June 01, 2012
Inventory management can be boiled down to a simple concept: it's all about having the right part, at the right place, at the right time, in the right quantity and at the right price.
While the five Rs of inventory management apply to all industries, they are critical to overhaul and maintenance operations. No one wants to have an aircraft sitting on the ground because a “no-go” component is sitting in a warehouse in London when it's needed in Miami. For that reason, operations managers would like nothing more than store rooms bursting with just-in-case inventory.
At the same time, no financial officer wants to tie up more cash than is necessary to have inventory available when it's needed.
Balancing those opposing goals has led fleet operators to rethink their inventory management strategies. Those strategies include interest in pooling and exchanges among North American airlines. “The carrying cost of inventory runs us about 20% of the value of the part per year,” says Terry Inglis, director of materials at JetBlue. “If you think about it just in those terms, you have to ask if it isn't smarter to let someone else own your inventory.”
“Airlines have known for a long time that no one can carry all the parts they need,” adds Ed Wodarski, vice president of solutions for Servigistics, a provider of supply chain software solutions for managing service parts. “Now, we're seeing the emergence of these various ways that inventory can be owned, brokered, pooled or exchanged to meet service level requirements without one airline owning all of it,” he says.
An Evolving Market
In some respects, this is not new. Inventory sharing and pooling arrangements have been embraced by European and Asian airlines for decades. The ATLAS and KSSU parts consortiums were formed in Europe in the mid-1970s to support the introduction of widebody jets. While those pools ceased operating about 20 years ago, Air France Industries KLM Engineering & Maintenance have major pools supporting three geographic regions, with locations in Miami, Kuala Lumpur, Singapore, Paris and Amsterdam. Those are supplemented by smaller local pools at various strategic locations around the world.
Those early pools served a strategic purpose for European and Asian airlines. “Back then, it was harder to get parts to those geographic areas than in North America,” says Josh Abelson, senior vice president of supply chain solutions for AeroTurbine. “In some instances, you had to wait three days to get a part delivered.”