Leveraging traditional parts trading expertise to manage airline inventories
John Holmes, vice-president and CEO of the Aviation Services division of AAR discusses the trend of MROs developing and implementing web-based inventory systems to replace paper parts catalogs with mobile apps, provide access to technical data, search part availability and other activities.
Airlines spend billions of dollars annually to locate and buy parts from an extensive list of suppliers. For most aircraft owners and operators, maintaining adequate inventories of parts across a regional or global operations area is becoming increasingly expensive and problematic.
Not only are today’s aircraft more complex, they need increasingly specialized and expensive parts. And in addition to the cost of the parts themselves, airlines must often have customized facilities and equipment to use the parts properly and expend considerable resources on procurement, supplier management and logistics.
Clearly, obtaining and maintaining enormous in-house stocks is an expensive, time-consuming and challenging process. It is also increasingly difficult to justify in light of the savings available from experienced and capable partners with proven expertise in complex inventory management and logistics to handle part procurement and deployment. That is why airlines are turning to MROs and OEMs as they look for ways to improve efficiency and cut the costs of aviation maintenance.
MROs Have The Goods
MROs are leading the industry in the development and application of complex inventory management strategies, techniques and technology. They take advantage of sophisticated optimization algorithms to determine the best placement of the right quantities of each part and manage very efficient transportation links to deliver parts without delay. Such technology also enables MROs to reduce overall inventory investment and total cost of aircraft inventory management while improving availability and eliminating delays that keep aircraft on the ground (AOG) when they should be in the air generating revenue.
Yet many industry players still rely on traditional channels in spare parts inventory trade-related processes. They have not embraced online ecommerce enabled solutions that provide up-to-date spare parts inventory, real-time pricing and improved spare parts inventory visibility. Complicating matters, industry projections show there will be a significant increase in aircraft retirements in the near future, but many airlines with aging fleets lack internal capabilities to match niche buyers with their surplus MRO parts.
Leading MROs are implementing web-based systems and mobile apps to replace paper parts catalogs, provide access to technical data, search part availability, approve work orders, order parts, check order status and much more.
A recent Oliver Wyman survey revealed that one leading North American airline was unnecessarily holding $110 million in parts that were not critical to operations and required little lead-time for delivery. An optimized inventory management system would hold few, if any, such parts, using its resources for more critical parts and those with longer lead times.
Established MROs such as AAR offer a wealth of experience managing a widely dispersed network of parts repositories and delivery systems. They use the latest in aircraft inventory management and planning systems to optimize inventory availability. And because they support multiple carriers with large combined fleets of many aircraft types, they bring economies of scale that reduce costs and provide higher availability of parts where and when they are needed. In fact, some experts predict that by 2020, most airline operators will have abandoned their inventory stocks altogether, according to Locatory.com, relying on third-party providers to take care of this critical support function.
An Age Of New Technology
New IT solutions and new realities are changing this industry. According to SITA, in the near future, 75% of airlines will increase their spending on new IT solutions to optimize their costs and spare part procurement processes. Leading MROs are implementing technologies ahead of airlines and offering superior aircraft inventory management service at lower costs than airlines could manage on their own. And these services are available with a remarkably short and effective transition process.
An experienced MRO such as AAR, with its roots in the parts trading business and a broad support network, can run the parts side of aircraft maintenance management operations more effectively and at lower cost. For example, AAR has proprietary systems and models that can predict where on an aircraft parts will break, which helps ensure repair work is not delayed waiting for parts.
Air Canada was a case in point; three years ago, the airline lost its component supply chain provider. AAR was able to use our trading and sourcing business to mobilize 7,500 components, which represented the airline’s entire component and materials supply chain, in 72 hours. Notably, Air Canada had no maintenance- or parts-related delays or cancellations during that period.
Technology, experience and economies of scale combine to deliver significant benefits from outsourced inventory management programs. These programs: