5 Huge Reasons To Outsource Your Inventory

Airlines burden themselves with inventory. They procure aircraft parts to avoid costly delays and adversely restrict their financial flexibility.

Inventory works against itself.

It siphons cash, requires more administration, and is a pain in the butt.

You look at having inventory as the ends to a mean, but is it the beginning of a long hard relationship of what to have, when to procure it, and how much money to spend?

Airlines need to keep their fleets in the air, true, but you don’t have to specialize in all areas to make that happen.

Think about it.

Do you provide your own on board catering? Probably not, LSG Sky Chefs is who you’ll usually turn to.

Do you supply your own fuel? Not likely as Shell is someone you would consider instead.

What about aircraft maintenance? Yes, some legacy carriers do their own maintenance, but the majority of airlines will outsource this responsibility.

The same goes with inventory.

Why should you spend your time stocking inventory when you can focus more time and energy on core activities?

Inventory is a burden.

The burden of cash

Cash can vanish with the blink of an eye.

You prepare for future issues, but in the next moment your cash reserves are low and you're spending more money on inventory than anticipated.

With no specific plan, inventory and maintenance is a variable cost that is hard for your CFO to forecast and predict.

Costs add up and become a burden to your available cash for other operational objectives.

Airlines spend on average $1.6M on inventory per aircraft. If you didn’t have to invest in inventory, where could you use this money?

The burden of dust

What is dust worth to you?

The longer a part sits on your shelf the more it incurs holding costs.

At 20% of the value of the part per year, this easily forgettable cost of inventory adds up quickly.

Just think, if you have one $1.6M worth of inventory on your shelves for 12 months, that’s roughly $200,000 in holding costs you’ll have to deal with.

Chat with your CFO and see what she has to say about inventory.

Now go back and think of all the waste for expired or superseded parts.

Just another example of spoilage and you’re not even in the grocery industry.

The burden of administration

You’re thinking, duh, administration is a part of holding costs and you’re right.

But…

Let’s talk about its direct burden.

You have to have people procuring, receiving, inspecting, and maintaining your inventory. Think of the time and resources that’s tied to this activity.

Forget procuring just for maintenance projects, think about the resources that are used for you to hold inventory.

Do you see time and money flying out the window?

I do.

The burden of forecasting

How do you know what parts you’ll need and when?

You could consider the mean times between removal and how many flight hours each aircraft accrues, but is that necessary?

Yes and no.

It's necessary information for you to have but not necessary for you to use into inventory strategies.

When you begin to source components to support your MTBR and line up contingencies, you put more burden on time and money.

It adds up. What is your time and opportunity costs worth?

The burden of specialization

Every hour you spend away from your core activities, you're making an opportunity cost decision.

Calculate how much this costs you.

It’s a lot I’m sure.

Stocking inventory both for consumables and rotables is a specialization. You have to train, develop, and watch market trends.

You need to have a pulse on the industry. Who’s reliable and trustworthy, what are the best logistical options for easy distribution, and the list goes on and on.

These are activities you shouldn’t be engaged in. It doesn't make you money and there’s resources that are educated and reliable enough to do it for you.

The moral of the story is, when you're not focusing on your core competencies every activity becomes a burden.

When you tie specialization into pooling and inventory management programs, it becomes even more efficient for you.

P.S. Do you find inventory becoming a burden? Your solution is component pooling. Learn more by clicking here.

Why Lead Times Are A Nightmare & How To Guarantee Aircraft Component Delivery

How often are you sitting at your desk waiting, wondering, hoping, your aircraft component arrives on time?

It was supposed to arrive 4 days ago but still, you’ve kept waiting.

Every day the component fails to ship is another day your aircraft maintenance schedule is pushed back.

It’s a distribution bottleneck nightmare. And a costly one.

As the days pass, the closer you get to your aircraft being AOG. Scheduled flights are where you make money, not in some hangar. Thousands of dollars are at stake waiting on this measly aircraft component. One component will delay the entire aircraft from generating revenue.

It’s scary. It’s nerve wrecking. It’s a nightmare.

Sitting and waiting on components isn’t the best use of your time. Frankly, it’s an unjustifiable money suck.

In this crazy aviation world, is there a way to avoid this, or at least minimize the effects?

On time delivery

Let’s face it, having the right part, at the right time, at the right place, is critical to airline operations.

After speaking with hundreds of friends and airline partners over the years, it's unanimous. Turn time, lead time time, or whatever else you want to call it is a HUGE issue. It's what keeps you up at night, it’s what delays your maintenance project, and worst of all it's a serious contributor to your AOG expenses.

Meet your new best friend…pooling.

An aircraft component pooling program gives you the flexibility to have the right part at the right time. No headaches of processing POs or wondering if a part is actually “ready to go.”

It gives you complete transparency without the inventory investment.

They’re typically based on a guaranteed service level that work with your unique operation.

If turn time’s are an issue for your MEL, No-Go and even safety stock, aircraft component pooling is something to consider.

Fixed costs

Another benefit to pooling is the fixed costs.

It’s like leasing an aircraft without having to spend the the capital on inventory.

Every month you’ll have a fixed cost based on your service level.

Now you tell me that your CFO wouldn’t be happy with fixed costs? You’ll make his life much easier. But don’t worry, leave me out of it and you can take all the credit.

Even better, pooling programs guarantee stock availability, reducing unnecessary expenditure.

