Posted at 11.03.2018
Cathay Pacific Airways Small is a very profitable airline and has its business all around the globe. They get many awards for his or her functional efficiency and it has contributed too much to their success. Behind all this success there are numerous tedious jobs of aircraft maintenance, fixes and services. Each and every airline requires normal maintenance to ensure functional smoothness and safety. This maintenance process range from regular servicing of aircrafts, change of broken parts, repair of ruined parts, etc. Also to allow this process of maintenance, Cathay Pacific requires a sophisticated spare parts management process.
They have one free parts management process but it offers some drawbacks and certain issues have to be addressed to refine the process and to increase its efficiency. First main point is that these aviation free parts is very expensive and so has very undesirable effect on Cathay Pacific's balance sheet. They have got sufficient inventory of the extra parts but which significant ratio of parts are dead and inactive stock. They can not simply be rid of the parts because for aircraft safety certain parts are necessary and can be required anytime. They can't earth the plane for long time as costs of aeroplanes delays and grounding the plane are very high.
The usage structure of these extra parts is highly unpredictable and therefore, future demand forecasting is one of the challenging duties for Cathay Pacific. Aviation extra parts are mainly divided into two categories Critical and non-critical. Critical free parts market is principally dominated by the OEM (Original Equipment Producer) suppliers while there are many suppliers for non-critical free parts and the switching option is obtainable. However, this switching option is not advised as these switching costs are extremely high.
Robert and Paul need to be addressed all these issues but there are other issues and factors they have to consider. To begin with for critical parts they have to consider the choice of outsourcing the maintenance of rotatables or getting service packs where the OEM provides option of overhauling. For non critical parts, they have to think about cutting down their suppliers. Cathay Pacific has around 2300 suppliers. Cathay Pacific utilize it system for spare parts management nevertheless they don't have collaborative IT system which facilitates communication between Cathay Pacific and their suppliers. In addition they need to consider this new green movement. They need to reduce their carbon footprint to lessen new environmental taxes and also save a large number of kilometres and therefore, fuel prices.
Some of the options they have are to do tipping point examination ( ). It is an end-to-end diagnosis of the resource chain management process. It's very beneficial to determine at what point certain parts are had a need to make available or to keep forward to reduce enough time and transportation costs. This action of earning the parts available closer to demand helps minimizing travel and carbon emissions but only at the increased inventory costs. They curently have increased inventory costs thus this can not be very difficult for the coffee lover. However, there are other options available to further reduce high inventory costs. Other available choices are global sourcing. This means reducing the amount of suppliers and the selection of suppliers that are spread around the world. Cathay Pacific already has its hubs in various continents. Selecting the suppliers' close to these hubs is a good move around in the process of amelioration of supply chain. This will help to reduce the links in the existing supply chain also to reduce the amount of the quest. As Mr. Wall membrane of Jaguar Land Rover talks about, "Now you can't just look at the purchase price of parts, but you have to check out the full total landed costs including freight, packaging, traditions and the cost of going back any unique containers. " Selection of few suppliers with long term relationship will lengthen the IT systems and create a collaborative system which will be beneficial for all and can result into least travel costs and travelling time to the place of demand.
The alliance of different airlines will also be useful to decrease the suppliers' power in case there is critical parts and also help show the inventory of free parts. They are already doing this and also have to continue to market such types of activities. As Judy Blackburn, head of the united kingdom logistics team at Kurt Salmon Associates (consultancy company) explains that whenever two or more competitors get together and combine their logistics procedures and transport systems, they can save roughly 15-20 percent in travel costs. Alternative party logistics can be considered a great option as they may use the knowledge of other company for these extra parts management and can focus on their primary business.
There are two categories of spare elements of the airplane. First one is crucial parts and second is non-critical parts. As far as purchasing power is concerned, for critical parts i. e. airplane engines, etc. Cathay Pacific has suprisingly low purchasing power. The main reason behind this is strict air expert restrictions and the critical parts manufacturers hold an expertise in their parts.
When it involves non-critical part, Cathay Pacific has certain purchasing ability as there are many suppliers. However they should take an account that switching costs in one supplier to another. The best practice they can do is to create an alliance for aircraft extra parts procurement. They curently have an alliance, so if all airlines come together and try to unify their procurement process, they have more purchasing vitality. Also they don't need to keep much buffer stock or one flight doesn't need to keep a buffer stock which indeed costs more and has a considerable effect on the total amount sheet.
If they don't want to create an alliance, they need to decrease their range of suppliers. But while doing this, they can use global sourcing strategy. This implies to select the suppliers around the world and near to Cathay Pacific hubs. In this manner, they can decrease the going time of extra parts using their dealer to Cathay Pacific hubs and save costs on travel and CO2 emissions.
