British Airways

A Journey in Procurement
Transformation
Case study
Reference no 606-030-1

This case was written by Jamie Anderson, European School of Management and
Technology (ESMT), and Dr Marc Day, Henley Management College. It is intended
to be used as the basis for class discussion rather than to illustrate either
effective or ineffective handling of a management situation. The case was made
possible by the co-operation of British Airways.

© 2006, European School of Management and Technology (ESMT) and Henley

Management College.
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 Procurement Transformation
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British Airways: A Journey In Procurement Transformation

This case article was prepared by Jamie Anderson, European School of Management and Technology and Marc
Day, Henley Management College. Contact: anderson@esmt.org or marc.day@henleymc.ac.uk.

Abstract

This case study critically examines the journey that British Airways (BA) embarked upon between
1999 and 2004 when changing the structure of procurement to meet the demands of an increasingly
competitive marketplace. It also contains an update of the transformation programme up to April 2006.
The procurement team at BA, since 1999, has been significantly downsized whilst the nature of their
work has changed which has been partly driven with the implementation of a sourcing methodology.
This case study looks at how this has contributed to the revision of fortunes for the business, and what
challenges it will have to meet for the future.

Introduction

'The key lesson we learned through this Procurement transformation programme is to consider it first
and foremost as a Change Management initiative - it is not just about designing a process and finding
the right technology - it is all about enabling individuals to use the process and to employ technology
that will make it easier for them. If we had treated this initiative as a Change Management programme
from the outset we could have accelerated the benefits delivery by 18 - 24 months'.

Jonathon Counsell, Head of Strategy and Performance, Procurement, British Airways, April 2004.

During the late 1990s British Airways recognised that there was a lack of consistent process in their
purchasing activities. Further, real cost savings could be achieved if they could consistently apply
rigorous processes across all their purchasing activities. It was acknowledged that the organisation
lacked robust processes that were rigorous and consistently applied for managing an integrated end-to-
end procurement process, and in many cases also lacked adequate systems on which to support a these
processes. The organisation as a whole was not benefiting from the potential savings of shared
knowledge, and procurement was characterised by independent purchasing groups operating in silos.
So it was clear that there was significant additional value to be gained from process change.

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By the end of the 1990s British Airways was spending over £4 billion annually with suppliers,
processing over 350,000 orders per annum, and paying more than half a million invoices. Despite
having its top 150 suppliers accounting for over 80% spend, British Airways worked with over 14,000
suppliers across 80 countries. The company had systems to support purchasing in areas such
engineering, catering, fuel purchasing, user charges (such as navigation), but over £1.5 billion of
annual expenditure for so called ‘indirect purchases’1 had no dedicated buying system.

Senior managers recognised that this situation was far from ideal and launched a transformation
programme in 1999 to capture this potential value from its procurement activities. Procurement gained
even greater priority in 2001 when it was incorporated into the ‘Future Size and Shape’ initiative,
British Airway’s overall transformation strategy looking at both systems and processes across the
entire organisation. Launched in response to the massive external shocks impacting the airline
industry, the initiative called for a 10% operating margin to be achieved as follows:
2002/2004 - £650 million in savings, including £100 million in external spend reduction
2003/2005 - £450 million in savings, including £300 million in external spend reduction
2005/2006 - £300 million of employee cost reduction
This case article discusses the evolution of British Airway’s procurement strategy since 1999, and
provides lessons for any company considering the adoption of a procurement transformation
programme as a way to drive out cost.

British Airways: Company background

British Airways traces its origins back to 1919, when its original predecessor airline launched the
world's first daily scheduled international air service, between Hounslow Heath in the UK and Paris Le
Bourget in France. Since complete privatisation in 1987, British Airways has become one of the
world’s largest airlines. In 2003 more than 38 million people flew with British Airways, across a route
network covering some 216 destinations in 94 countries.

