Source One Round Up: November 27, 2015!

on Friday, November 27, 2015

Source One Round Up: November 27, 2015 

Here's a look at where Source One experts have been featured this week!


Key Factors in Successful Client Management 
Without a doubt, every client engagement is unique. There are some that make your job a breeze and others that make you want to tear your hair out. However, both ultimately want the same thing: successful project/ program completion. This week, Source One's Senior Project Analyst Vishal Sheth share's his client management experience, providing 4 key tips  for making client management smoother. 


AT&T announces plans to improve supply chain sustainability

on Wednesday, November 25, 2015

AT&T announces plans to improve supply chain sustainability

In today's business environment, it's essential for companies to harness strategies and technologies that ensure their operations facilitate long-term growth and success.

Last week, AT&T announced future plans for significantly reducing its carbon footprint and moving toward greener management practices, emphasizing a specific focus on transforming supply chain sustainability. The company's goals were explained in its recently published white paper, "Connect to Good: Roadmap to 2025."

Improving efficiency through measurable goals
"Connect to Good represents our company's vision of using the power of our network to build a better tomorrow," AT&T Senior Vice President Charlene Lake said in the statement. "Our technology will guide us as we work with our employees, customers, suppliers and communities to fulfill our goals."

The white paper indicated that the telecommunications company intends to establish itself as an industry leader in sustainability metrics, sourcing and performance.

AT&T's citizenship and sustainability strategy implies  that, by amplifying the use of innovative technologies, it will be able to improve network efficiency, create low-carbon customer solutions and enhance supply chain technology with strategic suppliers.

"We want to work with other companies and experts to create a methodology for measurement, especially regarding our carbon savings goal," Jenny Robertson, AT&T's director of sustainability, told Sustainable Brands. "We are looking to make an impact beyond our own company. That's part of why it's a long-term goal, and an exciting challenge since nothing like it exists yet. We also know that a methodology built on industry expertise and stakeholder consensus is more meaningful than what we can produce on our own. It helps ensure apples-to-apples measurements and fosters collaboration."

Strategic solutions for sustainable operations
According to its report, AT&T already uses an annual Sustainability Scorecard to evaluate suppliers on environment and social factors. In 2014, the average score was over 70 percent, which the company said it plans to exceed by at least 10 percent in 2017.

In an effort to cut greenhouse gas emissions, AT&T will work with strategic suppliers that have already initiated sustainable practices. It will also base at least 80 percent of its sourcing decisions on sustainability performance metrics.

The company's white paper explained that these goals were fueled by findings from the Global e-Sustainability Initiative's SMARTer2030 report, which proposed that the use of information and communications technology could reduce carbon emissions by 20 percent.

Additional long-term goals mentioned by the white paper included requiring the AT&T fleet to use alternative-fuel vehicles, increasing customers' access to technology, closely tracking, monitoring and measuring performances, and collecting and recycling more than 20 million devices by 2020.


PepsiCo eliminates global procurement department from supply chain


PepsiCo eliminates global procurement department from supply chain

In the ever-evolving world of manufacturing and distribution, companies must consistently monitor supply chains to maximize efficiencies and increase ROI.

Sometimes this means re-strategizing, which is exactly what PepsiCo is doing.

The elimination of procurement professionals
In an effort to improve its operating model and processes, the company recently announced it has let its global procurement team go, which consisted of about 12 team members, some of whom have been placed in other departments, Advertising Age magazine reported.

"We continue to evolve our operating model to be more efficient and effective," a PepsiCo representative told the magazine. "These changes are made with careful consideration and are necessary for us to stay competitive while meeting the future needs of our business. Unfortunately, as a result of these changes, some positions have been impacted. These are never easy decisions but we are committed to supporting affected employees by offering severance packages and comprehensive career transition support."

Of course, laying off procurement professionals does not translate to the removal of procurement processes altogether. According to Ad Age, the company's brand executives will now be responsible for handling the wide range of agency services, including media buying, direct mail and sponsorship. 

According to Spend Matters, PepsiCo's procurement division only needed to add 0.1 percent in value to the company's over $2 billion annual marketing allowance.

