Smarter MRO 5 strategies for increasing speed, improving reliability, and reducing costs all at the same time

Transcription

1 Smarter MRO 5 strategies for icreasig speed, improvig reliability, ad reducig costs all at the same time

2 Cotets Itroductio 3 The ed state: A itegrated approach to MRO 4 Achieve short ad cosistet turaroud time (TAT) usig a combiatio of lea, Six Sigma, theory of costraits, ad iformatio 5 Improve the desig ad plaig of maiteace 7 Reduce ivetory, while icreasig service levels 9 Select the right MRO IT solutio ad extract value from that ivestmet 13 Craft a fact-based outsourcig strategy 16 Coclusio 19 Cotacts 20

3 Itroductio A few leadig airlies ad MRO compaies have figured out how to exploit opportuities to reduce the cost of maiteace, repair, ad overhaul (MRO) operatios by 8-15 percet. What do they kow that their competitors do t? It s tougher tha ever to perform MRO operatios efficietly ad effectively. From outside, material costs are risig. From iside, siloed processes, disparate systems, ad data overload make it hard to coordiate the whole MRO process, from schedulig ad forecastig to ivetory maagemet ad repleishmet. Oly a few airframe, egie ad compoet MRO compaies have a approach that eables simplificatio, stadardizatio, speed, ad do it right the first time quality. But those that do are reducig total costs by 8-15 percet iitially ad achievig a sustaiable competitive advatage with cotiuous improvemet. Smarter MRO 3

4 The ed state: A itegrated approach to MRO Sometimes, it s best to begi at the ed. What s the ideal state for maiteace, repair, ad overhaul operatios? A appropriate aswer is a itegrated approach i which processes, people (icludig OEMs, third-party providers, ad vedors), ad techology are coected, each compoet of the whole process fiely tued ad coordiated to achieve optimal reliability for the lowest possible cost (chart A). I such a process a few advatages are apparet: 1) processes are desiged for the most ratioal flow of materials, tools, ad groud support equipmet (GSE) with the least possible huma itervetio; 2) people collaborate to esure that each oe s actios are appropriate for the greater good, which is fleet reliability at competitive costs ad cosistet turaroud time; ad 3) data is used aalytically to ehace the flows of material ad iformatio. Itegratio is so importat because MRO is such a complex process: a small mistake i a sigle activity will likely carry through from A to Z, impactig each subsequet activity ad creatig costly delays. If forecastig is off, the required material wo t be available dow the lie. If material maagemet is poor, ivetory is t i the right place at the right time (ad it s more likely to become obsolete). If work scopes are t stadard, every job is a potetial oe-off. If egie iductio is icomplete or iaccurate, fial assembly will be late. Just a few missteps ca lead to a ureliable fleet, ad every day that a plae is grouded cuts ito profit. Implemetig the followig five strategies ca help MRO orgaizatios i their efforts to become more efficiet ad effective. Chart A. A itegrated MRO process Fleet reliability Reliability maagemet Fleet egieerig ad cofiguratio Forecastig, maiteace plaig ad schedulig Procuremet supply maagemet ad outsourcig Total cost of owership Availability Cosistet TAT/spa times Quality/Life Time o wig Maiteace program desig Overhaul, repair, maiteace operatios Ivetory maagemet ad repleishmet plaig Labor costs Material cost Outside service cost Ivetory Tools ad digital workflow IT ad data capture/maagemet Skills/HR/Labour flexibility QA/QC/Tech documets/records Performace metrics/measurig success Warraty maagmet Source: Deloitte Aalysis 4