The airline’s flight operations are based in the two main UK hubs of London Heathrow and London
Gatwick. Heathrow is the home of the company’s long-haul network, flying over 50 Boeing 747-400s
and over 40 Boeing 777s. Gatwick is the centre of the European short haul network, which British
Airways now services with a fleet of some 200 aircraft. This includes an all-jet fleet flying more than
five million passengers a year in the UK, under the ‘BA Connect’ banner. Across some 100 countries,

1
British Airways defines ‘Direct Spend’ as expenditure that supports flying activities. The other category, ‘Indirect Spend’ covers
all other expenditure.

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the group employs more than 45,000 people. British Airways services its global network from a
centralised operation in the UK. Over eight-five percent of employees are based in either London
Heathrow, or London Gatwick. The company’s headquarters are at Waterside, a purpose built
operations centre on the outskirts of Heathrow.

With a focus on business travellers, British Airways invests heavily to continually raise the standards
of customer service in the industry. For example the company was the first airline to introduce seats
which convert to a completely flat bed, as part of a £200 million programme to create a unique ‘lounge
in the sky’ to give passengers a personal and private space of their own. The airline also operates a
fourth cabin, World Traveller Plus, on some long haul routes to enable passengers to upgrade from
traditional economy without paying the full business class fare.

British Airways has expanded its route network through a mixture of acquisitions, code share
agreements and strategic alliances. It is one of the founding partners of the One World airline alliance,
which was started in February 1999. British Airways currently owns a seventeen percent stake in the
Australian flag carrier Qantas, and a nine percent stake in the Spanish carrier Iberia. Acquisitions in
the airline industry are heavily regulated, as many states continue to own significant interests in their
former national carriers, and often require clearance from European, US and other competition
authorities.

The airline industry is characterised by steep fluctuations in demand, despite a steady long-term
growth in passenger numbers. The terrorist events of 2001 compounded the effects of an economic
downturn which had already started and the subsequent conflicts, global epidemics and continued
security concerns have hit carriers hard, resulting in huge losses and bankruptcies of several
established companies. Price pressure has also come from low cost carriers and national carriers that
are subsidised by their respective governments. Aviation is also a naturally asset intensive industry
that demands continual investment in aircraft and other capital equipment.

Development of a Procurement Transformation Programme

The development of a procurement transformation programme commenced with the appointment of

Silla Maizey as the Director of Procurement, in October 1999. Promoted from within the organisation,
Maizey brought a strong commercial focus to procurement. She realised that the ultimate goal was to
turn Procurement into a strategic asset of British Airways, which could contribute positively to the
company’s operating performance.

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One of the first initiatives was to merge the Operations Contracts and Purchasing departments. A
second initiative was to hire in an experienced professional, from outside of British Airways, who
would bring different thinking and a fresh approach to procurement. In this regard, Jonathon Counsell
was appointed Head of Strategy and Performance, Procurement, in October 1999. He came from a
senior corporate strategy role in Air New Zealand and brought with him a holistic approach to
procurement which the company identified as a key driver of change.

An external assessment of procurement activities found a fragmented system that was characterised by
independent purchasing groups operating in business unit and country-based silos. The Procurement
staff numbered in excess of 290 people in the UK
alone and spent an average of £4 billion per year Exhibit 1: Procurement Strategic Framework
Strategy determines how we use People, Systems and Structure to
with more than 14,000 suppliers. Yet, only 150 deliver Processes that lead to Business Results

suppliers accounted for 80 percent of total Enablers Results

expenditure. In response to this, Counsell brought

People
in the management consultancy firm Accenture to
help develop a strategy for sourcing. This resulted
Business
Strategy Systems Processes
Results
in a process-led strategic framework, consisting of
six key elements:
Structure

• A clearly articulated procurement strategy.

• Creation, implementation and appraisal of Innovation & Learning

a robust sourcing process.

• Use of evolving technology, to achieve cost efficiencies and to support procurement activities.
• Development of people, to become world-class procurement professionals.
• Implementation of organisational structures, to support people in their roles.
• Sharing knowledge, achieving consistency in pre-negotiation processes to enable coherent
negotiations.