The place of procurement in future supply chains
PepsiCo just celebrated 50 years in business this month, and is the parent company of several well-known brands, including Pepsi, Tropicana, Mountain Dew, Quaker, Gatorade and Doritos. As one of the most established leaders in the market, its decision to rid the supply chain of any designated procurement team may influence other companies' approach to in the future handling of procurement operations.

By centralizing the marketing procurement department, companies are able to streamline operations in a way that increases effectiveness and efficiency. The reason for this is because brand executives "are closer to the consumer and allows them to more quickly balance cost value and quality in all of their decisions," explained a non-PepsiCo executive to Ad Age.

However, after surveying 148 members, the Association National Advertisers recently found that 68 percent of participants did not think the elimination of procurement departments would be a long-term solution for companies.

The participants indicated that procurement teams possess distinct value with specific capabilities, and that procurement processes are too substantial to be absorbed by marketing divisions.


Nestle admits to supply chain problems

on Tuesday, November 24, 2015

Nestle admits to supply chain problems

Nestle took a bold step and announced the concerning findings of an independent study of the company's supply chain practices in Thailand, reported The Associated Press. The investigation found that some fish that ends up in their Fancy Feast products is the result of forced labor.

The investigation began at the tail end of 2014, according to the source. Around the same time, reports from the AP "tied brutal and largely unregulated working conditions to their shrimp, prawn and Purina-brand pet foods."

Apparently, many of the laborers come from poorer areas such as Myanmar and Cambodia, upon arrival they are charged a fee to work and then are trapped into working off unreasonable payments, explained the AP.

Proposed solutions
In response to the findings Nestle has proposed a plan for 2016 to address these supply chain issues.

"As we've said consistently, forced labor and human rights abuses have no place in our supply chain," Nestle's Executive Vice President in charge of operations Magdi Batato said in a written statement, according to AP. "Nestle believes that by working with suppliers we can make a positive difference to the sourcing of ingredients."

Undercurrent News reported on the six-page action plan released by Nestle this week. Titled "Responsible Sourcing of Seafood - Thailand," the plan sets out to include new requirements for supplier relationship from the start.

Logistically, that will include things like training initiatives for workers and their boat captains. Nestle is also planning to launch a human rights campaign in the country and create an emergency response team to deal with reported abuses.

"This should include ongoing monitoring of business partners' supply chain management systems by independent third party assessments and identification of risks and issues to be addressed," the action plan states, according to Undercurrent News.

The backbone of these initiatives will be transparency. The company plans to release annual reports regarding progress on these new plans.

A wider reaching problem
The independent study was conducted by a non-profit organization called Verite. The company interviewed over 100 people involved in the process. From site supervisors to boat owners, as well as 80 workers from Myanmar and Cambodia, the interviews revealed deplorable working conditions.

"Sometimes, the net is too heavy and workers get pulled into the water and just disappear. When someone dies, he gets thrown into the water," one Burmese worker told the nonprofit organization Verite commissioned by Nestle, reported AP.

The nonprofit noted that the problems with Thailand working conditions are not limited to Nestle's supply chain. In fact, all workers in the Thailand seafood sector are susceptible to abuses and any companies that source fish from this region face the same problems as Nestle.

Nestle is being applauded for its move towards self-disclosure. While many industries claim to monitor supply chain issues, few are quick to share unfavorable findings, explained the source.

"It's unusual and exemplary. The propensity of the PR and legal departments of companies is not to 'fess up, not to even say they are carefully looking into a problem for fear that they will get hit with lawsuits," said President of the nonprofit Freedom House Mark Lagon, according to AP.

The disclosure does come in the face of lawsuits against the company. Late this summer, Nestle was handed a class-action lawsuit from consumers who had purchased Fancy Feast cat food products. The suit cited an AP report that linked the product to slave labor.

Whatever the reason for Nestle's public disclosure of supply chain issues, the company is taking some noble steps towards fixing supply chain practices for the better. It will be no surprise if more major industry leaders follow suit.