5 1. Achieve short ad cosistet turaroud time (TAT) usig a combiatio of lea, Six Sigma, theory of costraits, ad iformatio While MRO differs by product/service (compoet, egie, or airframe), oe truth is uiversal: aalytics ad process improvemets ca reduce cycle time. Collaborate to fid wi-wi solutios I a egie overhaul, the beefits of collaboratio are apparet whe customers, sales, ad egieerig work together to defie a optimal work scope based o isights about repair issues, cofiguratio, ad time o wig. Lookig at data patters, stakeholders i the process ca ask: What is the best way to perform maiteace o the egie? Which parts are worth repairig ad which are ot? Are some parts ot repairable at all? Should we cosider PMAs? Do we perform o coditio or o time ad cycles? How much EGT (exhaust gas temperature) margi is expected or acceptable? The goal of collaboratio is a commo ageda ecessary to stadardize the work scope ad, i this way, take costly variability out of the process. I a typical case, egieers wat a lot of detail, makig each work order differet; operatios wat repeatability; OEMs (origial equipmet maufacturers) wat othig to do with PMAs (parts maufacturig authority) ad have a ideal, albeit costly, work scope i mid: these differet agedas are hard to arbitrate o the fly. I heavy airframe maiteace, collaborative plaig betwee materials ad maiteace maagemet supports the developmet of stadard work cards cosistet with better TAT. The ideal here is to idetify at least 90 percet of o-routie items withi the first 10 percet of the plaed time of the check, so that these exceptios ca be re-scheduled effectively to meet TAT goals. Work should be allocated i two- four- or eight-hour icremets cosistet with a shift ad plaig routies; high-risk items should be addressed early i the process. All these steps icrease both speed (because of stadardizatio) ad flexibility (because of exceptio processig) as well as overall schedule adherrece. Software ca help if it embeds leadig practices i plaig. Additioally, the icorporatio of service bulletis (SBs), airworthiess directives (ADs), ad modificatios ca be plaed i advace with the customer, sometimes as part of lie maiteace or short duratio checks. Other opportuities for collaboratio iclude third-party service providers ad OEMs: how ca their capabilities be leveraged for better TAT? For example, a time slicig strategy ca reserve capacity for special processig, such as heat treat, special coatigs, ad shot peeig. The cocept is simple: a reservatio system allocates a specific period i the week for a process; if the material is o time ad properly prepared, it is serviced immediately, thereby elimiatig queue time ad esurig material availability. As for OEMs, makig ivetory visible electroically would help esure part availability, while sharig fleet performace data could help predict spare part demad patters. Serve the mechaic as a customer If the mechaic is the ceter of the process, several lea techiques ca make his job easier (which meas more productive). Here, all kids of optios come ito play such as poit-of-use tools ad fixtures ad pre-positioed GSE; digital techical mauals ad mobile devices (for a o effort maagemet of iformatio); ad the proper kittig of all parts i sequece for each repair ad assembly operatio. We wat ultimately all work, tools, ad istructios to be served to the mechaic, elimiatig uecessary effort ad time. Effective backgroud support could ecompass material maagemet ad plaig, icludig ew/repair/ PMA tradeoff decisio tools, beyod ecoomic repair modelig, rapid-respose egieerig for o-routie issues, detailed stadard work cards cosistet with takt time, repair float maagemet, ad Kaba/vedor maaged ivetory for cosumables. These support fuctio processes ad tools are critical to esure material, tool, ad documet availability, as well as clear work istructios. I may maybe most airlies ad MRO compaies, mechaics sped more tha half their time o o-productive (that is, o-value-added) activities, such as maually processig paper work, performig re-work or work-arouds because of a lack of parts, lookig for toolig ad spares, searchig for egieerig drawigs or waitig for egieerig istructios/feedback, ad movig to the back office to fid referece material ad advice. A itegrated MRO process, eabled by advaced aalytics, is fudametal for the better plaig ad processes that lead to log-ru productivity. Smarter MRO 5

6 Close the loop for improved accoutability A well-defied moitorig ad feedback system icludig actual versus-plaed time, costs, ad quality by tail umber, egie serial umber, ad work package is essetial for spottig improvemets ad traiig requiremets. Few MRO etities have the aalytical power ad data maagemet skills to support the systematic traslatio of raw data ito the actioable productivity metrics eeded for cotiuous improvemet. Havig that capability, a MRO orgaizatio ca measure ad compare performace by mechaic ad by work package, allowig leadig practices to be shared ad effective remedial traiig to be targeted. Time-based data ca support better sequecig of work, especially o-routie tasks. Rather tha simply reactig, maagemet ca discover variatios early o ad develop corrective actios. Aother leadig practice i closed-loop process desig is makig back-ed assembly accoutable for iductio. Mistakes made o day oe of egie or compoet iductio icludig late repair idetificatio, uworkable repairs requirig ew parts late i the process, ad icomplete BOMs typically carry through to the ed, delayig fial assembly ad testig. By havig a supervisor leadig both eds, the loop is closed, thereby promotig accoutability. Chart B. Improvig TAT performace for egie overhaul Days Period performace Cumulative volume Rollig average Source: Cliet disguised data, Deloitte Aalysis Cosistet 30 days performace with a cotiuous improvemet target of 25 Achievig short ad cosistet TAT i egie overhaul The best performig egie overhaul ceters are achievig short ad cosistet turaroud times by usig a combiatio of lea/six Sigma, theory of costraits, ad techology. Here is oe example of a third-party overhaul ceter s jourey from average to excellet. The iitial effort was focused o lea/six Sigma iitiatives for work scopes, materials maagemet, ad work flow, icludig: A joit customer-sales-egieerig process redesig that promoted stadard work scopes, the release of early data to help repair forecasts, ad the determiatio of ideal time o wig. Better material flow i the repair cells, effective rotable pool maagemet, FIFO repair operatios, Kaba for cosumables, ad assembly/repair kits orgaized by shift. A iductio process upgrade, startig with a complete BOM, historic data o repairs, ad data feedback o actual-versus-estimated work. Additioally, the iductio process was owed by the fial assembly supervisor, thus improvig ed-to-ed accoutability. A small quick respose cell to address oe-off issues ad uexpected evets. A supplier maagemet process that icluded o-time delivery commitmets with pealty provisios. While the lea/ Six Sigma efforts clearly had positive results, they did ot address typical costraits caused by operatios bottleecks ad outside services (for heat treat, shot peeig, ad coatigs). To tackle these problems, three ew techiques were applied: Strategic cross-traiig if oe egie module is ahead of scheduled, labor resources could be moved to laggig modules. Rollig-block/dyamic schedulig advaced schedulig techiques, with correspodig metrics of schedule adherece ad compliace, were used to sychroize the shop, idetify costraits ad bottleecks, ad prevet a ervous MRP. Time-slicig for exteral service providers ad iteral operatios (such as cleaig ad heat treatmet), time-slicig helped overcome log queues. I effect, it s a reservatio system that dedicates capacity at a specific time i the week. The fial improvemet strategy was the icorporatio of iformatio techology, icludig tools that rely o accurate data such as a beyod ecoomic repair tool, a material availability tool, ad a master schedulig ad capacity plaig tool. To improve mechaics performace, mobile devices were icorporated ito the work cells to display stadard work, quality specificatios, ad geeral research. The ed result was a cosistet 30-day TAT performace, as show i chart B. Furthermore, as part of a cotiuous improvemet program, a ew target of 25 days was set based o actual data feedback ad the idetificatio of the ext level of costraits to overcome. 6