The development of a clear, workable sourcing process was critical to the success of the procurement
transformation. In early 2000 the procurement team launched their first iteration of the process that
would transform sourcing at British Airways. It was adapted from a generic sourcing process which
had been proven in other organisations and industries. Each step of the overall sourcing process is
itself a set of clearly defined activities, tasks and templates to assemble and sort data, but the key to
success was in the implementation.

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BA Adapts Generic Seven Strategic Sourcing Process

The first step is to identify the opportunities available to meet the business need identified by the line
area. This involves actively investigating
Exhibit 2: Strategic Sourcing Process
suppliers other than just those used before, and
Originally with five tollgates, the current process now includes only three
also looking at the possibility of purchasing reviews.

different products which could deliver the

same needs. Once all viable opportunities have
been reviewed, which fit with the plan for that
category of expenditure, the optimum
opportunity is selected through a strict
assessment procedure. The assessment
addresses the total cost of ownership involved
Innovation & Learning
with dealing with a given supplier and in
purchasing a particular product, throughout its lifespan within the company. The third step is to create
a sourcing strategy, which includes plans for approaching a potential supplier, negotiations,
implementation of the subsequent contract, and managing the supplier fulfilment. Step four, the
request for a proposal, marks the start of official contact with the supply market. Negotiations and
implementation form steps five and six. Significantly, there is a final step that goes beyond the
traditional procurement process. This step is the active management of a supplier during and beyond
fulfilment of the agreed contract.
Since 2000 the process has been implemented across all areas of spend covering both direct and
indirect categories.2

Deep Dive: Embedding Strategic Sourcing and Driving Compliance

The focus of the strategic sourcing process outlined above was to redesign BA’s organisational
purchasing processes to bring cost savings, increased control over spending, and more informed
purchasing. The Procurement Group viewed technology as an enabler of this strategy, not as the

2
British Airlines defines four supplier categories: 1. Strategic Relationship- top 100 suppliers; 2.
Collaborative Relationship - fewer than 500 suppliers involving high risk exposure and/or complex
supply chains; 3. Transactional Relationship – fewer than 1,000 suppliers involving high volume but
low risk exposure; and, 4. Opportunistic Relationship – fewer than 500 suppliers serving soft
markets with short-term cost focus.

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driver. Indeed, software systems were already in use throughout British Airways: the Engineering
Group used SAP, and individual bespoke systems were used in catering, fuel purchasing, user charges
(such as navigation) and cargo. These systems would continue under the re-designed process. But
there was a critical area of concern – transactional purchasing of products and services with a low risk
of exposure. Although representing more than £1.2 billion of spend this area of procurement had no
dedicated purchasing system and purchasing took place through a variety of highly resource intensive
methods. Jonathan Counsell and his colleagues set about finding an IT solution which would support
the streamlined process for ‘transactional’ purchases that had been developed as part of the
Procurement Transformation programme. It was envisaged that this would eventually sit next to and
end-to-end supply management process that would cover both strategy development and deployment
(see appendix 1).

Strategic sourcing IT for indirects was in its infancy in 2000. The available products were focused on
tactical procurement and only addressed parts of the challenge. As a first step into this technology, the
Procurement Group chose to trial an on-line auction system. Starting in May 2000, the trial involved
several auctions where suppliers bid for the provision of office supplies and computer consumables to
the UK operations. Although the trial was only for the UK business and only in two product
categories, this was in fact a sizable trial due to the distribution of British Airways’ operational spend.
The trial was a success, achieving approximately five percent saving in IT consumables and a thirty
percent saving in office supplies.

