Why Strategic Sourcing can be the best set of wings for airline companies

As described in the previous blog: What is MRO applied to the Aeronautical Industry?, getting an aircraft “serviceable” is a continuous large-scale project, involving multiple factors and well-defined practices. That being said, aircraft airworthiness can be ensured through different service models, more or less outsourced, but always aiming at maximizing operational performance to minimize planes downtime as much as possible. While these models are today well established, the biggest challenge facing airline companies is maintaining and reinforcing their financial performances! Indeed, the commercial aerospace industry met, for the first time over the past decade, shareholders’ expectations. However, profitability remains low with a forecasted net profit margin of 5.1% for the year 2016. A solution for Airline companies to keep up with their recent performances is to optimize their MRO operational services by reducing costs without impacting an already well established quality of service.

Easy to say, but not easy to do! Strategic sourcing methods such as RFx are great tools for achieving such objectives, but must be properly conducted and managed to maximize its efficiency. RFx can be used to generate cost efficient solutions for the following MRO service categories:

·         Inventory management, whether being performed in-house or outsourced to value-added suppliers.

·         Maintenance operation, when outsourced.

These MRO services fall under two main branches: Base Maintenance (Including engines, components repair, spare parts inventory and heavy maintenance) and Line Maintenance (done at the gate or on the ramp in between flights), and can be outsourced in four different models:

·     1-  Fully integrated: Inventory management and maintenance operations of both Base and Line maintenance are entirely performed in-house by the airline company. This practice is mostly used by airlines companies with large, varied fleets and extensive route structure.

·       2- Partially outsourced: Most of inventory management and maintenance operations are performed in-house; some services are outsourced. Usually, Base Maintenance inventory management is the most commonly outsourced service. This practice is mostly used by airline companies with a few different fleet types.

·       3-  Mostly outsourced:  Only critical operations are kept in-house. Each airline will have a different definition of what services are critical to their organization. For example, Base maintenance services can be fully outsourced while Line Maintenance services will be kept in-house.

·        4-  Wholly outsourced: Both Base Maintenance and Line Maintenance services are outsourced. This practice is mostly used by smaller airlines companies with limited financial capabilities who cannot afford the capital expenditures associated with these MRO services.

RFx can be used within each of the aforementioned models to achieve cost reductions while maintaining or improving operational efficiency and service quality. RFx allows for not only evaluating the cost effectiveness solution of purchased items, it is also a great tool assessing and comparing suppliers’ value added services such as VMI, Just-in-Time, or operational capabilities to the market. When applied to aircraft MRO, RFx can be used to accurately evaluate third party vendors’ financial status, workforce certifications, capabilities and experience, as well as their performance and associated cost based on a set of criteria tailored to airline companies’ objectives and strategy. Incumbent suppliers’ relationship can be consolidated by developing and implementing multi-year contracts with standardized terms and conditions, or new third party vendors with proven capabilities for a given product or service category can be brought in.

Strategic sourcing tools such as RFx appear to be a valuable solution for airline companies to sustain their recent financial performances. While understanding the spend categories is an important aspect, properly engaging both stakeholders and suppliers is critical in order to ensure RFx success. Strategic Sourcing firms, with extensive experience in managing and executing such projects, can be of great value for airline companies seeking to reach challenging objectives in a timely manner.

Source One's MRO category management experts will be at ISM2016, where Source One is the exclusive sponsor of the Exec IN forum. Want to save on registration costs to attend this landmark event? Learn more over at SourceOneInc.Com.