Pfizer proposes $160 billion merger with Allergan


Pfizer proposes $160 billion merger with Allergan

Another merger is topping headlines, this time in the health care industry. Last week pharmaceutical powerhouse Pfizer announced a $160 billion merger with Allergan, reported Healthcare Finance News.

The deal is still pending approval but if it goes through, it will go down as the largest merger of all time in the health care sector. The company's executive offices will move over to Ireland in what is being pegged as a tax-saving inversion deal, explained the source.

Pfizer is set to pay over $360 per share for every Allergan share. Pfizer is best known for its production of Viagra, an erectile dysfunction pill; whereas Allergan is best known for Botox.

"The combination of Allergan and Pfizer is a highly strategic, value-enhancing transaction that brings together two biopharma powerhouses to change lives for the better," said Brent Saunders, Allergan CEO, according to Healthcare Finance News. "This bold action is the next chapter in the successful transformation of Allergan allowing us to operate with greater resources at a much bigger scale."

New company roles
USA Today noted that the combined company would have a projected $25 billion in cash flow by the start of 2018. The new company will be renamed Pfizer and would be set to trade under the PFE ticker at the New York Stock Exchange.

The merger allows the new combo company to preserve Allergan's Irish legal and tax residency. Global operations are set to be based in New York. Current CEO and Chairman of Pfizer Ian Read will keep both titles in the new business and current Allergan CEO Brent Saunders will become president and chief operating officer at Pfizer, reported USA Today.

The company's board of directors will retain all 11 of Pfizer's current directors and four current directors at Allergan will be brought on board.

Regulation road bumps
The agreement will almost certainly face some intense scrutiny from U.S. and European regulators, noted USA Today. Moreover, shareholders for both companies will need to vote to agree on the transaction. Despite these obstacles, company heads are projecting the deal to go through by the end of 2016.

The deal comes at a shaky time for tax inversions in the U.S. Less than a week ago the Obama administration pointed a renewed attack on corporate tax inversions. The Pfizer-Allergan deal is undoubtedly guilty of some form of these tactics.

USA Today defines tax inversions as "transactions in which a U.S. company reincorporates in a lower tax nation in a bid to cut its future tax bills while it's leaving domestic operations in place."

Healthcare Finance News explained that U.S. federal regulators may have a hard time blocking the deal. The merger has been structured to make it appear as if Allergan, based in Ireland, is buying out Pfizer, based in the U.S.

Where regulators may see tax inversion red flags, others may see a beneficial marriage of two pharmaceutical powers. The two companies claim to be pursuing the merger in order to pioneer new developments in the health care realm.

"Through this combination, Pfizer will have greater financial flexibility that will facilitate our continued discovery and development of new innovative medicines for patients, direct return of capital to shareholders and continued investment in the United States, while also enabling our pursuit of business development opportunities on a more competitive footing within our industry," said Pfizer CEO Ian Read, according to the source.

Supply chain heads for both companies should be ready for some serious reconfiguration if the deal breaks through. The two pharmaceutical leaders will undoubtedly consolidate resources in search of improved spend management, making the new combination company an even bigger force to be reckoned with in the health care industry.


New research lab reveals Internet influence on supply chains


New research lab reveals Internet influence on supply chains

The Internet and technological advancements that have been introduced over the past decade have transformed nearly all facets of business, including supply chain operations.

Though it will likely be years before we know exactly what long-term effects these technologies have on supply chain processes, two Arizona State University professors have already started the process.

Elliot Rabinovich and Dale S. Rogers recently created the Internet-Edge Supply Chain Lab to closely examine the relationship between the Internet of Things and various programs, operations and systems. According to its website, the research consortium aims to analyze and assess Internet and digital technologies as they relate to supply chain management, with a specific focus on e-commerce, social consumer behavior and omnichannel retailing.

The influence of e-commerce business and supply chain management
The digitalization of today's business environment has made it possible for people to acquire virtually any product, good or service from the comfort of their homes. While this is ideal for consumers, it presents a distinct set of obstacles for companies.

Internet technologies offer many benefits to business operations, including faster and easier access to essential data and information, increased levels of transparency and insight, as well as expedited delivery times. However, it has also made it necessary for companies to adjust their supply chain processes.