In late 2000 the Group trialled a new e-sourcing product that was designed to facilitate the request for
proposals (RFP) and request for quotations (RFQ) processes. Unfortunately this trial was unsuccessful
because the technology was not sufficiently advanced. Unperturbed, the Group turned to another
software start-up to trial a system that contained project management functionality. The objective of
the trial was to see if it was possible to manage the entire sourcing process through a single software
product, and thus achieve transparency, efficiency, and control over total expenditure. The software
product from this new vendor was capable of providing most of the functionality that the Procurement
Group looked for. However BA held some reservations about the longer time viability of the software
vendor, and were reluctant to scale-up the initiative. Simultaneously the Executive team launched the
‘Future Size and Shape’ initiative, with the announcement of up to 10,000 job cuts. Whilst this loss of
staff was achieved mainly through natural wastage, the disruption to working practices and morale
was inescapable. The Procurement Group believed it would be almost impossible to roll out a new
system at this time because the resistance to change was effectively insurmountable.

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In early 2001 the Procurement Group, with the go-ahead from incoming CEO Rod Eddington,
engaged a new vendor, Ariba, to provide a spend management tool to assist the procurement process
for its ‘transactional’ purchasing categories. Ariba had rapidly emerged as one of the world’s leaders
in strategic sourcing software, and was already working with a large number of large multinational
companies. The ‘Ariba Buyer’ procurement solution selected by British Airways comprised a
multitude of spend management capabilities and features to enable the company to centrally manage
all workforce procurement processes using a single internet-based platform.

Ariba Buyer went live in July 2001, and was initially used for seven indirect categories. At the
beginning of the trial Ariba hosted the eSourcing module on their own server, which was external to
British Airway’s corporate IT system. By doing so, it was possible to set up a working solution more
quickly than could have been achieved in-house at British Airways. Thus the airline was able to
benefit from an early delivery. Also, since the system was up and running, personnel from British
Airways were able to gain valuable insights into how they would implement and manage eSourcing
behind their own firewall once they brought the system in-house. The team launched Ariba Buyer only
in the UK, but because over ninety percent of total expenditure was controlled from there, this was a
significant launch.

From Strategy and Process to Systems and People: Implementing Strategic Sourcing for
‘Transactional’ Purchasing

In March 2003 the strategic Procurement group reviewed the progress of their implementation of a
strategic sourcing approach for NDIs. The initial strategy, which was co-developed with Accenture,
had been steadily revised as the group gained experience and knowledge, and from a structural and
systems point of view the procurement framework seemed to have been successfully implemented.
However the numbers didn’t add up: the process was not being used and the promised cost savings
were not being achieved.

Following on from the trial, the Ariba Buyer solution was working as expected, although take-up was
slow with only 18 product categories now in use. Therefore the group suspected that the processes that
they had designed were wrong, despite the earlier successes. However upon closer inspection it
became apparent that the processes were in fact sound and the expected savings were not achieved
because buyers across the business were not using the system for all of their transactions. The original
monitoring system was flawed – it simply asked buyers to state if they were using the strategic
sourcing process, rather than checking actual usage of the process itself. In reality many buyers were

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simply using their personal methods to purchase and then updating Ariba’s system after the event.
They saw no benefit in using the strategic processes.

To counteract ongoing resistance to the new processes, Counsell launched a two-pronged strategy. The
carrot of the strategy was a change management initiative that not only demonstrated the benefits of
the system, but also provided buyers with the necessary support to use it, including a rigorous training
course called the Learning Programme. To complement help processes and additional communication
structures, the Procurement group also produced a ‘Z card’, a small internal communications
document which could be easily slipped into a pocket or wallet. The Z Card showed, in simple
pictures and clear language, the procurement strategy and the new procurement process. The card also
showed key cost saving goals and demonstrated how the procurement initiative fitted in with the
company’s ‘Future Size and Shape’ programme. These cards were highly successful and buyers even
started to use them when negotiating with their suppliers.

