“Contingency planning is a given,” says George Silverman, vice president of material management for FedEx Express. “We've been moving shipments around the world for 40 years, and we've learned that it's essential to plan for worst-case scenarios.”
While organizations such as FedEx, European Air Transport and AFI KLM E&M (see page MRO12) have risk-management initiatives in place, that is not the case for the industry as a whole. “These issues have been out there for years, but most commercial airlines and MROs are just beginning to understand the systemic risks in their supply chains,” says Chris Spafford, a partner in the consulting firm Oliver Wyman. “They have looked at inventory management from a cost perspective. Very few people have done it with a risk lens.”
“When you think about supply chain risk management, you're really talking about a risk to your supply,” says Chris Sawchuk, principal for global procurement advisory with The Hackett Group, a Miami-based research and consulting firm.
While there are a number of factors that put a supply chain at risk, depending on the industry, they are all threats to revenue. In the MRO supply chain, revenue is put at risk when an aircraft is grounded because it interrupts supplies.
Several trends are driving the interest in risk management. First, OEMs today are playing a more dominant role in the aftermarket, and so airlines and repair organizations are increasingly single-sourced on parts and services. “To truly de-risk your supply chain, you have to have alternative sources of supply,” Spafford says. “That requires greater competition than we have in the aftermarket today.”
Second, MRO organizations typically have poor visibility into their demand because some repairs are intermittent and variable. Meanwhile, many critical parts and components have long lead times and are expensive—maintaining an inventory ties up resources that could be put to work in other ways; not having them can leave your fleet grounded. “When your demand is intermittent, it's hard to plan,” says Sawchuk. “You have to strike a balance between how many of those large, expensive items you're going to stock against the risk of not having them.”
Third, many of today's supply chains are both long and lean, meaning parts are manufactured or stocked thousands of miles from where they may be needed. “The thing that can be easily and affordably shipped on an ocean freighter is exponentially more expensive as airfreight,” says Sawchuk. “There are also import and export regulatory-compliance factors that can slow down the movement of parts at critical times.”
As the industry looks more deeply at risk management, there are a number of ways to address the issue. “You can't eliminate risk,” says Sawchuk. “So you have to prioritize what it is you want to protect and where to focus your energy.”