As Tiffany explains, this setup allows the carrier to “purchase the right quantities” of inventory. “The goal is to perform to specification with less inventory than we had in the past,” he says.
At the same time, Tiffany points out that the two groups also are working with Southwest's finance people to make sure that all inventory purchasing stays within or below budget. “With the AirTran acquisition last year, we are also reviewing and becoming more aggressive with our material planning and allocation process, not only with respect to purchasing new material, but sending it out for repair, and returning it to inventory.”
Tiffany reports that, at the same time, Southwest has become more engaged in vendor contract management and performance, taking a more hands-on and less passive approach. “When we bought AirTran, it was an opportunity to revisit a lot of vendor relationships. There were opportunities to reduce costs and improve our bargaining position by more actively managing our supply base.”
As Tiffany points out, the Southwest/AirTran combination accounted for more than 500 different suppliers. “That required us to focus on those suppliers where there is high volume and spending. As the contracts with those vendors expire, we are looking at those that need to be revisited.”
One change is to migrate away from “evergreen contracts” that are renewed automatically every 1–2 years, says Tiffany. “We want to make sure that the supplier provides the materials or services at the most competitive market prices, which tend to change year by year.”
Any focus on supplier contracts now includes a greater emphasis on performance measurements. As an example, about three years ago, JetBlue Airways introduced a reliability measurement that tracks the time between unscheduled removals of components, as well as the average number of days it takes to carry out repair orders.
“We measure the time from when a component is picked up from our loading dock to when we receive it back from the repair vendor for return to serviceable stock,” says Ken Highlander, JetBlue's manager of technical purchasing and repairs. “We are capturing the whole supply chain process.”
Highlander says the airline continuously monitors its supplier performance through quarterly meetings and a scorecard. Over the past 18–24 months, “the performance measurement system” has reduced component repair cycles to 20 days from an average of 35. “We have established lean industrial processes on our end, and have worked with our suppliers to do this, as well. The benefit has been greater material availability.”
Prior to instituting performance measurement, JetBlue had nearly $85 million worth of components out for repair at any given time. Under the new system, that has been reduced to about $41 million. “We have been able to grow the airline without having to buy additional inventory,” says Highlander.
JetBlue's performance measurement effort has impacted 85% of the airline's Airbus A320 components. It has also been extended to those used on the Embraer 190, since in many cases the carrier's suppliers handle material for both aircraft types.