Posted at 12.15.2018
The yr 2007 found a downturn in the global current economic climate where aviation industry was severely hit by street to redemption in air traffic. While airlines were struggling with declining earnings, the complicacy of the functions in the aviation continuing to trouble airlines across the world with Cathay pacific being no exception. The crisis challenged the useful business design of Cathay pacific that was positioned as the best air travel of time in 2006. Robert Taylor was dealing with inventory operations and following are the issues that have to be taken into account:
Inventory possessing cost: Reducing the holding cost was one of the very most critical issues confronted by the Cathay Pacific. Due to the convoluted aspect of spare parts, it was not feasible to meet up with the demands of all aircrafts. Given the fact that Cathay pacific has over 120 huge body jets comprising of airbus and Boeing planes, it was very difficult to fulfill the requirements of all the plane at the right time. As a result the airlines could lose its significant business and to avoid those situations, Robert can work on the well-timed routine investigations of the aircrafts. This will likely enable the organization to create a more thorough data on requirement of the free parts (repairable, rotable etc. )
Buffer stock & Just with time: Primarily the airlines included the buffer stock management to meet the demand in the perfect time. But they still experienced several situations where a certain part was not available. It accounted for additional cost for Cathay pacific to create the buffer stock and also the free parts in the circulation center was occupying a lot of space. Later the firm also tried to implement japan model called just with time which works well in areas like retail and production. But the flight industry is all together a different scenario where an air travel cant afford to hold back for the spare part during the last minute check when the air travel is planned to depart. This may eventually cause the further hold off of airfare and degrade the passengers experience of soaring with an air travel.
Reduce lead time: The rationalization of resource chain in the flight industry allowed the OEMs to monopolize the complete market. Irrespective 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 travel can help an airline to fix the challenge in the stipulated time frame. Reducing lead time of different source string components can increase source stability and help the company to work in an effective manner.
On the other palm there are certain issues that contain to be taken into consideration for the procurement (Paul Barwell):
Switching costs: The extra parts can be categorized in two standards i. e. critical and non-critical parts. The complicity of the critical parts restricted Cathay pacific to change suppliers because of the costs associated with turning. Also counting on the new company for the complicated parts was very difficult for Cathay pacific. Alternatively it acquired over 200 suppliers for the non-critical parts which required a lot of resources (money and time) to keep up the partnership.
Forecasting: Although Cathay pacific collaborated with other airlines to enhance exchange of information with respect to suppliers list and parts availableness, it wasnt in a position to reduce its outdated inventory by 100%. With all the implementation of 1 platform that will assist the airline to build up a resource management routine to optimize distributor selection and cooperation improvement, the forecasting can be much exact to meet the demands with time. At exactly the same time, the platform can generate real-time data using its collaborators and suppliers through online communication.
Ans: Being placed as the best airline in 2006, Cathay pacific was able to gain certain purchasing ability in aviation free parts procurement which is:
Strategic sourcing: Combination functional clubs at Cathay pacific helped in getting leverage on purchasing by applying a systematic process of reducing the price of free parts purchased from different vendors. This technique is visible from exhibit 5 where it simplified the complicated procedure for sourcing and procurement. This technique gave an advantage to Cathay pacific in monitoring, assessing and managing connections with suppliers to ensure functional effectiveness. With its implementation, the airline could leverage purchasing electricity across different divisions and negotiate beneficial prices with the suppliers. Strategic sourcing also targeted to consolidate the suppliers data source and find the preferred ones.
Aeroxchange system: Development of a collaborated resource string system to increase the sharing and exchange of information (Spare parts availableness and suppliers list) with different airlines gave an advantage to Cathay Pacific to choose a company from the huge data source. After its kick off in 2000, scientific progress in Aeroxhange made this technique capable of doing numerous duties which helped the airlines to become more effective in their procurement. E. g. : In 2001, Aeroxchange launched its e-procurement system to incorporate the partners for offer management and also it integrated the service order management in 2005.
Although Cathay pacific spent lots of time and money to boost their procurement, you may still find many rooms for the progress in their operations. The annals of Cathay pacific (obtained from research study) says that they have always tried out to lock the handles the airlines and specific suppliers to improve their procurement process. On the other hand, one point that should have been taken into account was establishing strategic 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 concentrate on central business activities. The designed alliance with Boeing and airbus services will help to achieve increased transparency and efficiency in the tool functions. These services are obtained by most of the best players on the market like Delta airlines and Singapore airlines where they been successful in producing good earnings by focusing on their central activities. The other solution for improvement is to praise the suppliers to suggest the price saving ideas. This can help the airline to develop a sense of competition among suppliers for developing a sustainable and cost effective model for procurement which will eventually result in increasing the output of the fleet.
Economy of size and overall economy of opportunity: The major end result for firms to change to 3PL is the value they will create from economy of scale which means Cathay pacific will have good thing about large truck fleets and warehouses. At the same time, it can benefit from the benefit of overall economy of range by reducing costs and enhancing the net value of airline. The advantages of these economies are gained with regards to the type of 3PL partner (e. g. - IT based mostly or component established). Second these benefits can help the logistics to work effectively and efficiently that may 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 lots of cost and hence reduce financial hazards. Property required in building syndication centers and sites normally need a huge amount of cash that encompasses financial hazards and therefore by outsourcing, these dangers can be spread to 3PL partners. After the hedging of risk in complicated processes is done, airlines can concentrate more on the core activities.
Cost efficiency: To perform the actions of repair and logistics managers, Cathay pacific pays off millions of dollars to labors. However outsourcing these activities will lead to saving the administrative centre that can be spent on further development of the flight.
Loss of control: Freelancing 3PL companions will lead to lack of keep and control over their logistics and repair activities. The transparency in these systems would diminish to great amount and could lead to underperformance.
Discontinuity of services: There could be some sort of reasons on the 3PL partner side which could lead in discontinuity in their services. At the end of your day, the contract and law causes the 3PL to pay the settlement of damage but that wouldnt help an air travel to continue the service effectively through the specific time.
Difference of view: The judgment differences between customer and 3PL associates can prevent the service of your airline whose bundle of money comes from enough time where every minute delay incurs a cost. On the other hand, it will certainly be a roadblock for the further growth of the flight.
Criteria for choosing 3PL spouse:
Formation of your team: While choosing a 3PL for logistic and repair management, mix useful team should be made from different divisions associated with an air travel such as inventory management, control, quality evaluation etc. Creating a cross functional team can help Cathay pacific to choose the 3PL professional that fits their requirements.
Objective setting up: The target setting will be based upon the requirement of the flight such as cost slicing and concentrating on core competencies. After the firm has establish its aims, it is simple to choose a 3PL provider that will best suit the needs
Service availability: Predicated on the needs and targets of an flight, the next & most important step is to shortlist the 3PL providers who provide those services. Given the fact that logistic and repair management will be the key activities that defines the performance associated with an airlines carrier, the cross functional team should consider all trivial and major aspects to close the offer.