be negotiated with the suppliers and e-marketplaces.
• Spend authorisation protocol – It was done to ensure that recquisition and payment can
be done electronically to improve process efficiency.
• Business Process Reengineering of procurement practices – It includes continuous
improvement and imparting training support and deployment of the system.
• System Integration – It includes integration of CXeBuy with EMBACS and FMIS.

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

The 6 business benefits can be broadly classified under 3 major metrics:

Page 1 of 3
 Divesh
PGP/24/387
➢ Time Savings – As given in exhibit, the average time per PO transaction reduced from 105
mins to 44 min leading to cost savings of $122.8 per transaction.
• Shortened requisition to cheque cycle
• Improved compliance with corporate spend policies and supplier contracts
• Improved information intelligence for reporting purposes
➢ Cost Savings – There will be a significant reduction in administration cost due to reduction
in steps and supplies can be procured at a cheaper rate due to a strong bargaining power.
• Reduced procurement administration cost
• Strengthened negotiating muscle with suppliers
➢ Opportunity Cost – This is the value of other strategic tasks that are performed by the
freed-up staff
• Freeing up of purchasing staff to engage in strategic tasks

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

The Balance Scorecard Technique evaluates a business or project on four major components
i.e. Learning and growth, finances, business process and customers.

In short term, it can be used at process level to evaluate the immediate benefits of the project
in monetary terms or time savings such as cost reduction, process efficiency, revenue
generation etc. broadly, it covers the finance aspect of BST.

In long term, BST can be used to assess the impact at organization level as a whole and not just
focusing on the CXeBuy project. It will assess the benefits in terms of customer satisfaction
(reduction in time and redundant tasks), potential for future growth and business processes.

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

Cathay’s mission is to make it the most admired airline in the world. Its philosophy was to
compete on product offering rather than price because of which they were focused to provide
premium and differentiated services. Also, they wanted to invest in internet-related
technologies to fulfil the vision to be Asia’s leading e-business airline. Hence, the six business
benefits given below would help the company in achieving its mission:

• Shortened requisition to cheque cycle

• Improved compliance with corporate spend policies and supplier contracts
• Improved information intelligence for reporting purposes
• Reduced procurement administration cost
• Strengthened negotiating muscle with suppliers
• Freeing up of purchasing staff to engage in strategic tasks

The project was expected to enhance the leadership position in the market and access to new
markets. It will give bargaining power for negotiating with the suppliers as well to procure

Page 2 of 3
 Divesh
PGP/24/387
supplies at a reasonable rate. The use of internet to enable the web procurement of goods and
services in airline spend categories would also enable them to realise their goal of becoming
Asia’s leading e-business airline.

Page 3 of 3