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Cathay Airways

Introduction

The introduction of an e-procurement system called CXeBuy at Cathay Airways falls within the ambit of supply chain management, which is a central concept in operations management (i.e. OM). Like operation management, there is no unequivocal definition of what e-procurement is. But it can be defined as the process of automating the order processing operations of an organization with the help of the internet. This coursework will concern the case of Cathay Airways implementing an e-procurement system and how it can be made better with concepts from operations management.

E-procurement has come to be a must for big companies, as it helps them reduce operational costs while increasing organizational flexibility. The implementation of  CXeBuy e-procurement at Cathay Airways has a number of future opportunities, such as centralized purchasing.  Centralized purchasing occurs when organizations can procure goods at lower prices as they combine orders from all units as most suppliers and vendors are amenable to the idea of providing discounts on goods and services bought in large quantities (Min and Zhou, 2002).  In addition to that, centralized purchasing powered by CXeBuy e-procurement system at Cathay Airways can ensure that Cathay Airways gets better service and more attention from suppliers (Kraemer and Yendluri, 2007).

Cycle counting

To ensure that Cathay Airways can derive maximum value from its CXeBuy, there are a number of operations management concepts it can employ. Even though CXeBuy system records inventory accurately, it is advised that Cathay Airways gets these inventory records verified by a third-party audit, called cycle counting.  By complementing the CXeBuy system with cycle counting, Cathay can ensure that it can document inaccuracies, and then trace this inaccuracy to the cause, before developing and implementing a remedial action to ensure that inventory system is not compromised (Hult et al 2006).

CXeBuy e-procurement system can be viable in determining whether or not there is a discrepancy between receipts, but it can’t rectify the problem associated with shrinkage. Shrinkage occurs from pilferage and inventory theft (Minor et al 1994).  Employees are cited as the main cause of shrinkage and pilferage at warehouses and stocks. The food-service and in-flight catering department at Cathay Airways are susceptible to pilferage as employees have access to directly consumable goods. To mitigate and eliminate these overlooked aspects of e-procurement and inventory control, Cathay Airways needs to overhaul its recruiting, training system to ensure that its employees involved in inventory and warehousing are motivated and committed to Cathay Airways. Moreover, by automating internal ordering processing and levering the electronic Request for Proposal (e-RFP) process, Cathay Airways can gain a number of benefits.

E-procurement costs

There are a number of costs associated with e-procurement. Holding costs are costs associated with holding ‘or transporting’ inventory in stock or a warehouse. On the other hand, ordering costs cover costs of suppliers, forms, order, processing, and purchasing and etc. The new CXeBuy, an e-procurement system, can substantially reduce ordering costs as most of the processing is automated and processed by the CXeBuy system.

Basic Economic Order Quantity (EOQ) model

Based on the above case of Cathay Airways and its implementation of CXeBuy, an e-procurement system, Cathay Airways is advised to adopt one of three prevalent inventory models, such basic economy order quantity model. CXeBuy can be complemented with the so-called the economy order quantity (EOQ) model, as Cathay Airways can derive maximum value from combining both systems for a more conducive inventory management.  Basic Economic Order Quantity (EOQ) model is considered applicable to Cathay Airway for the following reasons:

  1. Demand for an inventory is known, constant and independent of demand for another inventory
    1. The demand for food used for catering on flights is consistent
  2. Lead time is consistent with the time between placement and receipt of the order is intentions
  3. Receipt of inventory is instantaneous and complete
    1. Instantaneous receipt of inventory can reduce costs across the whole inventory management board
  4. Discounts might be available to Cathay Airways
    1. As a bigger order is placed by Cathay Airways for suppliers, a supplier might be willing to provide discounts

Web-based e-commerce

There is one issue that needs to be rectified and remedied for CXeBuy to be viable and successful in coming to fruition at Cathay Airways.  The business case involving IBM and its implementation of e-procurement corroborates the fact that there are some residual problems with e-procurement system being implemented at organizations, big and small.IBM has reduced operational costs by about $150 million following the implementation of an e-procurement system. Despite being cost-effective for IBM, the need for implementing the necessary applications and systems at supplier rendered IBM’s e-procurement system not so attractive to suppliers, especially smaller ones. There is a key salutary lesson which can be derived from IBM’s case: e-procurement systems should be web-based. Cathay Airways can resort to using cloud storage services such as Amazon AWS, Google Cloud Storage to make the e-procurement system online and ensure costs are mitigated. Hernandez (2011) contends that e-procurement can be counterproductive and advised organizations, big and small, to make sure that they keep tabs on how suppliers react to implementing the same processes. Kauffman (2004) has compartmentalized the types of benefits organizations such as Cathay Airways can gain into two categories- financial and organizational. Regarding financial benefits, Cathay Airways can increase efficiency at an organizational level as the implementation of an e-procurement system is conducive to the reduction of human labor involved in the purchasing process.  Wen and Wei (2007) contend that as the e-procurement system is not contingent upon having too many employees involved in processing, these employees can be transferred to other departments of the company, increasing organizational efficiency.  On the other hand, regarding organizational benefits, the spending thresholds and the number of authorizations required. The elimination of these and other organizational obstacles is conducive to improving organizational efficiency. Therefore, there can be no question regarding the financial benefits of CXeBuy e-procurement system.

