Super Easy Way to Reduce Aircraft Component AOGs With Insurance

Aircraft spare parts is a big deal. The aviation industry spends $5 billion, yes with a B, annually on replenish stock.

Stock is the insurance policy against unplanned removals and it's costly. No wonder so many people are stressed.

According to Oliver Wyman, this has a collective airline sheet balance of $19 billion. And yes, again with a big giant B.

Having the right aircraft components, at the right time, and in the right place is critical. Notice how I left out price?

Overstocking aircraft components isn't the solution

Many airlines have issues with over-insuring less critical and poorly positioned components and under-insuring highly critical components. Olivery Wyman estimates $175 million in similar inefficiencies for one major airline.

A lot of provisioning is organized from the recommended spare parts list (RSPL) from the manufacture. This is not a very bright idea. These lists often overlook the insurance nature of spare assets. It's a good starting point but not a gold standard.

They're typically conservative at best and over inflated at worst.

One solution for a good insurance policy is outsourcing

Airlines have begun relying on third parties to provision their spare parts needs. This improves access to aircraft components while reducing the significant amounts of capital tied up in inventory.

Aerotime explains it perfectly:

"Although maintaining a spare parts stock has long been a routine part of any airline’s life, it seems the situation has been gradually changing for a while now. Under competitive pressure more and more airlines have actually been abandoning the strategy of holding huge and expensive parts stock to support their operations.

In fact, according to the industry experts, the airlines have been reducing their stocks for about 10 years now, if not more. If such a pace remains, it is said that by 2020, the operators will abandon inventory stocking at all, thus switching solely to the offerings from third-party providers. Nevertheless, if this scenario in fact proves to be true, the industry has still a lot to do in order to improve the efficiency, transparency and reliability of such services."

Relying just on a third party isn't a good insurance policy

Outsourcing is a great way to reduce capital tied up on the shelves, but for an effective aircraft component insurance policy, it's not just up to them.

[Tweet "Focusing your efforts on internal processes can dramatically reduce your cycle time."]

Oliver Wyman states that for most airlines each day they reduce their cycle time amounts it can translate to $1 million in inventory shed from the balance sheet. Amazing!

In order for you to reduce your capital and AOG pressure, incorporate a better aircraft component insurance strategy into your operations.

Do you need better insurance to cover your AOG needs? Are you in need of spare parts provisioning? Fill out the form below and we'd love to help.

High Turnover and the Inventory Dream

You sit in your office, wondering, waiting.

The mess on your shelves is a never ending doom of dust and debris.

You fight with yourself trying to figure out when it will sell or when it should be scrapped.

Aircraft component surplus is a common problem. A costly problem.

It’s a marriage problem.

Often times people feel married, dedicated to the parts.

A few years ago, more like 7, we decided to move to another location.

We had old Rolls-Royce engine nacelles lining the wall, several hundred feet of wings and struts hanging and consuming the outside perimeter of the warehouse.

Prior to the move I walked into the warehouse, with a deep sigh, and thought, what a bunch of junk.

The material had sat in the warehouse for over a decade and was deemed useless and costly to continue to sit. So we decided to scrap it.

Now, as an airline you have the option to consign the material to someone like Skylink but for us, at this time, scrapping was in our best interest.

For you, creating a strategy where you have high inventory turnover may seem impractical, but it may not be a so far from being just a dream.

Inventory turnover

Inventory turnover is defined as how many times a company’s inventory is sold and replaced over a period. This is a valid definition for someone like Skylink.

For you, inventory turnover is defined as the liquidation of unnecessary components to reduce cost and fund profit generating activities.

High inventory levels are unhealthy because they represent an investment with a rate of return of zero. It also opens you up to trouble should prices begin to fall. Another very big issue we see.

Often times airline surplus is still expected to get the same return from pricing 10 years old. Unrealistic and hard to achieve.

The best option to avoid this is to consign your assets to a trusted partner who specializes in the resale of aircraft spares. And it’s for this reason we have our Asset Management program.

By utilizing a skilled partner who does this day in and day you will ensure a higher inventory turnover than you experience now, it will cost you less to staff and facilitate sales, and reduce your overhead expenditure.

An asset management program is an excellent tool if you see your inventory levels rising and dust beginning to collect.

If you're interested in such an asset management program, Click here

Quality Assurance: Your Vendor Can't Define It

We’ve all experienced an aircraft spares quality control issue at some time or another and if your experience was anything like mine, it was beyond annoying. It was ridiculous. Quality assurance should be an essential part of every organization and it goes far beyond the meaning of a good product. It's better  defined as a good brand. I recently ran into a problem with a new company whom we were dealing with for the first time and it was quality assurance at it's worst.

Imagine this. You send a $10,000 order to a company, which has to be wired up front, but due to a severe time constraint, you overlook your typical vendor approval process to make sure the unit is at your facility the next day. You figure, you can finish the paperwork in the morning. The next day arrives and your chief inspector is ready to review the material but the order never shows up. You call the vendor…no answer! You call FedEx…package is untraceable!

Through some luck you end up getting in contact with the vendor, however he is disengaged and states "we dropped the package off at FedEx, if they lost it, too bad". Now at this point I'm sure you're furious, so you call FedEx. FedEx tells you they reviewed the video tapes and the gentlemen who dropped off the package, came back and asked to retake the package  because he "forgot" something. At this point you know you've found a crook and unfortunately time is going to have to be spent chasing this guy around.

You see this happened to me and if I just had relied on the quality assurance program we had in place for new vendors, this could have been avoided… I was  constrained by a deadline and rushed.

Here are 3 reasons why your vendor needs a quality assurance program:

1. Reduces Risk

With lower barriers to entry, we've all seen an increase in aircraft spares part suppliers, mostly low overhead "brokers", but the amount of honest companies compared to the amount of actual companies is low. What a quality assurance program  forces companies to do is to be organized. They must understand that policy and procedures are necessary to minimize quality control issues during the aircraft spares sales process.

It isn't easy and it takes time  and additional staff to do so.

Quality assurance drastically reduces the risk you'll take in dealing with a company. If they have an internal audit form, a QC manual and specific policies in place, you have a much better chance of knowing your dealing with someone reputable. Isn't this critical when dealing with expensive assets such as aircraft spares?

2. Reduces Laziness

Do you want to deal with a company that appears to be lazy, I don't. A quality assurance program help's distinguish the lazy companies from the companies who are making an effort. If they don't have specific guidelines to abide by in their quality department, they're lazy. And what's worse than a lazy company? Being lazy in quality control means they're lazy in shipping, customer service, among every other aspect of their organization.

Lazy here, lazy there, lazy everywhere!

3. Increases Organization

Having structured, quality control procedures you can be certain that the organization you're dealing with is more organized than the companies who don't. From record keeping, aircraft spares traceability, vendor audits, shipping standards, certain activities have to be in place and organization is essential.

The moral of the quality control story is...try to deal with vendors whom have a history of quality on their side. But make sure you broaden your view, because you deserve not only a high quality product but a high quality service experience as well.

What are some quality  assurance concerns you experience? Comment below.