7 2. Improve the desig ad plaig of maiteace Whe processes are poorly desiged ad iformatio systems are disparate, complexity (from had-offs, rework, ad redudacy) is ievitable. Stad-aloe MRO solutios ca help, but they wo t be up to the task if the process has ot bee reegieered ad if the software is ot itegrated with eterprise systems. To improve TAT, MRO maagemet should uderstad ad differetiate routie ad o-routie processes ad costs. Over time, MRO should create a data base of its ow leadig practices: this approach worked well, this oe did ot work well. Clearly, performace data gathered, orgaized, ad aalyzed is fudametal to better plaig. By collaboratig with operatios ad fiace, MRO ca get cosistet data, i a usable form, to the appropriate plaer i a timely maer. Chart C. Complex ad labor-itesive plaig processes Aother level for improvemet is the desig of the maiteace checks themselves. Which work cards should be icorporated i the check? How should they be effectively sequeced ad re-sequeced as issues are ucovered? Should some of the work be doe prior to checks or durig olie maiteace? Should some work be o coditio oly? I oe Asia airlie compay, the heavy maiteace plaig process icluded 11 systems; of the 210 iformatio trasactios, half were paper-based. The distace traveled by a sigle work order was more tha 15 km. Check plaig required sigificat time ad effort time, while the excessive hardcopy hadoffs triggered multiple trips to the plaig prit room. Usig lea methods, a MRO redesig team traced the travel of people ad iformatio across multiple departmets (illustrated i chart C). This aalysis helped covice plaers ad maagemet of the eed for chage. Pre aircraft check iput plaig er Compliace Cotrol Distributio List Tool Crib Supervisor Six Wk Mile Sto e Cha rt E g ## 3 Mt h M271 Drop Poit Productio Support HM Rep Sr. Dock er Maiteace Supervisor Tech Pubs Officer Six Wk E g ## Mile Sto e Cha rt PMT Rep Mai Prit Room T R E g ## T R Check High lights Mile Sto e Cha rt ig Dock Crib er Racks A T C Iput Review Team T C T C E 3 g Mt ## h Check High lights 3 Sr. Mgr. Mt h Locatio A H/M Mgr. Cap Plg. 3 Mt h E g ## 50 Sr. er Cap Plg. 3 Mt h 3 Mt h Adv. Plg. Office Priter Check High lights er A/C Allocatio Six Wk Six Wk 3 Mt h Six 3 Wk Mt h Pricipal er - A/C Plg. HM Logistics Rep LAME HM Liaso Rep Sr. er 767 cell Sr. er 744 cell E g ## 3 Mt h Six Wk er 2 A/C Plg. Local Prit Room T C Six Wk T C T R Six Wk Lab el T R E g ## er 1 A/C Plg. er Adv. Plg. 3 Mt Check h High lights Statistics Total systems employed: 11 Total ifo trasactios: 210 Paper-based tras: 105 Systems-based tras: 105 Iformatio pathway distace Itra-site: 12.5 km Iter-site: 4.2 km Paper iformatio flow Electroic iformatio flow Source: Cliet disguised data, Deloitte Aalysis Smarter MRO 7