As Rabinovich recently pointed out in W.P. Carey magazine, customers are no longer bystanders; they are now actively involved in the supply chain. The final stage used to be getting a product into stores. Now the final stage is about getting it delivered directly to the consumer's home and efficiently handling return processes.

In the magazine feature, Rabinovich also noted that the level of sociability allowed by the Internet has played a prominent role in matching supply and demand process. Instead of interacting with retail store employees, consumers now make buying decisions from their own home or office, heavily influenced by online reviews and other online shoppers.

The rise of e-commerce also emphasizes the importance of seamless omnichannel retail purchasing experiences, which Rabinovich said is one of the researchers main focus areas, specifically the execution of shipping and fulfillment processes.

Consumers expect a consistent and fluid experience between platforms, from retail and online stores to mobile and desktop applications. And this is not just with business-to-customer transactions, since 86 percent of B2B organizations now offer online shopping directly through their websites, according to a recent Accenture report.

The use of digital devices for data tracking and measuring
With the prevalence of Internet and digital technologies also comes a heavy influx of data. To ensure efficiency, companies must be strategic in their data and tracking analysis. Smart devices provide unprecedented capabilities for tracking and measuring supply chain processes, which is especially important when it comes to inventory management.

"Inventory records at stores generally don't reflect accurately the actual inventory of the stores because store environments are very complex," Rabinovich explained to the magazine. "Customers come and go. They grab products and misplace them. They are not controlled environments, so inventory records tend to be inaccurate."

Digital instruments now allow companies to not only see how much of a product is being bought, but how much of the product is actually being used, how often, and in what way.

The Terra Technology 2015 Forecast Benchmark Study recently revealed 82 percent of the 187 percent greater amount of new products introduced in the past five years have been terminated.

Technological advancements have provided more ways to design, develop and create new products. However, entirely new and innovative items hitting the market can also present complications because it is often difficult to forecast the supply and demand of such products. 


Consumerization of IT

on Monday, November 23, 2015

In my most recent blog post, Social Media shaping thefuture of Marketing, I talked about how social media can help businesses reach their target audience. Social media is influencing both consumers and businesses. Herein lies the concept of consumerization of IT. “Consumerization of IT is a phrase used to describe the cycle of information technology emerging in the consumer market, then spreading to business and government organizations, largely because employees are using the popular ‘consumer market’ technologies and devices at home and then introducing them in the workplace” ( Consumerization of IT refers to the use of consumers’ electronics such as iPhones and tablets at work, as well as online services such as data storage, web mail, and social media. It is driven by employees who buy their own devices, use their personal online service accounts, install their own apps and connect to the corporate network with that device.

The label IT consumerization has been around since at least 2005 when Gartner Inc. stated that consumerization would be the most significant trend affecting IT in the next 10 years. Gartner traced the trend to the doc-com collapse, when IT budgets shrank and many IT vendors shifted focus to bigger consumer IT markets. This resulted in the way technology enters the marketplace. In the past, as with the desktop computer, new technology flowed from business to consumer, however, now the flow has been reversed and the consumer market often receives and buys the newest technology before the enterprise.

Consumerization of IT affects all companies no matter the industry and it affects all aspects of work, not just social media. Because of the way that technology enters the market, employees are often first to purchase the latest and greatest technology. For example, you may see some employees buying the latest smart watch, tablet, or iPhone, while the company itself is still utilizing older devices. With people spending a large amount of time on these newer devices, they come to expect certain functionality on enterprise applications. For example, they expect applications to be more streamlined, easy to use, and good to look at. This means that companies are then influenced by their employees, the consumers, to adapt the functionality of these IT systems, making them more similar in look, feel, and design to those in the market.

According to the IDG Enterprise press release last year, the proliferation of personal devices being used for work purposes has required the majority of organizations (82%) to make changes. The benefit of consumerization of IT is that it puts pressure on the organization to maintain a policy of innovation. When you have users constantly demanding the newest technology, organizations are forced to innovate.

