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Now go back and think of all the waste for expired or superseded parts.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