8 Durig a maagemet cosesus meetig, a ew MRO plaig visio was agreed to, based o leadig MRO plaig practices ad a iitial to be value stream for each critical process. Resources were allocated to recast the overall plaig process ito four areas: cofiguratio maagemet, plaig ad schedulig, quality, ad post-visit aalytics (chart D). Expected improvemets, both fiacial ad operatioal, were quatified to track progress. Chart D. Lea egieerig ad heavy maiteace plaig process redesig As a result of these chages which represeted a fudametal trasformatio of the MRO plaig process the compay reiforced its capabilities i schedulig, parts forecastig, aircraft real-time data, stadard ad o-routie work package developmet, workforce maagemet, ad documetatio. The measurable impact was a improvemet i the TAT C check performace from a highly, variable 30-plus days to a cosistet days. Additioally, the compay gaied the capability to itegrate additioal work ad service bulletis i overight lie maiteace work ad short duratio checks. Cofiguratio maagemet & Maiteace egieerig Maiteace plaig ad schedulig Quality assurace Post-visit aalysis & support 8 Core processes Process improvemet results Maitai cofiguratio from iitial aircraft Iductio through cofiguratio i as-maitaied status Establish ad maitai a uique aircraft scheduled maiteace program Exted cofiguratio maagemets to crossreferecig part umbers to Illustrated Parts Catalogue (IPC) to Geeral Maiteace maual (GMM) Assure warraty ad other performace guaratee iformatio is traceable to parts Fewer Removal/Istallatio (R/I) exceptios (improves work order close-out) Better likage to PO delivery/ asset maiteace requiremets/ evets trackig/ Miimum Equipmet List (MEL) & Cofiguratio Deviatio List (CDL) stadards Established a closed loop feedback improvemet capability Perform log-rage plaig for ivetory, huma resources, capacity, ad visit plaig Provide otice to materials plaig for special programs/ ADs/SBs Coduct short term plaig (iteral ad exteral) to prepare visit packages ad esure mapower, parts, hagar capacity, facilities availability, ad tools/equipmet will be available Establish capability for o-routie work Create efficietly sequeced work orders Reserve resources Provide detailed resource plaig ad capacity costrait maagemet iformatio Schedule work cards at the optimal maiteace level Reduced overhead costs through improved plaig fidelity ad efficiecy ad miimizatio of o-routie work ad expedites Improved direct labor productivity through better sequecig of better work packages, improved parts availability ad itegratio of third party support Improved ivetory turover through better forecastig of ivetory requiremets Improved asset utilizatio through improved turaroud times Execute a quality maagemet processes icludig performace moitorig ad aalysis of causes of o-coformace/ costs of o-quality throughout the orgaizatio. Some specific MRO activities iclude Audit cofiguratio model for accuracy ad completeess Audit maiteace review board fidigs agaist chages i the scheduled maiteace program for cosistecy with established procedures ad approval grated by the FAA Audit part umbers i the parts catalogue to IPC ad egieerig documets to validate parts catalogue umbers are approved for use Program ad maagemet structure that effectively reduces cost of o-quality Improved reliability ad proper documetatio of maiteace program chages through cosistet use of policy ad procedures outlied i the MRB program Improved compliace ad operatioal performace through proper istallatio of approved parts Reduced mechaic research time ad adherece to Federal Air Regulatios (FAR s) through accurate ad approved IPC ad Parts Catalogue iformatio Source: Deloitte Aalysis Coduct aalysis of plaed versus actual for mapower ad materials at work package/ work order level as well as the visit duratio level Idetify ad aalyze uscheduled work Perform closure o material maagemet ope items Execute billigs Measure performace ad treds Improved uderstadig of variaces to pla with corrective actio plas Acceleratio of billigs ad capture of o-stadard or out-of-scope activities Implemetatio of closed looped process to improve plaig process Implemetatio of performace measuremets ad cotiuous improvemets

