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Trading exchange to bring down BA costs

Hundreds of millions of pounds are set to be cut from British Airways annual procurement costs with the announcement last week of an aviation industry electronic trading exchange.

British Airways, along with five of the world’s leading airlines, plan to migrate a combined £32bn procurement budget onto the business-to-business site.E-commerce experts at BA estimate that the web-based exchange will within two years slash £180m from the company?s annual £3.9bn purchasing costs.

US big three American Airlines, Delta Air Lines and United Airlines, along with Continental Airlines and Air France are all set to benefit from streamlining transaction costs and inventories as well as procurement budget.

Thousands of aviation suppliers could now face difficulty or closure as BA aims to whittle its supply chain down from 14,000 to 2,000 suppliers by March 2002.However, a BA spokesman said the shake-up would hit one off suppliers littered through the supply chain rather than established arrangements.

She said: ‘We have 24 florists supplying flowers to our Heathrow office alone, and massive savings can be made if we are more systematic on-line.’

Other benefits include bringing transaction costs from £70 per transaction to £10, and bringing savings to major expense items such as fuel.

The e-venture is set to go live by the end of the year, and comes within a month of rival Star Alliance, which includes Lufthansa and Singapore Airlines, announcing its own web-based exchange.

The rush on-line by the aviation industry follows the announcement last month of a cross-gas and oil industry procurement portal could save £37.5 bn for the hard-pressed sector.

Sources close to the industry said that BA studies have shown that the Star Alliance portal will carry only a third of the goods destined for its rival site.

‘There is probably only room for one industry wide portal’, said one industry insider.?

BA procurement director Silla Maizey said the site would be open to all airlines and had the ?critical mass? to attract carriers and suppliers across the industry.

She said: ?The significant point is that the members of the target group provide a robust geographic spread and run across alliance groupings.?

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