Ans: The year 2007 saw a downturn in the global current economic climate where aviation industry was severely hit by show up in air traffic. While airlines were fighting declining gains, the complicacy of the functions in the aviation extended to take the time airlines throughout the world with Cathay pacific being no exclusion. The turmoil challenged the effective business design of Cathay pacific which was ranked as the best flight of year in 2006. Robert Taylor was working with inventory procedures and following will be the issues that have to be taken into account:
Inventory positioning cost: Lessening the holding cost was one of the very most critical issues encountered by the Cathay Pacific. Because of the convoluted nature of extra parts, it was not feasible to meet up with the demands of all the aircrafts. Given the fact that Cathay pacific has over 120 wide body jets comprising of airbus and Boeing planes, it was very difficult to fulfill the requirements of all airplane at the right time. Because of this the airlines could lose its significant business and in order to avoid those situations, Robert could work on the timely routine assessments of the aircrafts. This will likely enable the organization to create a more comprehensive data on dependence on the spare parts (repairable, rotable etc. )
Buffer stock & Just with time: Primarily the airlines designed the buffer stock management to meet up with the demand in the optimal time. But they still encountered several situations in which a certain part had not been available. It accounted for additional expense for Cathay pacific to create the buffer stock as well as the spare parts in the circulation centre was occupying a lot of space. Later the firm also tried out to implement the Japanese model called just in time which works well in areas like retail and making. But the flight industry is altogether a different situation where an flight cant afford to hold back for the free part during the last minute check when the trip is planned to depart. This will likely eventually cause the further wait of air travel and degrade the passengers experience of soaring with an air travel.
Reduce lead time: The rationalization of supply string in the flight industry allowed the OEMs to monopolize the whole market. Regardless of the demands, it's very difficult for the airlines to lessen their supplier business lead time. Any decrease in lead time like suppliers or the transport can help an airline to fix the condition in the stipulated timeframe. Lessening lead time of different supply chain components can increase source stability and help the organization to work in an efficient manner.
On the other palm there are certain issues that have to be studied into account for the procurement (Paul Barwell):
Switching costs: The free parts can be classified in two requirements i. e. critical and non-critical parts. The complicity of the critical parts restricted Cathay pacific to switch suppliers because of the costs associated with switching. Also counting on the new company for the complicated parts was very difficult for Cathay pacific. Alternatively it had over 200 suppliers for the non-critical parts which required much of resources (money and time) to maintain the partnership.
Forecasting: Although Cathay pacific collaborated with other airlines to improve exchange of information with respect to suppliers list and parts availableness, it wasnt able to reduce its outdated inventory by 100%. With the implementation of 1 platform that will assist the airline to develop a source management circuit to optimize dealer selection and cooperation improvement, the forecasting can be much appropriate to meet up with the demands with time. At exactly the same time, the platform can generate real time data with its collaborators and suppliers through online communication.
What is Cathay Pacific purchasing vitality in aviation extra parts procurement? What exactly are the possible alternatives for improvements in the procurement process?
Ans: Being placed as the best airline in 2006, Cathay pacific could gain certain purchasing electric power in aviation extra parts procurement which is:
Strategic sourcing: Combination functional clubs at Cathay pacific helped in getting leverage on purchasing through the use of a systematic process of reducing the price tag on free parts purchased from different vendors. This technique is obvious from display 5 where it simplified the complicated procedure for sourcing and procurement. This process gave an advantage to Cathay pacific in monitoring, assessing and managing human relationships with suppliers to ensure operational effectiveness. With its implementation, the airline could leverage purchasing vitality across different divisions and negotiate favorable prices with the suppliers. Strategic sourcing also targeted to consolidate the suppliers repository and chose the preferred ones.
Aeroxchange system: Development of a collaborated supply string system to develop the sharing and exchange of information (Extra parts availableness and suppliers list) with different airlines gave an advantage to Cathay Pacific to select a company from the huge databases. After its release in 2000, technological progression in Aeroxhange made this technique with the capacity of doing numerous tasks which helped the airlines to be more effective in their procurement. E. g. : In 2001, Aeroxchange launched its e-procurement program to assimilate the companions for price management and and yes it incorporated the service order management in 2005.
Although Cathay pacific spent a lot of time and money to boost their procurement, there are still many rooms for the advancement in their operations. The annals of Cathay pacific (extracted from case study) says that they have always tried to lock the handles the airlines and specific suppliers to improve their procurement process. Alternatively, one point which should have been taken into account was establishing tactical alliances with the manufacturers (Boeing and Airbus) for the procurement activities. An alliance where manufacturers should concentrate on the materials management and help Cathay pacific to give attention to core business activities. The built in alliance with Boeing and airbus services will achieve better transparency and efficiency in the reference procedures. These services are acquired by most of the big players in the market like Delta airlines and Singapore airlines where they been successful in creating good profits by focusing on their central activities. The other choice for improvement is to reward the suppliers to suggest the cost saving ideas. This will help the airline to build up a sense of competition among suppliers for creating a sustainable and cost effective model for procurement which will eventually result in increasing the efficiency of the fleet.
Economy of level and overall economy of opportunity: The major final result for firms to switch to 3PL is the value they will make from market of scale this means Cathay pacific will have benefit of large truck fleets and warehouses. At exactly the same time, it can enjoy the benefit of economy of range by reducing costs and enhancing the net value of airline. The benefits associated with these economies are attained depending on the type of 3PL spouse (e. g. - IT structured or component structured). Second of all these benefits can help the logistics to work well and efficiently that will also improve the repair management by giving usage of right extra part at the right time.
Capital investment: Outsourcing logistics and repair activities can help Cathay pacific to save cost and therefore reduce financial dangers. Belongings required in creating distribution centers and sites normally need a huge amount of cash that encompasses financial risks and therefore by outsourcing, these risks can be disperse to 3PL associates. Once the hedging of risk in complicated procedures is performed, airlines can concentrate more on their central activities.
Cost effectiveness: To execute the actions of repair and logistics professionals, Cathay pacific will pay millions of dollars to labors. However outsourcing these activities will bring about saving the capital which may be spent on further extension of the airline.
Loss of control: Freelancing 3PL partners will lead to lack of carry and control over their logistics and repair activities. The transparency in these networks would reduce to great extent and could lead to underperformance.
Discontinuity of services: There could be some kind of reasons on the 3PL spouse side which could lead in discontinuity in their services. By the end of the day, the agreement and law makes the 3PL to pay the compensation of damage but that wouldnt help an flight to continue the service proficiently during the specific time.
Difference of thoughts and opinions: The judgment differences between client and 3PL lovers can hinder the service of an airline whose bundle of money is derived from enough time where every minute wait incurs a cost. Alternatively, it will be described as a roadblock for the further extension of the air travel.
Criteria for choosing 3PL partner:
Formation of a team: While choosing a 3PL for logistic and repair management, cross practical team should be made from different divisions of an air travel such as inventory management, control, quality screening etc. Building a cross useful team can help Cathay pacific to find the 3PL professional that fits their requirements.
Objective setting: The target setting will be based upon the requirement of air travel such as cost reducing and focusing on core competencies. Once the firm has establish its objectives, it is simple to choose a 3PL company that will best suit the needs
Service supply: Based on the needs and targets of an airline, the next and most important step is to shortlist the 3PL providers who provide those services. Given the actual fact that logistic and repair management are the main activities that defines the performance of airlines carrier, the combination functional team should consider all trivial and major aspects to close the deal.