9 3. Reduce ivetory, while icreasig service levels The sigs of a ivetory problem are readily apparet: high ivetory turs (based o our bechmarkig visits the worst players i the idustry ca have ivetory turs aroud oe; the best have a ivetory tur of five with higher parts availability); poor or o measuremet of fill rates ad service levels; ad o-goig ivetory excesses ad obsolescece. How ca these problems be fixed? Cosider the followig five ways: Part segmetatio ad repleishmet strategies Cosider the target ivetory ad repleishmet process i chart E. A lea ivetory balace ca be reached by decidig for each part the ease of forecastig, the procuremet lead time, ad the desired service level. Parts are segmeted by value ad demad volatility: those of high-value ad somewhat level (easy-to-forecast) demad ca be icluded i a cosumptio-drive repleishmet scheme. High-value parts with high volatility, such as major housigs ad cases, ca be repleished by use oe-buy oe strategies or poolig. O the other extreme, low-value C parts ca be best served by a combiatio of mi-max, vedor-maaged, ad Kaba strategies. Chart E. Part segmetatio ad repleishmet strategies Segmetatio strategy Value (based o COGS) Low High X Y Z A 1 Ivetory $2.9 M $3.5 M $2.8 M Total Parts A B C Actively maaged Level load comsumptio-based MRP plaed comsumptio-based Opportuity 1 ($0.3 M) ($0.2 M) ($1.2 M) Total Parts Ivetory $5.8 M $10.7 M $10.8 M Opportuity 1 ($1.9 M) ($3.3 M) ($2.8 M) Total Parts Ivetory $1.9 M $6.3 M $8.9 M Opportuity 1 ($1.1 M) ($2.5 M) ($4.4 M) Total Parts Ivetory $0.2 M $1.4 M $8.1 M Opportuity 1 ($0.1 M) ($0.7 M) ($6.4 M) Use oe, Buy oe MRP plaed Mi/Max MRP plaed Mi/Max Vedor maged Commo repleishmet strategies Actively maaged - Optimal where cost ad criticality justifies active oversight. Frequet maual review is used to maage high-risk factors ivolved (high cost, volume, ad/or ucertaity) Cosumptio-based - Optimal where ear-term ucertaity justifies periodic reassessmet. Maual repleishmet is used util credible part history is established ad part is trasitioed to a more permaet strategy (oe amog those below) Level load - Optimal whe demad is cosistet with low volatility. Also ideal for high cost or capacity-limited demad with log lead times MRP plaed - Optimal whe demad is rare, itermittet, or highly variable. Also ideal for variable, high-cost demad with log lead times Use oe, buy oe - Appropriate for low, ifrequet demad. Uits are ordered as they are used. Safety stock may be kept i ivetory to accommodate lead time or forecast ucertaity Mi/Max - Appropriate for items with low value demad. Costoptimized level of stock is held to cover demad ad supplier variability. MRP will order the ecoomic order quatity (EOQ) after the miimum has bee reached Note 1: Opperuity represets ivetory reductios that are possible with appropriate repleishmet strategies. Source: Cliet aftermarket disguised data, Deloitte Aalysis Smarter MRO 9

10 for every part (PFEP) I additio to applyig part segmetatio ad repleishmet strategies, leadig compaies develop a pla for every part, thereby prevetig a oe size fits all strategy for very differet part dyamics. Each part pla has explicit ivetory targets, supplier maagemet istructios, ad part metrics. A sample PFEP is show i chart F. Chart F. for every part example for every part-bearig assembly Iteral part umber Part descriprtio BEARING ASSY Part attributes Segmet AX Uit cost $23,185 Make/Buy Buy Lead time 728 days Last supplier XXX Part metrics Forecast error 83% Forecast bias 7% Supplier o-time delivery 50% Demad Demad DIST. O&R1 O&R2 Total LTM forecast LTM orders forecast Modeled ivetory Repleishmet strategy Target service level 66% MRP level load Cycle stock 2 uits ($46.4 K) Safety stock 13 uits ($301.4 K) Total ivetory Curret ivetory 15 uits ($347.8 K) 34 uits ($788.3 K) Recommeded decrease/icrease -19 uits ($ K) Part pla Level-load orders at 3/moth (cycle stock of 1.5) based upo expected cosumptio patter, begiig whe excess is depleted Leverage pealties for poor o-time performace to improve delivery Support ivestmet i raw materials or offer guarateed buys to shorte lead time for safety stock of 11 uits give supply improvemets Esure outstadig orders are pushed out past whe bur dow is completed Order history (LTM, edig Sep 2010) 2011 forecast Oct 2009 Nov Dec Ja Feb Mar Apr May Ju Jul Aug Sep Ja 2011 Feb Mar Apr May Jue Jul Aug Sep Oct Nov Dec 2011 DLA O&R CCAD DLA O&R CCAD Target Ivetory = 12.5 uits ($289.8 K) Reductio = uits (-$498.5 K) Source: Cliet disguised data, Deloitte Aalysis 10

11 Chart H. Spare parts simulatios Demad forecastig Ofte a MRO orgaizatio relies o the history of average part demad as a forecast of future demad. But the past ca be a poor predictor of future demad sice it caot address all sources of variability. What if simulatios ad robust off-the-shelve, automated tools (such as MCA Solutios, Sevigistics, ad Oracle Dematra) ca be effective. As show i chart G, improvemets i forecastig move the ivetory-service level curve. Whe oe egie OEM used advaced tools to perform simple simulatios for a spare part family, the compay discovered that its ivetory/service level performace was both expesive ad icosistet i availability. The, a simulatio tool (output illustrated i chart H) with advaced forecastig algorithms demostrated three possibilities for solvig the problem: 1) keep the same service level, but cut ivetories i half; 2) simultaeously improve service levels ad ivetories; ad 3) reduce ivetories icremetally, while drivig cosistet ad high service levels. Chart G. Simultaeous improvemet of service level ad ivetory High Cost/ Ivetory Low Source: Deloitte Aalysis Curret cost/service performace curve Service levels Recofigured cost/service performace curve Better service, same cost Better service, lower cost Same service, lower cost High Sourcig ad supplier maagemet May airlie ad MRO compaies have achieved sigificat cost reductios by developig sourcig strategies for direct, idirect, ad commodity sped categories. But sourcig ad supplier maagemet requires costat vigilace. Aswerig these questios, ca help a compay s supply chai leadership i its efforts to idetify ew opportuities for improvemet: Ivetory millios $12 $10 $8 $6 $4 $2 Segmet service level = 84.7% Rage (37% %) Segmet service level = 84.7% Rage (60% %) Segmet service level = 92% Rage (75% %) Segmet service level = 92% Rage (85% %) Is there a sourcig strategy for 95 percet of your sped? Ca you aggregate sped totals by part family? How well do you track supplier performace? O time delivery? Lead times? Are 75 percet or more of your suppliers uder log-term agreemets? Do you share accurate forecasts with your suppliers? Measure o-time delivery ad quality performace? Are your suppliers selected by usig oly pricig history? Are you usig exchage pools, vedor-maaged ivetory, volume/mix flexibility i cotracts, ad other advaced methods? $0 Curret Alterative1 Alterative 2 Source: Cliet disguised data, MCA Solutios ad Deloitte Aalysis Alterative 3 Have you secured OEM discouts? Have you icorporated PMA/DER (parts maufacturig authority/desigated egieerig represetative) ad advaced repair developmet i your material strategies? Have you performed joit process improvemets ad supplier developmet with critical/red suppliers? Smarter MRO 11

