$13 Billion Commercial Airline: Second largest commercial airline lands IT services savings with ICG Commerce sourcing services

Situation:

With an urgent need for cost reductions, a major airline identified IT Services as a purchasing category with significant savings opportunity. The company was contracting with 16 different IT service vendors at an annual cost of $16 million, and their vendors' wages and mark-ups were not well understood due to a lack of standard processes and metrics for hiring and tracking vendors. Prior to the sourcing initiative, the company established initial objectives that included reducing their number of preferred suppliers by at least 50%, saving a minimum of $400,000 annually and expanding sourcing and category management capabilities within their internal Supply Chain Management (SCM) group.

Solution:

ICG Commerce brought eSourcing and extensive expertise in the IT services category to the airline company. The airline tasked ICG Commerce with facilitating sourcing of IT services while integrating the airline's new eSourcing tool into the strategic sourcing process. ICG Commerce assessed the airline's prior IT service purchases, processes and suppliers. After interviewing key stakeholders to identify IT staff requirements, ICG Commerce began identifying and qualifying more than 50 suppliers through eRFIs and eRFQs. An online auction was used to further increase competition among vendors during the negotiation phase. ICG Commerce assisted the company to further evaluate the resulting 14 supplier bids.

While sourcing the category for the company, ICG Commerce integrated the airline's new eSourcing tool into the sourcing process so that best practices and efficiencies could be achieved in future sourcing. ICG Commerce helped drive compliance by providing training and support to the airline's end users so that they could grow more comfortable with the technology and leverage it for additional purchasing categories.

Results:

Within 8 weeks, ICG Commerce and the airline had successfully completed the sourcing initiative that effectively reduced the supply base by more than 50% - down to 6 vendors from 16. ICG Commerce negotiated a combination of standard wage rates and reduced mark-ups to produce savings of $3.5 million, or 22%, for the airline. In addition, the airline obtained better overall service agreements from the vendors as a result of the sourcing initiative.