There is a universal expectation that both enterprise IT applications and all digital marketing output have a similar look, feel, and design. With more organizations adopting the BYOD (Bring your own device) policies, continual adaptation to the technology trends is required. Some companies may be the innovators of digital design, but others need to be aware of the trend to keep up. Source One is well versed in these technology trends and we can help you evaluate whether or not your organization is innovating with consumer technology trends.

New report reveals Apple Inc. has greenest supply chain in China


New report reveals Apple Inc. has greenest supply chain in China

The 2015 Corporate Information Transparency Index report recently revealed Apple Inc. has the greenest supply chain management practices in China. CITI analyzed the supply chain operations of 167 brands to determine the environmental impact of each, and examined how willing each seemed to be in making movements toward more sustainable operations.

The Institute of Public and Environmental Affairs and the Natural Resources Defense Canal collaborated to create the CITI annual evaluation, first published in July 2014.

Apple received a higher score than it did last year, tallying a record-setting 72 points.  Coming in second and third were Adidas and H&M, with other major brands occupying the top 10 spots, including Levi's, Marks & Spencer, Panasonic, Microsoft and Walmart.

The index evaluation offers a comprehensive look into which brands and companies have shown promising proficiency in green management practices throughout their facilities in China. The evaluation also aims to help companies identify and resolve wasteful operations along supply chains. Brands are assessed in five main categories, including how inquiry responses are handled, the level of public transparency and data disclosure, recycling programs and supplier screening.

Apple's green practices and sustainable supply chain
Last month, after finishing a 40-megawatt solar project in Sichuan Province that generates more electricity than is used by all Apple offices and retail stores throughout the country, Apple announced its operations are now entirely carbon neutral in China.

"Climate change is one of the great challenges of our time, and the time for action is now," Apple CEO Tim Cook explained. "The transition to a new green economy requires innovation, ambition and purpose. We believe passionately in leaving the world better than we found it and hope that many other suppliers, partners and other companies join us in this important effort."

The results of this report shed a much-needed positive light on Apple's progression. In the past few years the company has faced an array of issues regarding its operations and processes in China.

In 2012, Apple was widely criticized for its factories' labor conditions in China, particularly the ones handling iPhone assembly, The New York Times reported. According to a recent study by University of California, Berkley, an approximated 1.6 million deaths in the country are attributed to air pollution every year. Apple's efforts to integrate green management into its supply chain exemplify the company's adamant attempts to improve conditions and take significant strides toward being a more sustainable and eco-friendly operation.

Green procurement processes
In addition to claiming the No. 1 spot for green supply chain operations, Apple is the top company in the IT industry, highlighting the fact that it is the only one in this category to implement green management practices such as a centralized water treatment system, the report indicated.

Although they may not have ranked at the top of the list, there are still some brands in particular that have shown significant efforts to initiate and implement green procurement processes. It also noted that the IT and textile industries are making considerable efforts to work together to integrate processes and share suppliers, with the hopes of reducing the impact supply chains have on the environment.


Marriott-Starwood merger focuses on supply chain consolidation


Marriott-Starwood merger focuses on supply chain consolidation

Marriott has announced it will buy Starwood in a $12.2 billion deal that will create the world's largest hotel chain, reported Reuters.

The deal would create a hospitality-industry powerhouse with over 5,500 combined locations. Marriott, whose hotels have struggled to establish an international presence in the past will be greatly aided by Starwood's presence in European, Latin American and Asian markets, noted Reuters.

The deal comes during a time of increasing popularity for Airbnb, an apartment-sharing business that allows homeowners to rent out rooms in their houses for travelers. The merger will reportedly help the hotel giants better compete, explained the source.

Analysts doubt that there will be anti-trust objections to the hotel deal. The combination of the two hospitality giants will still only account for fewer than 20 percent of all hotel rooms in the U.S.

In total, Starwood will be in possession of a little over 35 percent of the new company. However, Marriott will add three of Starwood's members onto the Marriott board of executives upon the closing of the deal, according to Reuters.

Arne Sorenson will continue his role as president and CEO of Marriott with the hotel's headquarters in Bethesda, Maryland, reported The New York Times.