12 Metrics Performace metrics ca help MRO orgaizatios improve cotiuously. Oe North America airlie used three simple, top-maagemet level metrics: forecast accuracy, fill rates to measure service levels, ad ivetory per aircraft. I less tha two years (after the icorporatio of better part segmetatio, supplier maagemet, ad demad forecastig tools), forecastig accuracy improved from 45 percet o average to 70 percet o a part basis. Likewise, fill rates improved from a solid 92 percet to a eve better, idustry-leadig 97 percet. Perhaps most importat, total ivetory dropped from almost $1M to $600K per aircraft. A more balaced scorecard used by a MRO provider of helicopter trasmissios is detailed i chart I. The compay measures ot oly cost, quality, TAT, ad safety, but also plaig ad forecastig, material availability, ad ivetory. Additioally, targets are set ad tracked weekly. The biggest short-term improvemet areas are material availability, especially kit fill rates, late call ups (usually due to icomplete iductio), ad repair supplier o-time delivery. Chart I. Set of cascadig metrics for trasparecy MRO improvemet Cost performace Quality RTAT / Schedulig ig ad forecastig Material availability Ivetory maagemet People ad safety Actual vs. plaed total cost Labor hours vs. stadard Actual material vs. plaed Cost of quality Warraty cost Delivery to cotract/ commit Ed item RTAT Ed item forecast accuracy/bias Capacity utilizatio Kit fill rate New material fill rate Work order o-time delivery Ivetory/Ivetory turs WIP/WIP turs Rotable pool/rotable turs Icidets Cross traiig Traiig hours/fte Repair ecapes ($, %) Turbacks Scrap, repair, rework TAT by process Schedule adherece Detail part forecast accuracy Repair rates vs. actual Supplier o-time delivery Outside services RTAT Late call ups Aged WIP Ope sales order vs. target Source: Deloitte Aalysis 12

13 4. Select the right MRO IT solutio ad extract value from that ivestmet is a exceedigly difficult challege. For example, a assessmet of a North America airlie with a complex MRO profile icludig a combiatio of legacy systems, excel spread sheets, a customized, ERP-based MRO partial solutio, ad aother custom ERP system for back-office processes exposed a umber of pai poits ad itegratio challeges, icludig excessive maual workarouds (better kow as huma middleware), a iability to lik MRO software to critical fiacial ad procuremet systems, ad poor data itegrity. Ufortuately, this situatio is ot uique. Aother challege i decidig to replace or upgrade MRO IT is choosig from may alterative solutios, icludig at least two doze pure MRO solutios, a half a doze ERP-based solutios, ad more tha 50 iche applicatios (such as spares demad forecastig ad repair/rotable pool maagemet). Replacig or upgradig MRO IT ca be complicated, costly, ad difficult it requires sigificat chage maagemet ivolvig may stakeholders, icludig iteral departmets ad fuctios, exteral parters, ad customers. I additio, safety ad regulatory factors have to be take ito accout, ad existig data has to be cleaed ad coverted. Yet, ot actig has a price, as legacy systems are gettig more expesive to support ad eve more expesive to adapt for mobility devices, wireless coectios to moder aircraft, ad sesors that support o-coditio maiteace. Addig iche software to legacy systems, ad the itegratig the mix of software to a ERP system, Give all these variables, three strategic choices emerge: add iche solutios to existig legacy architecture to gai advaced capabilities, adopt a best of breed ew solutio, or istall a ERP-based MRO solutio. I ay case, all three choices are expesive ad time-cosumig. Before makig a choice, aswer these questios: Is my MRO orgaizatio prepared to chage? How will we extract value from that IT ivestmet? What leaders (or executives) are accoutable for realizig value from the IT ivestmet? The aswers to these questios should be cosidered before software selectio ad revisited throughout implemetatio. I particular, if the aswer to the last questio is somewhat ebulous that is, if executives are ot o the hook for achievig beefits the the aswer to the first questio is probably o as well. Smarter MRO 13