Change management

The biggest issue, however, was not incidental to the process of implementing CXeBuy itself. The biggest is concerned with the resistance to change on part of some stakeholders within Cathay Airways. Johson (2013) considers that for any large-scale project to be successfully implemented, there should be a viable strategic change management strategy. Those implementing the CXeBuy at Cathay Airways are advised to resort to John P Kotter’s eight steps to successful change to ensure that change process at Cathay Airways is smooth.  Aberdeen Group, Inc (2005) also underlined the importance of how strategic change management could not be underestimated and cited cases where the successful implementation of e-commerce system have been compromised by the resistance of some stakeholders. Therefore, to introduce and implement change relating to an e-commerce system, CXeBuy, Cathay Airways should apply Kotter’s eight steps strategy. Kotter’s eight steps strategy has been devised by John Kotter, a Harvard Business School professor.  This model of strategic change model is prevalent in today’s organizations and is perfectly applicable to Cathay Airways as well. The active participation of all stakeholders at Cathay Airways is essential to the successful implementation of CXeBuy e-procurement system at Cathay Airways (Mollenkopf, et al 2010).  Before engaging stakeholders, all the stakeholders considered to have an input in the e-procurement system should be analyzed and learned individually.

Integration

Following the successful roll-out of the CXeBuy e-procurement system at Cathay Airways, the management at Cathay Airways needs to develop strategies with a view to integrating CXeBuy with other departments at Cathay Airways. Busch (2018) asserts that the best practice in the realm of e-procurement is when companies can invest more resources into the integration process itself.  Better integration ensures that Cathay Airways can ensure that it is harnessing the value of e-procurement to the fullest.

Business Process Outsourcing

Operating the large-scale e-procurement system CXeBuy, which involves order-processing, payment and logistics, can be cumbersome for Cathay Airways (Muller, 1973). Therefore, Cathay Airways can resort to the strategy of business process outpouring. Business process outsourcing (BPO) can ensure that Cathay Airways derives the maximum benefit from its e-procurement system. These are the advantages BPO can provide Cathay Airways with:

  1. Cathay Airways can achieve greater flexibility in terms of organizational structure
  2. Using BPO is conducive to increasing speed of business processes, which translates into more organizational flexibility
  3. Cathay Airways will be able to grow faster as capital expenditures involved in operating certain aspects of CXeBuy, such as cataloging are divested of
  4. Cathay Airways can achieve long-term cash advantage, bringing administrative costs associated with operating CXeBuy under control.

Conclusion
Overall, as provided by the voluminous researches into e-procurement and how it is implemented, e-procurement can offer a number of key benefits for companies introducing e-procurement of their supply chain management. Not only does e-commerce procurement reduce costs associated with orders, but also help Cathay Airways to keep tabs on costs and suppliers in real time. There is a number of challenges and opportunities relating to the implementation of CXeBuy at Cathay Airways, such as resistance to change.  By following the above-mentioned operations management and strategic change management recommendations, Cathay Airlines can derive maximum benefit from its newly introduced CXeButy, its e-procurement system.

Reference

  • Johnson, R. ‘Changing corporate culture’, Governance & Compliance, June 2013
  • AberdeenGroup, Inc. (2005). Best Practices in E-Procurement. Reducing Costs and Increasing Value through Online Buying. Boston Massachusetts.
  • Hernandzed, R et al’ Improving E-Procurement in Supply Chain Through Web Technologies: The HYDRA Approach’ (2010). Division of Research and Postgraduate Studies/Instituto Tecnologico de Orizaba Mexico
  • Hult, G., Ketchen D., Cavusgil, T., Calantone R. (2006). Knowledge as a strategic resource in supply chains. Journal of Operations Management, Volume 24, Issue 5, September 2006, pp 458-475.
  • Kraemer, D. Ioan O., Yendluri, P. (2007). Realizing the Benefits of Implementing RosettaNet Implementation Framework (RNIF) Version 2.0. RosettaNet Technical Report. Jennergren, L.P.,
  • Muller, W. (1973). Simulation experiments of resource-allocation decisions in two-level organizations. Soc. Sci. Res. pp 333-352.
  • Min, H. and Zhou,G. (2002). Supply Chain Modeling: Past, Present and Future. Computers & Industrial Engineering. 43, pp 231-249.
  • Minor, E.D., Hensley, R.L., Wood, D.R. (1994). A review of empirical manufacturing strategy studies. International Journal of Operations & Production Management 14(1), pp 5- 25.
  • Mollenkopf, D., Gibson, A., Ozanne, L. (2000). The integration of marketing and logistics: an empirical examination of New Zealand firms. Journal of Business Logistics 21(2), pp 89-112.

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