Exhibt 3: Total Number of Orders through Ariba Buyer

7000
6000
5000
4000
3000
2000
1000
0
M Ju Ju A S O N D Ja Fe M A M Ju
2002
ay n- l- ug 2002 2003
ep ct- ov ec n- b- ar2003
pr ay n-
- 02 02 - - 02 - - 03 03 - - - 03

The other part of the strategy was to introduce much tighter controls in the NDI procurement process
and force its adoption. In April 2003 the British Airways Executive Committee reinforced the
importance of strategic sourcing as a key element of the Future Size and Shape programme. With this
backing, Jonathon Counsell now forced purchasers to make all indirect spend on the Ariba Buyer
system if the total value of the purchase exceeded £100,000. In addition, Counsell introduced five ‘toll
gates’ for the strategic sourcing process.

These tollgates reviewed the quality of the buying process and if the buyer’s decision did not pass the
strict criteria, then the entire process stopped. Not surprisingly, the toll gates were met with fierce

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criticism. However the tollgates proved to be highly effective. A newly created External Spend Group
(ESG) conducted the review process, with members drawn from British Airway’s executive leadership
team. The ESG’s commitment was significant and involved 2 four-hour sessions per week. This senior
management group quickly gained a clear picture of total expenditure within the company, and
realised the true value of strategically managed procurement. One of the surprises was the large
amount of discretionary expenditure. At the time buyers were greatly empowered and many could
authorise the spending of £1 million without recourse to senior management.

The fact that such senior personnel were reviewing the purchasing decisions was not lost on the
buyers: their behaviour changed almost immediately and use of the strategic procurement framework
soon became the norm. This led to complete transparency and raised the profile of spending
throughout the organisation because it forced people to take direct responsibility for the expenditure
under their control. The transparency forced self-regulation with the effect that discretionary spending
fell significantly. The rapid take up of the strategic procurement processes and of Ariba Buyer led to a
huge increase in the volume of work for the External Spend Group. This success started to jeopardise
the efficiency of the review process, so the number of tollgates was reduced to three, from the original
five.

To support buyers in their day-to-day role, the Procurement group also set up an internal call centre
that could provide expert advice on the Ariba Buyer system and on use of the strategic procurement
framework. The call centre was highly successful, consistently receiving over 100 calls per day.

Bottom-line Impact

The results of implementing the strategic sourcing process across the entire business have exceeded
expectations, and the cost of implementing Ariba’s systems was returned in only five months.
Although the implementation of British Airway’s strategic sourcing approach is still at a relatively
early phase, several key benefits have been identified:
Increased visibility of spend: British Airways has witnessed a four-fold increase in orders processed
through Ariba Buyer since first quarter 2003, greatly increasing spend visibility. This has helped to
enable supplier consolidation, with the UK supplier roster alone being reduced by sixty-four percent in
2003.

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Exhibit 5: Procurement Savings & Productivity 1999-

2005 1.40
300
1.20

Productivity (Savings
250
1.00
Savings (£m)

per MPE)
200
0.80
150
0.60
100 0.40
50 0.20
0 0.00
1999/00 2000/01 2001/02 2002/03 2003/04 2004/05

Annual Savings (£m) Annual Savings (£m) per Procurement MPE

Increase in contract compliance:

BA has witnessed increased use of preferred suppliers, and reduced off-contract spending. This has
resulted in more goods and services ultimately purchased at lower prices. Leverage of purchasing
power: The Ariba solution has provided greater oversight of purchasing spend, and has enabled
detailed analysis of actual spend with each supplier and product category. Although the
implementation is still at a relatively early stage, British Airways believes that as spend is increasingly
analysed and aggregated the company will use its increased purchasing power to negotiate increased
volume discounts.

The Procurement Group has already achieved: a fifteen percent cost saving on US in-flight catering; a
twenty-one percent reduction on ground fuel differentials at London Heathrow, Gatwick and
Stanstead; a highly successful forward auction for surplus engineering expendables; a thirty-three
percent saving on US debt collection services; and a seventeen percent saving on crew accommodation
in San Francisco, USA.