14 Use a systematic process to select a MRO IT solutio I most cases, software selectio starts with a profilig of vedors through RFI ad RFP processes. But a better startig poit may be a assessmet of curret MRO processes ad capabilities ad a chage maagemet audit (phase 1, chart J). A upfrot diagostic cofirms the visio of the ew MRO orgaizatio, documets the expected beefits of the chage, ad details the process redesig ad ew tools required to chage behaviors ad move away from the as is way of doig busiess. The, software selectio should follow a systematic RFP process (phase 2 ad 3, chart J) that tests fuctioality with demostratios ad visits to existig customers. Although both phase 1 ad 2 ca start at the same time, phase 1 should be completed prior to ay software recommedatio. Chart J. Three phase approach for preparig a orgaizatio for ext geeratio software Phase 1: Future state MRO operatig model Bechmark curret MRO capabilities Idetify ad quatify opportuities Assess chage readiess Develop ew operatig model Key activities Iterview process owers ad map/assess the curret state MRO processes Idetify pai poits Profile MRO software leaders ad issue RFI Defie future state performace targets ad redesiged processes Quatify potetial improvemets Phase 2: Selectig MRO software Geerate short list ad develop RFP strategy Perform a chage maagemet assessmet/idetify chage leaders Develop commuicatios ad traiig strategy Compare RFPs agaist evaluatio criteria ad demos Develop future state desig priciples ad metrics Review target operatig model with key stakeholders Select best software ad validate with customers Key activities Phase 3: implemetatio Validate busiess pla Craft egotiatio strategy Coduct egotiatios Draft implemetatio pla i stages/waves of actios Assig resources ad chage leaders Idetify & prioritize chage iitiatives Key activities Documet IT ladscape Defie the scope ad eviromet that the MRO solutio will be required to support Idetify vedors Recommeded supplier short list Develop detailed requiremets, evaluatio criteria ad demostratio scripts Issue RFP Trai evaluatio team ad agree o evaluatio criteria Execute demostratios Complete supplier evaluatios ad recommed best supplier Recommed supplier ad supportig ratioale Fiish due diligece icludig customer visits ad referece checks, ad system itegratio challeges Source: Deloitte Aalysis 14

15 The te commadmets of a MRO IT implemetatio Followig these rules (similar to lessos leared i ay ERP upgrade) could help a compay i its efforts to achieve desired fuctioality withi a reasoable budget. 1) Clea ad migrate data (ote: whe legacy data is o paper, that s a additioal challege). Should everythig be chaged? Should some processes be cherry-picked for automatio? How do legacy systems fit i the big picture? How will MRO itegrate with eterprise systems? 2) Allocate sigificat time ad effort for busiess user participatio i all project phases. Collaboratio makes for greater buy-i ad a better product i the ed. 3) Miimize or avoid customizatio. Do ot jeopardize the savigs that come from easy-to-upgrade software; if customizatio is uavoidable, reserve it for critical, differetiatig processes (five, ot 25, percet of the total). 4) Avoid scope creep it will cost the project dearly. 5) Pay attetio to iterfaces, especially betwee ERP systems ad other applicatios, so there will be seamless fuctioality with correct data iputs. 6) Perform detailed testig to determie quality ad coformace to safety ad regulatory requiremets. Do ot skip or reduce the scope of this step. 7) Stage the trasitio: phase 1 could cover back office, egieerig, plaig, records ad documetatio; phase 2 could cover mechaics ad heavy maiteace; ad phase 3 could cover the rest of the supply chai. 8) Ratioalize applicatio systems as much as possible: avoid overlappig fuctioality ad reduce the total umber of applicatios. Keepig legacy applicatios ad excel spreadsheets could require customizatio ad make iterfaces to the mai ERP system problematic. 9) Do ot uderestimate the eed for chage maagemet strategies, commuicatio, ad traiig. A ew system chages people s day-to-day work sigificatly, ad may people will wat to replicate the as is way of doig busiess. To follow that path would likely add complexity ad cost without beefit. 10) Be aware of future requiremets (especially with the oboard software loads of the B787), so that the solutio is flexible for adaptatio ad growth. Smarter MRO 15

