Spare parts inventory management
The spare parts inventory management business is central to the operational efficiency of an airline. Numerous solutions are now available to help reduce lead times and cost, but with more competition than before and airlines wanting smaller inventories, how does the sector remain off the ground? Hannah Davies looks at supply and demand, parts locator services, and assesses the future outlook for the sector.
Preventing an aircraft-on-ground (AOG) situation is a priority for airlines, as every minute that an aircraft is not flying it loses money. Therefore, adopting the most efficient spare parts inventory management and support programme is fundamental to a carrier's success. "In the aviation business the most critical strategy is to have the right part at the right time, as well as competitiveness," says Deepak Sharma, director of technical, A J Walter Aviation (AJW), adding that, "knowing the demand patterns and planning inventory accordingly" is crucial to meeting customer needs and remaining successful as a business.
Although the demand for spare parts is constant, a trend of airlines wanting smaller inventories has become apparent. "Airlines in recent times do not want to invest large capital in inventory," says Sharma. "Tying up capital on equipment gives very little return on investment".
However, "such patterns seem to be quite normal" and as expected with such a change in demand, a level of "unprecedented competition in the market place" has been found. Competition "encourages suppliers to deliver better quality equipment and an overall improved service", says Sharma. Dan Komnenovich, president and CEO of Aviall, agrees, commenting that "we can never sit back and relax, assuming our market share is safe and our current offering is sufficient... as nearly every company is striving to differentiate their product or service in order to take away business".
So, as airlines downsize on inventory investment the competition for spare parts providers gets fiercer, with each company offering tailored services to help operators forecast what stock they may need, as well as ensuring that those parts are readily available.
"Many airlines have significantly reduced their investments in on-hand inventory to help control costs," comments Komnenovich. "Lead times for many aircraft parts can be weeks, months or even longer, but airlines cannot afford for aircraft to be grounded for long periods of time while they wait on a needed part. Therefore it's critical that we stock as many of those parts as possible so we can support our customers." Aviall currently stocks more than $2bn in available inventory and lists more than two million part numbers in its system.
Regardless of individual airline demands, the priority across the sector is to get spare parts out to customers as quickly as possible, at the lowest cost. "The biggest thing is, you want the parts as close to the point of demand as possible," says John Holmes, group VP, aviation supply chain at AAR. Sharma explains that there are two main challenges with regard to ensuring reduced lead time, which are: logistics and inventory, "ensuring that you have a very good logistical arrangement and serviceable equipment on shelves".
Inventory management solutions
Companies such as AAR, AJW and Aviall all offer numerous solutions to help airlines improve their spare parts inventory management, including full support programmes, power-by-the-hour (PBH) agreements, cost-by-flight-hour programmes, forecasting, web tools and managed repairs. Parts locator services (PLS) are also on hand to further assist the supply of spare parts to airlines through their databases and by developing new technologies.
Tailored packages are offered to airlines to help reduce costs depending on operation type; anything from a single part to millions of dollars' worth of packages, consignment, managed repairs and cost plan programmes are available to AJW customers, with cost-by-flight-hour proving popular as it "streamlines cash out", resulting in less pressure on cash flow for airlines, says Sharma. Favouring newer, more fuel efficient models has also helped airlines control costs as they require less maintenance.
In October 2011, AAR acquired Airinmar, a specialist in repair management services which in total manages about $600m of component spend per annum, offering a "suite of systems and processes that optimise the repair loop", says Holmes. By expediting parts, Airinmar can "reduce turnaround times from about 30-40 per cent", ultimately reducing individual costs. In addition, it has developed an SPT (shop processing time) management system that allows customers to quickly accept solutions offered by repair vendors against higher turnaround time parts in order to meet demand.
Another inventory management solution that is "exceptionally reliable" for customers to adopt is pooling - unless the fleet is very large. "Pooling is the most effective for rotable assets and most airlines maintain their own pools of rotables," comments Komnenovich. However, as airlines fight to cut costs the options of shared pools or outsourcing rotable programmes become favourable inventory management solutions. Aviall offers a rotable pool and repair management service to its customers, allowing them to access parts when needed, minus the costs of maintaining an inventory.