The Differences Between a Consignment & VMI. Which Is The Most Valuable To You?

The Differences Between a Consignment & VMI. Which Is The Most Valuable To You?

You can’t decide. Do you need a vendor consignment or a vendor managed inventory for your aircraft material? These terms get thrown around interchangeably but they’re actually quite different. We wouldn’t call a zebra a lion now would we? Let’s take a look at the relationship of these two inventory strategies…

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.

high inventory turnover through asset management

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

Wasting money? 4 Reasons Why an Aircraft Asset Disposal Program is Right for You

Are you frustrated with idle inventory? Do you wish the money invested into holding costs could be utilized more efficiently? I feel your pain!

I've visited aircraft graveyards in the Mojave as well as large warehouse facilities of airline material management divisions, much like yours.  But I also understand this because I too sit on millions of dollars worth of inventory that have long since been idle.

Whether it be planning for a surge in traffic with the forecast falling short of expectations, modification of an existing aircraft, or an  aircraft on their last stretch of useful life, these are valid reasons for a surge in surplus. But, is this necessary? Maybe.

Back in 1999,  Skylink acquired an  L1011 (see the trivia question to see which celebrity we bought this from), tore it down and began distributing the spares. Not shortly after all the major components we're sold, demand began to fall and we were left with low turnover inventory sitting on our shelves. Why does this matter you ask?

Well, this what our business model is based on, and yours…creating high yield routes, keeping the aircraft in good shape and providing safe transport.

Here are 5 Reasons you Should Consider an Asset Disposal Program:

Helps Fund Operations

Idle inventory never funds an airlines strategic initiatives. It's wasteful, time consuming, and costly. Liquidating this surplus to continuously help fund your operations is an incentive that can be considered.

Idle inventory, is just that, idle inventory. But the money from liquidating such inventory can be used throughout your organization.

Helps you Focus on Core Competencies

Ian Heller's Five Components of a Business Strategy states that in order for an airline to be competitive it must provide consumer benefits, a model that is difficult for competitors to imitate and something that can be leveraged widely to many products and markets.

So what does this mean for you?

Well, it means do what you do best. Create an unbelievably integrated organization that provides valuable services for the customer at the lowest cost. Idle inventory only adds to this cost and the time spent storing and funding logistical avenues for such inventory can be a burden to an airlines overall model.

Helps Reduce Staffing Cost

An aircraft asset disposal program can also reduce staffing cost. No, I don't mean by making cost cuts by eliminating positions, but more importantly utilizing  staff in areas that are more central to the core competencies.

This will allow you to be more efficient, by reducing staffing cost in unproductive idle inventory monitoring activities.

Helps with Higher Asset Turnover

Healthy aftermarket organizations  whom have been in business for decades know the market and what it takes to liquidate spares. They also have experience in quality control,  logistics, warehousing, inventory management and repair management, by which they perform day in and day out. This is their focus and this is what their good at.

In essence utilizing a good aircraft asset disposal  program may be of interest to you. Lowering costs, focusing on core competencies and engaging with a trustworthy aftermarket distributors is key to managing the over abundance of spares in your warehouse.

What would you want out of an aircraft asset disposal program? Respond in the comment section below.