British Airways Saves £500 Million with Ariba

Ariba, a spend management solutions provider, announced that its technology has enabled British Airways (BA), Europe’s largest airline, to deliver significant cost savings over the past six years. An early adopter of spend management, BA has successfully implemented Ariba technologies and best practice processes to streamline its procurement function and gain the visibility into and control over its spend needed to deliver measurable and sustainable results.

“BA recognized before many companies that spend management is the fastest, most efficient way to reduce costs, improve profits and gain competitive advantage,” said Mike Arenth, General Manager, EMEA, Ariba. “BA didn’t hesitate in starting on the journey to spend management and has quickly moved toward excellence.”

At the end of 1999, BA was spending more than £4 billion a year with suppliers. The company urgently needed to re-examine its procurement function to achieve an overall savings target of £1.4 billion by 2006. “Back in 2000, procurement in BA was well established, but buying procedures were inconsistent, staffing levels were high and around a quarter of spend was with non-preferred suppliers,” said Tim Richardson, General Manager of Procurement Operations, BA.

Manual strategic sourcing was introduced in 2001 which started the change process, and progress accelerated with the introduction of new technology in 2003 that enabled a systematic closed-loop approach to sourcing and procurement. BA selected Ariba as its partner on this task and began a full implementation of Ariba’s spend management solutions, including Ariba Buyer™, Ariba Analysis™ and Ariba Contract Compliance™.

Use of Ariba was not immediately welcomed at BA. Maverick buying continued until procurement began contacting staff members who attempted to order goods without using the new system. “This was all part of a systematic compliance program that started sending a signal to people that this is how things would be done from now on,” Richardson said. And it worked. By 2005 compliance to the ordering systems was virtually 100 percent.

Not happy with simply streamlining processes, BA again raised the bar. The company announced three 'golden rules' that would allow it to better manage its spend and transform procurement from a tactical process to a strategic one. First, all orders must be raised and registered through Ariba Buyer. Second, only preferred suppliers can be used. And third, for any purchase over £100,000 the full strategic sourcing process must be followed.

Whereas BA had used technology in the past to tackle areas of direct spend, it had never looked at using technology to improve indirect procurement, despite the fact that it accounted for up to £1 billion in spend. Since implementing Ariba’s solutions, BA has changed and has seen impressive results beyond just savings:

* Reduction in UK preferred supplier base from 14,000 to 2,500

* 80 percent of purchases now processed electronically

“Procurement is now less about processing orders and more about strategic sourcing and finding the best quality products at the best price. And Ariba Spend Management is the best solution in the market for helping us to achieve our goals,” said Silla Maizey, Procurement Director, BA.