Virtual vendor opens DOD shop

Exostar

Four leading defense contractors have joined to create an elec-tronic marketplace that will not only streamline dealings with parts suppliers, but also could transmit the benefits to Defense Department customers.

The venture, called Exostar Inc., makes it easier for the member companies to buy supplies for their internal operations and the systems they manufacture and enables customers in the aerospace and defense industry to buy parts, services and complete systems. Exo-star is not alone in trying to capture the electronic niche for those markets. But it is unique in that the four founding companies — BAE Systems, Boeing Co., Lockheed Martin Corp. and Raytheon Co. — are competitors, and it is unique in that it plans to attract government business, industry analysts said.

"It's done something that we've all wanted for a long time, which is to try to bring together the whole supply chain in the aerospace and defense industry in a standard way on a standard e-business platform," said James Mandracchia, Exo-star's senior vice president and director of e-commerce for Lockheed Martin. "We want to allow our government customers to help us evolve the platform to the point where it will be totally useful for them."

Half the company targets the government sector, where Exostar is pursuing pilot programs with DOD, and half targets the commercial general aviation market, said Kent Swanson, acting chief executive officer of Exostar and partner at Accenture, formerly Andersen Consulting.

"Companies do business as they do today, but when it comes time to sell, the fastest way to transact is through the exchange," he said.

Exostar has been processing transactions since Sept. 29 and now makes about 1,000 transactions per week. In its first phase, the exchange focuses on buying indirect materials, such as office supplies and computer equipment, for companies — there are now about 40 — that join, Swanson said.

The founding companies buy from and sell to each other and work with the same suppliers, so establishing a common platform made sense, Swanson said. Exostar uses Commerce One Inc.'s e-commerce solutions and is connected to Commerce One's Global Trading Web.

A company's internal systems are connected directly to the exchange so a customer or federal program manager can see what a company such as Lockheed Martin has in its inventory or what programs the company is working on, Swanson said. Members communicate on the exchange using the same standards, he said, and companies are charged per transaction.

"We have plans in the very near future to move into direct [purchasing] and enhance the ability to sell via the exchange," Swanson said.

Exostar's real benefit may not lie in the opportunities to procure ships, tanks and planes electronically but in the trickle-down effect of the vendors' savings from streamlining their supply chains, said Tom Meagher, vice president of equity research at BB&T Capital Market.

"There is increased focus in DOD on improving their internal business operations, including suppliers," Meagher said. "There's an opportunity for [the vendors] to improve their internal efficiency and pass those savings on to DOD."

Exchanges such as Exostar also may succeed if they partner with information technology services and logistics firms that can help agencies such as DOD or NASA improve internal processes, particularly in the procurement area, Mandracchia said.

Exostar is heading in that direction by working with DOD to develop pilot programs that will test Exostar's abilities to conduct electronic procurements, transactions and reverse auctions, Mandracchia said. Although Exostar is not prepared to announce a pilot program yet, the company's goal is to have one under way with each of the military services in the next few months, he said.

The Defense Logistics Agency, the primary provider of supplies and services to U.S. military forces worldwide, is interested in what Exostar has to offer but is not pursuing any specific pilots right now, a DLA spokesman said.Exostar Explained

Exostar Inc. was created for aerospace and defense suppliers by BAE Systems, Boeing Co., Lockheed Martin Corp. and Raytheon Co. It is owned and run as an independent company, but each founding partner holds a stake.

Commerce One Inc., which powers the online transactions, also owns a stake. Accenture (formerly Andersen Consulting) led the design, creation and launch of Exostar.

Exostar's competitors include MyAircraft — a partnership of Honeywell Inc., United Technologies Corp., BFGoodrich Co. and nine major airlines — which focuses on the commercial aerospace industry. Sabre Inc. and Skyfish.com Inc. are also developing an aerospace marketplace; and TRW Inc. Aeronautical Systems has launched an e-marketplace for aerospace and defense equipment.