AOGs affect your overall maintenance spending. The more AOGs you have, the more you're going to spend on outright purchases and freight to fix the last minute problem.

Simple to implement

A pooling program doesn’t have to be complicated.

On the basic level you’ll need to know what components you need support with, and from there you can decide on your service level.

Start with reviewing where your issues are occurring and work with a partner that can be flexible with your needs, and help you make the right choice.

An aircraft component pooling program’s goal is to guarantee availability backed by fixed costs. That directly makes your life less stressful and the best part is you don't have to invest in inventory.

Does it get much easier?

P.S. If you need help guaranteeing TAT and component availability, check out our pooling program here. Or if you want to skip that and get right into the details, contact us here.

9 Ways To Reduce Stock & Increase Order Efficiency

Want to know how you can carry little inventory and still support your maintenance projects? Drumroll please.

Through proper planning.

On the eve of a particular Monday I received a “list” of a 100 line items in the form of a good ‘ole consumable / expendable RFQ. You know, the sealants, wire, tape, nuts and bolts type.

Myself and the sales support team began processing the RFQ but something was off.

Something wasn’t right.

Each line item I looked at was ordered last quarter.

I began to wonder why this particular airline was re-creating a process they had already completed the prior quarter.

My mind immediately envisioned a simpler way.

Through proper planning and communication this exaggerated process is 100% avoidable. [CLICK TO TWEET]

After they purchased this requirement “again” they spent an additional $10,000 on labor, processing, shipping and other nuances.

No prices increased and some items had lead times that they had to accommodate.

With proper planning they could have saved $10,000, increased efficiency and avoided stock out delays.

Stock out delays result in increased purchases which leads to excess inventory do to “trying” to avoid the issue in the future.

An inefficient purchasing system

Sending out RFQs to the entire world is a common practice but is it the most efficient?

Industry norm of the send RFQ and watch the flood of quotes come in is okay, but it isn’t efficient.

And it isn’t a viable way to increase vendor reliability as the floodgates of various sources rush in.

This creates improper forecasting, stock buildup, and additional costs to your procurement process.

By the time you receive the quotes, process them and cut the PO, the order cycle has been dramatically extended.

This is especially true for repeat purchases where 95% of the processing time could be avoided, saving money, time and excess stock through vendor demand forecasting.

9 ways to reduce stock and increase order efficiency

Holding onto stock isn’t your primary goal.

It’s not what gets you up in the morning, what you think about during the day or what pays the bills.

Simply put, it’s not your profit generating activity.

Here are 9 ways to reduce your stock and increase order efficiency:

• Use vendor managed inventory & vendor stocking programs: With the right incentives, letting VMI suppliers take the responsibility for replenishment of your inventory, because of their visibility into both their own inventory and your demand data, will always reduce your inventory. Primarily used for maintenance inventories VSPs require your supplier to commit to an extremely high service level for delivery of specific products within a fixed time at a pre-defined mark-up over cost. VSPs can reduce or eliminate inventories for slow-moving products.
• Reduce lead times: When supplier lead times are reduced below the required lead time you set it’ll help remove the requirement to hold much stock, especially consumables. Cutting lead times in half will reduce safety stocks by about 30% for the same availability.
• Improve reliability of supply: Unreliable supply is one of the reasons for holding safety stocks. If delivery is guaranteed on the due date then safety stock can be reduced what's needed to cover common-cause variability. A good start is sharing demand, forecast and stock positions with suppliers. When there’s heightened transparency of information throughout the supply chain it’ll improve reliability and mitigate Bullwhip/Forrester effects.
• Order more frequently: This reduces cycle stock and will often cut it in half. There is a cost as each order will require additional administration overhead and a labour cost to receive the goods. The former can be mitigated with automation and management by exception or through better planning in a Just In Time inventory program.
• Expedite more effectively: Solving supply chain failure quickly will undoubtedly improve service. We’ve all had AOG nightmares. Strong relationships with suppliers means that your expediting process will contribute to 1% point to availability. Without that, availability would have been at 95% – or put another way, good expediting reduced service failure by 20%.
• Forecast more accurately: Better forecasting means lower safety stocks and higher levels of availability. It also means a reduced exposure to excess and obsolete stock risk (a large contributor to your holding cost of stock).
• Liquidate: There’s always a short-term price to pay on the profit and loss (P&L) and the balance sheet, when it’s clear that the value to be gained through liquidation is greater than the most optimistic estimate of future gross margin from conventional product sales, then liquidation is the best decision. You are not in the conventional product sale business so liquidation of absolute or unnecessary stock is highly optimal.
• Strangers strategy: Where there’s a lot of slow moving product in the range, seriously addressing the fulfilment rules of your maintenance activities can make a big difference. Integrating closely with suppliers may enable a back-to-back ordering process and removes the need to hold stock altogether. A close relationship with your supplier is crucial.
• Change the network configuration: The general rule is that the safety stock in the system is proportional to the square root of the number of locations. A hub and spoke approach. Apart from this, understanding the relationship between main store availability and satellite availability is vital. This allows the right balance to be struck between stock in different tiers of the supply chain. Fixing a typical imbalance could reduce stock by up to 10% overall.

Whether you choose one of these strategies or all 9, your primary goal is to reduce stock and increase efficiency.

I challenge you today to implement one and began to make a shift of mass RFQs to structure and deliberate action to your RFQs.

Is your procurement process out of control? Do you have surplus inventory? Are your maintenance projects consistently over budget? Comment below.