Reduction in process costs: British Airways has witnessed significantly reduced error rates and
reduced order-processing time. More than eighty percent of purchases are now processed
electronically, with fax and phone usage declining significantly. Average transaction cost has been
reduced by forty percent. The streamlined Ariba solution has also enabled procurement staff to focus
on value-add activities, with the company estimating a forty-eight percent increase in employee
productivity

In 2002/2003 the Procurement Group estimates savings of over £77 million, with an average annual
saving per procurement MPE of £380,000. British Airways highlight that these benefits are only the

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initial benefits of strategic sourcing, and that the company expects to realise a broader array of
advantages in the longer term.

Challenges for the future

Given the success of the Ariba Buyer programme, which had become part of a suite of Ariba products,
the Procurement group decided to pursue the implementation of similar IT tools to support the entire
strategic sourcing process and the management of suppliers. The group used their own procurement
framework to assess competing software products and suppliers, with the result that additional tools
from Ariba’s spend management solution were selected in August 2003.

Having learnt from the implementation of Ariba Buyer, the Procurement group built and started
implementation of Ariba’s Category Manager and Sourcing modules. Roll out of these modules,
across all spend categories, was started in February 2004 and is timed to coincide with the graduation
of procurement personnel from the Learning Programme. The pilot is with a small group of suppliers
and will be extended to further key suppliers over the next twelve months.

The Procurement group also launched an initiative to improve the quality and reliability of supplier
spend information so that the Ariba Analysis module can be implemented in April 2004. This involves
clarifying details of over 3,000 contracts.

In March 2004 the Procurement Group is considering its future priorities, which include:
• Increasing compliance to preferred suppliers. Currently British Airways has 2,800 preferred
suppliers, of which 700 are transacted through Ariba Buyer. However, over 5,000 supplier
records still exist, indicating significant scope for improvement.
• Extension of the number of Ariba Buyer catalogues to encompass further commodities and
suppliers. This is seen as critical because catalogues simplify the ordering process and encourage
use of preferred suppliers. An increased use of catalogues will also improve requisition accuracy
and so speed up the approval process and reduce invoice mismatches.
• Rollout to overseas operations and subsidiaries. The technical effort required to rollout is
relatively straightforward, however change management will be the key to success.
• Integration of Ariba Contracts with Ariba Buyer. This integration will help to ensure that orders
placed with supplier are in line with the agreed terms.

Says Silla Maizey, “In summary, we continue to extend corporate compliance. The whole of the
procurement initiative is predicated on having corporate compliance and we have standing instructions

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in place to put this discipline in. We have supplier consolidation and we have taken the numbers down
from 14,000 and we will shortly be at 2,000. That means that we can manage them and have proper
sourcing strategies in place to go to the market. We have preferred suppliers so those are the only guys
we will do business with. We have our supply chain optimisation plans in place, and we have a strong,
deep use of our e-procurement tool under our transactional procurement. Those levers of price,
demand and specification are what will deliver us that £300 million in savings. This is how we will
shop in BA.”

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Appendix 1: Ariba solutions implemented by British Airways

C u rre n t p ro c u re m e n t s y s te m s

S tra te g ic S o u rc in g T ra n s a c tio n a l P ro c u re m e n t + S u p p lie r M a n a g e m e n t

= =
'N e g o tia te d S a v in g s ' 'R e a lis e d S a v in g s '
.

Implementation

Management
Requisition
Negotiation
Identification
Opportunity

Opportunity

Supplier
Sourcing
Strategy
Selection

Invoice
Order
RFP

Pay
A rib a C a te g o r y M a n a g e r
eSourcing

A rib a A n a ly s is A rib a A n a ly s is

A rib a S o u rc in g

A rib a C o n tra c ts
eProcurement

A rib a B u y e r

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Appendix 2: British Airways Shareprice April 2002 – February 2004

Appendix 3: Financial Performance (2002-2003)

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Appendix 4: Epilogue: What Happened Since April 2004

It is suggested that this appendix be distributed after the case has been analysed in class.