Reasoning and supply chain effects
This is not the first merger for Starwood in recent history. Just last month, Starwood's time-share business, Vistana Signature Experiences, merged with Interval Leisure Group, according to NYT.

Moving forward, Marriot will have to keep a close eye on Starwood's Sheraton hotel chain. NYT reported that this branch of hotels has been a pain point for the Starwood brand in recent years. JMP securities analyst Robert LaFleur noted that the Sheraton brand was a major catalyst for Starwood's review process.

This newest merger comes at a time of increased consolidation in the hotel industry and online travel spaces, explained USA Today.

"The online travel reservations operators have been consolidating as well,'' said Kellner Capital Research Director Scott Kim, according to the source.  "So as online travel aggregators get larger, I think the suppliers, which are namely the hotel operators and reservation systems, really have to try and get larger as well to keep some balance of power in negotiations. So it's really consolidation along the whole supply chain.''

The source also pointed out that the merger is less about rebranding efforts and more about consolidating practices among the two hotel industry supply chains.

Starwood owns major hotel chains like Westin Hotels, Four Points by Sheraton and Sheraton Hotels. Marriot brings The Ritz-Carlton, Courtyard and Renaissance Hotels into the mix. The combination of these hotels' suppliers, distributors and other supply chain sources could be key in terms of cost reduction and overall supply chain management.

"The announcement of this acquisition continues the consolidation trend in the travel industry, it is unlikely that it stops here," said Euromonitor International's Travel Analyst Wouter Geerts, reported by NYT.

If Geerts' predictions ring true, this could mean big news for supply chains across the globe. Consolidation will become the name of the game and supply chains will have to readjust accordingly.


Source One Round Up: November 20, 2015

on Friday, November 20, 2015

Source One Round Up: November 20, 2015 

Here's a look at where Source One experts have been featured this week!


Marketing: It's Time to Give Procurement a Seat
Of the many trends occurring in marketing and advertising, none compared to tremendous number of agency reviews. However, an agency review isn't a decision made overnight and stems from the need to drive further value from the client-agency relationship.Enter the role of procurement. This week Source One's Marketing pundit and Project Analyst Peter Portanova explains why marketing and procurement need to work together to get the most bang for a company's marketing bucks. These two departments don't need to be enemies and Peter breaks down how both core competencies can be leveraged for an impactful win. 


General Mills vows cuts in supply chain emissions


General Mills vows cuts in supply chain emissions

In early September General Mills announced a pledge to reduce company greenhouse gas emissions by 2025 to 28 percent of 2010 levels, reported Environmental Leader. This is not the first set of strides toward sustainability by the business. Since 2005, General Mills has committed to focusing on its overall emissions and has largely succeeded. In the past ten years the business' emissions have been reduced by 13 percent.

"We know our greatest impact is outside our four walls particularly in agriculture, ingredients and packaging," said Chairman and CEO of General Mills Ken Powell, according to the source. "To reduce emission levels, we must work across our value chain with growers, suppliers, customers and industry partners."

The company plans to continue efforts toward supply chain emissions cuts in the future. Environmental Leader listed General Mills' plan for the next 10 years.

  • Make $100 billion more in investments towards clean and efficient energy.
  • Continue to seek out partners to help with a speedy transition to sustainable farming practices. This effort will be specifically focused on creating climate-proof soils.
  • Improve packaging measures in a sustainable fashion.
  • Support farmers throughout the supply chain in their paths towards climate resiliency.

General Mills focuses on global impact
These measures have great potential to make an impact on sustainability. General Mills' supply chain is far-reaching. The company is a world leader in manufacturing with major foods falling under the company name, from Haagen-Dazs to Yoplait, reported The Climate Group.

The business' decision to make the move toward a more sustainable commitment arose for a few different reasons. First, General Mills saw a clear opportunity to help improve global conditions. The sheer size of the business and its supply chains allows the company to take big steps towards cutting down global greenhouse emission rates, explained the source.

Second, General Mills has been able to save money via these supply chain measures. Transfiguring supply chain production techniques to accommodate more sustainable practices has the added bonus of increasing efficiency and creating overall cost reductions for many companies.