When it comes to buffer stock, there are not many options available to decrease the expenses. However, using proper examination tools and proper IT system, which collaborates using their suppliers too, they can calculate the demand time and place and provide required spare parts.
Procurement process is indeed very important process to guarantee the proper option of free parts at the right time and the place where the part is necessary. Cathay Pacific comes with an IT system but the use of collaborative IT systems where Cathay Pacific and their suppliers use a unitary platform to communicate with each other and trade is imperative to cut down buffer stock. They must reduce the amount of suppliers and stretch this collaborative It system that will deliver positive results. The reduced variety of suppliers and the writing of computer systems will build the trust between them and build the long-term relationship.
Third party logistics is one of the best ways to execute the logistics activities and a significant factor in the supply chain management process. As most of the companies can focus on their primary business and these third party logistics (3PL) providers can do the rest. The outsourcing company can count on the experience of these 3PL providers. Nowadays many global companies are using these 3PL services. Thus, we can declare that these services are very popular and have got some advantages. But as the word says every coin has two sides, these 3PL services have positive as well as negative attributes.
First, we will have a look on positive aspects. These 3PL providers have an knowledge and resources to provide logistic services. These resources include warehouse, transportation facilities, better IT systems to trail and collaborate with other subcontractors, if any, etc. Thus any companies can achieve economies of range and economies of range. With regards to Cathay Pacific, they can outsource their extra parts inventory management to 3PL providers. Thus, Cathay Pacific will be able to save on warehouse facilities and transfer facilities of necessary free parts in case there is demand. The direct aftereffect of this outsourcing activity will be decrease in capital investment.
There is you don't need to change Cathay Pacific's resource string system as they can just raise an order or necessary requests and the rest will be completed by 3PL service provider. 3PL company will collaborate with the suppliers if needed and do the needful. By synchronising the functions with other deliveries and other customers, 3PL provider can benefit economies of level. This also means that indirectly, Cathay Pacific will have economies of scale. Other good thing about 3PL is Cathay Pacific can focus on its main competencies and customer service to give the better customer experience and other part of vehicle repairs will be handled by 3PL professional.
Risk showing and the reduction in the risks will be other important concern when it comes to 3PL providers. First of all, engaging with 3PL will directly give the advantages of reduced financial risks to Cathay Pacific. Costs personal savings, better cashflow and better usage of resources will be the other important benefits.
But there are a few down sides too. Outsourcing logistics and repair management to 3PL means Cathay Pacific will haven't any control or less control in its own activities. Other important risk is of discontinuation of the services of 3PL specialist and the difference in the conception. 3PL provider will look at these repair management and free parts logistics process in different angle than Cathay Pacific. There has to be some coordination or basic understanding between these two companies to ensure easy and dispute free businesses. If 3PL professional moves bankrupt or similar case Cathay Pacific will have huge impact as it has to manage all the activities suddenly and at the brief notice.
The above questions arise if they have 3PL specialist. But to find 3PL provider is very complex task. To begin with it is not easy to build up or to build reliable and cost-effective romantic relationship. Any mistake in this selection process will lead to huge economic deficits for Cathay Pacific. Second, there exists basic need of information sharing. They have to have basic IT systems which facilitate and ensure the even flow and writing of information. Then, in this case there's a risk of information leak. The information leak is very dangerous and may lead to huge losses for the company.
Thus, the question occurs how Cathay Pacific should continue for selection of its 3PL providers to ensure they will meet the needs? Cathay Pacific has to verify certain aspects to ensure that 3PL service provider is ending up in their expectations. They are able to start by arranging the set of objectives which they want to meet by inviting 3PL specialist. They are able to then start doing the list of prospective 3PL providers and inviting their proposals. These proposals can include previous protection details and other details.
It is actually a good practice to check previous shipping details and other important documents like licensing, insurance and other necessary factors. They must review these factors and decrease the set of their prospective 3PL providers to 3-4 providers. After it is good practice to check on and visit the providers' facilities when possible. This will help to rate the facilities as per Cathay Pacific's requirements. Additionally, it may help to check for the area of business of these 3PL providers. These visits can help Cathay Pacific to look at the employees of 3PL provider, their work ethics and their commercial culture.
These practices will help Cathay Pacific to choose the best 3PL provider for their vehicle repairs management and spare parts management. You can find another probability is to collaborate with other airline companies and build an independent organisation which will specialise in 3PL activities or extra parts management and repair management activities. The similar and the best exemplory case of this kind of activity is WNS Global Services which is made by English Airways with other airlines for reservation and baggage handling services for airlines and other travel services. The corporation now handles leading end and back again end activities for many airlines and also provides various financial services, etc. This will help to get the skills of the participant airlines in the given domain and permit decrease in costs and risks.