The story of the BA procurement’s transformation has been one of evolution from 2004, with a series
of operational strategies that have been designed around addressing the challenges that the
procurement team were facing at the end of the case study. This has mirrored the challenging time BA
has experienced; competition has continued to be aggressive, head count reductions have continued,
and other savings have been required to support profitability and investment. The company’s progress
in meeting these challenges has reflected well in BA’s stock market valuation. But, there is plenty of
work to be done to make sure that it can continue to invest in the newest aeroplanes and deliver its full
service offering in an ever-crowded marketplace that continues to suffer from overcapacity on certain
key routes. In support of the general competitive challenges for BA Rod Eddington (the former CEO),
in the 2004/2005 Report and Accounts reported that the company was in target to meet employee cost
savings of £300m by 2007. The company was also a step closer to achieving its 10% operating
margin. At 6.9% for the full year the company still has to further reduce costs or increase passenger
numbers.

The key strengths that BA’s procurement team were able to build on stemmed from the installation of
the strategic sourcing process. This stage-gate system of purchasing has been consistently rolled out
across the business by the procurement team, and with top management buy-in and commitment from
the start in 1999, it has been gradually adopted by those with responsibility for procurement decision-
making. This has resulted in greater shares of BA’s spend going through a sourcing process, which by
2006 was processing £3.75bn of BA’s expenditure. It has also meant that the procurement team have
post-negotiation ownership over the management of the contracts which has been important in
enabling savings to be realised through the life of the agreement.

Interestingly, the number of sourcing projects peaked in 2004 and has since been in a gradual decline.
This is because of the concerted effort to reduce the size of the approved suppliers list, with Maizey
hitting her ‘2000 or less’ metric when she said she would. This has resulted in a number of benefits;
• Total headcount employed specifically in procurement has halved between 2002 and 2006
• It’s easier to efficiently route expenditure through preferred supplier contracts (more spend
through less contracts means less administration), and
• The Ariba Buyer system can be used for more line items that can be catalogued from preferred
suppliers (i.e. not services or intangible purchases).

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There have also been some minor personnel changes (a new head of Strategic Procurement and
Performance, Steve Sledger, replaced Jonathan Counsell who took another role at the company), but
the biggest change is in the design of the reporting structures for procurement. The existing teams
(pre-April 2004) have been re-organised and given responsibility for categories expenditure rather
than for steps of the strategic sourcing process.

There were distinct benefits in organizing procurement according to the stages of the sourcing process
in the early days of the change process. Each senior manager and their team was responsible and
accountable for a set of defined steps, the head of procurement could reinforce the change process
through the business by mirroring the sourcing process with the organizational design, and senior
managers outside the business were used in the toll-gate decision making process. But, as the sourcing
process was gradually ingrained into the operating culture of the business it became apparent that
some changes were needed. In particular, sourcing projects involving smaller contracts were too
detailed, and this was time consuming for both senior management outside procurement and for the
specialists themselves in the team So, the ‘full’ sourcing process was slimmed down for contracts of
£1m or less and was given the name ‘Sprint’. This shorter process used a selected number of steps
from the full sourcing process and went through less of the toll-gates. This freed up time and resources
to devote to much larger areas of spend and made the task of operating with less staff more feasible.

It also became important for procurement to reflect the roles of key posts on the board. Accordingly,
each category leader was assigned responsibility for four key areas of expenditure; engineering,
airports & property, commercial, and IT & indirect procurement. This has made each category leader
accountable to their senior colleague on the board. It also gets them closer to a key stakeholder and
ensures that any general category strategies & their individual sourcing plans reflect the business’s
strategic aims and objectives.