"Since we've been on this journey, we've saved money," said John Church in an interview with The Climate Group. "When you look at an entire value chain, there is the opportunity to apply only the right amount of inputs to reduce waste - waste that, inevitably, leads to greenhouse gases generation."

Lastly, the marketing power of taking a supply chain down a greener path is a smart move for any company. A recent study by Nielsen found that 55 percent of consumers are willing to take on price increases to ensure a business is committed to positive environmental impacts.

"Consumers around the world are saying loud and clear that a brand's social purpose is among the factors that influence purchase decisions," said Nielsen's Global Leader of Public Development and Sustainability Amy Fenton.

Whichever way you slice it, this move by General Mills will have major impacts on supply chain practices and can be considered a big win for the green movement.


What is MRO applied to the Aeronautical Industry?


Anyone working in the supply chain industry knows what MRO stands for: Maintenance, Repair and Overhaul. MRO can be applied to a wide range of industries, from small products to bigger ones, like aircraft. As explained in a previous post: The Aeronautical Industry: ready for take-off!, the aeronautical MRO market is experiencing booming growth due to an increasing number of passengers. Airline companies have to closely follow manufacturers’ instructions and comply with standards defined by national and international authorities, with the sole goal of continuously increasing flight safety and ensuring better flight quality for the passengers. Yet, most airlines companies’ clients know little about how MRO contributes largely into making planes the safest way to travel today, what it entails to, and how much it costs.

Aeronautical MRO can be categorized in 4 branches: Engines, Line Maintenance (including any unscheduled maintenance due to unforeseen events, scheduled checks as described above, maintenance on en route aircraft, etc.), components repair and spare parts inventory, and heavy maintenance & modification. Each of these categories vary in necessary allocation of resources. For example, maintenance operation performed on engines (representing the current biggest cost segment of the 4 MRO categories) requires more material than Line Maintenance, which requires mostly man power. Also, MRO operations are performed either in-house, by the airline companies’ personnel, or out-sourced to certified sub-contractors, raising the question: what MRO services are outsourced and to what extent?

As described in a previous blog post and in studies from IATA, the contract maintenance industry is continuously growing. Reaching 65% of the total direct maintenance spend for airline companies in 2013, it is predicted to continue to grow in the near future. While line maintenance is commonly performed in-house, airline companies tend to outsource heavy maintenance and overhauls operations, as these operations require more sophisticated equipment and more experienced personnel. Smaller startup airlines, for which investing in associated capital expenditure (equipment, personnel and training, etc.) is not feasible, are particularly interested in outsourcing such services. Moreover, heavy maintenance along with spare part management are areas where airlines companies have often identified potential for cost-savings if out-sourced, as repair stations offer efficient and attractive solution to such services.

So, who can perform maintenance operation on planes, and what is typically done during these operations? MRO in the aeronautical industry involves multiple actors. Airline companies are responsible for maintaining and repairing their crafts, while manufacturers are tasked with providing their clients with a complete set of documentation and maintenance and repair instructions. Only personnel authorized by the national airworthiness authorities (the Federal Aviation Administration (FAA) in the United States) can perform and validate maintenance tasks, following a strict maintenance plan defined by the manufacturers and to be completed every specified hours of flight or cycle (a cycle is one takeoff/landing).
So, what is an aircraft MRO operation? Most of the manufacturers require their products to undergo regular testing, or “checks,” usually categorized as A, B, C or D. While the A, B and C checks usually refer to Maintenance operations, D checks refer more to heavy maintenance and overhaul operations. Indeed, the D check requires the aircraft to be immobilized for several weeks or months, depending on the type of aircraft and its associated total flight hours, and involves partially dismantling the aircraft to inspect and repair, if needed, every single component. 

Outsourcing MRO operations in the aeronautical industry is not a simple task. Airline companies’ challenged to maintain their aircrafts’ airworthiness while reducing the associated costs. Selecting and managing subcontractors capable of providing MRO services in alignment with international regulations and company objectives require resources, internal or external, such as strategic sourcing firms, to be done correctly.