The use of technology as an enabler of change has continued since 2004. In particular the use of Ariba
Buyer (inside BA this system is known as ‘BA to Buy’) has made it possible to attack what Steve
Sledger calls ‘the tail’, a large number of small transactions that can account for a large amount of
administrative time and cost but little overall spend. The systems have been rolled out over BA’s
global network after being initially used by the UK operations, which has yielded data to show that
this ‘tail’ of spend can account for a very large number of contracts when it comes to managing the
type of expenditure that BA has to deal with – quite often fragmented small purchases across a wide
range of organisations that are infrequent but time critical when needed. The team at BA have found
that although the Ariba buyer system makes it easier for those doing purchasing (it currently accounts

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for just over 25% of purchases by cost) it does demand that each line item be adequately catalogued in
terms of a good, up to date, description. This costs time and money, and added to this the cost of
upgrading the systems and software means that the technology has only been a partial solution to
managing smaller line item purchases. But, it has also given a great deal of spend visibility and has
aided in tactical spend consolidation for leverage and price comparison across the same categories in
different geographies. In some cases this has resulted in the initiation of a sourcing project to bring
together a bundle of separate areas of spend with suppliers and further consolidate the BA’s supply
base.

Challenges and Next Steps

The procurement change programme, up to April 2006, has been in operation for over six years.
During this time the programme has been focused on contributing, in the broadest sense, to BA’s
target of realising a 10% operating margin. This has been undertaken in procurement thorough
rationalisation of the supplier base, gaining cross-business compliance to a uniform sourcing process,
reducing maverick spending, leveraging spend and avoiding cost creep on negotiated contracts.
However, this in itself provides the next challenge; how do procurement go beyond price down into
the realms of taking cost down and cost out?

In addressing this challenge the team have already been trying to make use of their elevated functional
position within BA and have tried to gain greater project transparency that will lead to expenditures in
the early stages. This gives those with procurement expertise a much better chance of influencing who
the final suppliers will be, what the likely specification for bought-in services and products will be,
and more visibility for the supply base about BA’s plans. These early product and service involvement
activities across BA are the start for procurement’s next strategic transition. In speaking about the way
that BA will attack these challenges, Steve Sledger support the quotation at the start of this case study
from Jonathan Counsell who said that any procurement development programme should be treated as
a change management initiative.

In April 2006 the change priorities that the procurement team is considering involve;

• Gaining much better visibility and more tight control over Step 7 of the sourcing process:
supplier management. This will enable the team to continuously improve the product or
service delivery process between BA and the supplier, thus reducing waste. This may involve
enhancing the supply relationship management skill set for some of the procurement team and
new operational processes to support post-sourcing decisions.

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• Dedicating even more of the procurement team’s time on value-adding activities that will gain
the most payback, even though the size of the procurement team will shrink even further as a
result of headcount reductions across the business. This will require looking at ways to
minimise the time spent on small contracts, making more use of the Ariba Buyer system, and
using the services of procurement service providers.
• Getting much a much more systematic and clear understanding of the supply chains for their
key purchases and influencing their supplier’s supplier selection decisions early on. This will
involve working with key suppliers, in particular those involved with supplying aircraft, on a
more detailed and long-term basis.
• Initiating a more systematic make versus buy process at all levels in the business, and be
rigorous when it comes to making decisions about whether BA should in-source or outsource
certain goods or services.
• Investigate, where possible, the opportunity for global sourcing and use providers based in
low-cost economies when possible, but to make sure that this doesn’t detrimentally affect the
high quality, full service offering that BA has become know to offer.

In summary, procurement has gone a long way in BA from the start of the programme in 1999. "In an
operational environment, it's all too easy to focus on today, today, today, rather than tomorrow," says
Maizey. "That's our challenge at the moment." 3

But, it now faces a step change in both its utilisation of a pool of procurement specialists and in the
type of work that these people will be involved with. However, one thing will remain the same – the
recognition that a proper understanding of change in a business-wide manner and all the associated
aspects of governance, project management, and organizational design have the large impact on
whether BA will succeed or fail in its next wave of procurement change.

3
Quotation taken from an interview with Silla Maizey, 5 June 2003, Supply Management Magazine.

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