16 5. Craft a fact-based outsourcig strategy Assumig they have a proper make-buy decisio makig process ad sigificat aalytical capability, compaies decidig to outsource MRO activities (whether a lot, such as egie overhaul ad C ad D checks, or a little, such as compoet repair) could gai real cost ad service advatages. But, oce agai, makig effective choices requires sigificat data iputs ad advaced aalytical modelig. A example of the modelig structure required for outsourcig major checks/heavig maiteace is depicted i chart K. Historical data ad plaig iputs are critical to get a true picture of total cost of owership. The MRO orgaizatio should quatify the total cost of each bid ad each cotract item, takig ito cosideratio the type of cotract, the legth of cotract, ad vedor performace metrics/targets. To put the outsourcig process i better perspective, cosider the case study of a North America legacy carrier that was ready to reew a egie overhaul power-bythe-hour cotract with the OEM at a price somewhat higher tha that of the expired cotract. Top maagemet decided to get help i settig up a competitive process to see if better terms could be egotiated. Chart K. Aalytics for airframe heavy maiteace outsourcig Airlie iputs Vedor iputs Model calculatios Model output Material quatities For each check type Tasks Specificatios Materials pricig For each material Labor rates For each labor category Materials costs for each check Mappig to checks Proposed escalatio Icetives/discouts Checks Forecasted checks over ext five years Assumptios base o historical ratios No-routie ratio EO ratio Additioal maiteace ratio Opportuity costs Taxes Check estimates Hours per labor category for each check No-routie hours per labor category & materials QC labor hours G&A labor hours ad costs Other costs Fuelig Labor costs for each check Estimated costs for each check Additioal maiteace costs No-routie costs Total costs for five years Total costs per check Schedule for five years Out of service cost Per day by aircraft Airlie-owed materials Cost per check Groud hadlig Spa times Average ad 90% cofidece spa time Opportuity costs for each check Source: Deloitte Modelig 16

17 The first step was to develop a total cost of owership model (chart L) by cotract type. Which was preferable? Time-ad-material or power-by-the-hour? Specific data was aalyzed ad assumptios for fleet size, age, ad mix, removal rates, ad baselie sped were made. A fact-fidig RFI to 70 potetial suppliers OEMs, third-party shops, ad specialty repair providers was developed ad distributed. The research exposed plety of available capacity ad a wide rage of performace i cost, EGT margi, TAT, ad TAT reliability. The field was reduced to eight service providers, icludig two OEMs. The resultig RFP covered two broad areas techical qualificatios ad total cost of owership data as required iputs to the aalytical model. Comparig the resposes i the cotext of differet cotract ad timig structures alog with differet scearios of removal rates, fleet compositio, ad escalatio factors the compay made a iitial selectio of the three best service providers. Chart L. Total cost of owership modelig for egie overhaul Key drivers Fleet ad repair data (Historical ad forecasted) Fleet size % of egies (icl. spares) Flight hours % of cycles MTBR (scheduled ad uscheduled) % of repair, ew, PMA Iteral vs. exteral repair Cost Labor Material Base chage (PBH) Other charges (LLP, SB, AD, FOD, trasport) Escalatio rates Buy-i/Bettermet detrimet Performace Turaroud time Retur time Capabilities Maagemet Egieerig ad techical Egie MRO Warraty magmet Customer support Iteral MRO Cotractig variables Cotract type Power by the hour (PBH) by mothly flight hours PBH by shop visit Time ad materials Cost plus Terms Cotract legth (3yr, 5yr, 10yr) Degree of exclusivity Performace guaratees Total cost of owership Optimizatio Best deal ecoomics Iteral/exteral evaluatio Capability evaluatio Negotiatio strategy Key cosideratios Compoet maiteace sourcig is complex but critical to effective total cost maagemet Maagig the complexity requires a thorough uderstadig of the key drivers icludig Uderstadig the dyamics of the fleet both today ad tommorrow Gettig a uderstadig of uderlyig cost drivers to develop a "should cost" model Evaluatig the capabilities of potetial suppliers (especially ewer market etrats) ad iteral capabilities for potetial i sourcig Evaluatig a variety of cotractig optios ca help orgaizatios lear which optios may be most cost effective for their fleet Puttig all of these variables together ca help determie a optimal sceariao ad better prepare a orgaizatio for egotiatio Source: Deloitte Modelig Smarter MRO 17

18 The last phase was critical i uppig the competitive itesity of the marketplace. For three fialists, the compay proposed a three-year, time-ad-material cotract for the ew fleet ad a 10-year, power-by-the-hour cotract for the older stadard fleet. Additioally, each fialist received specific scores (advataged/disadvatage/eutral) o base charges, LLP, ad SB/AD/FOD charges, spare egie ecoomics, material strategies (PMA icorporatio, % used/serviceable, material fees ad markups), labor rates, warraty provisios, ad escalatio rates. The fial result: the airlie achieved a aual savigs of $12-15M aually with better TAT, rather tha the cost icrease iitially proposed by the icumbet service provider. 18

19 Coclusio The five strategies for achievig smarter MRO result i icreased speed, improved reliability, ad reduced costs all at the same time. Although each of the five strategies has differet impacts (chart M), whe combied they affect the efficiecy ad effectiveess of the whole MRO fuctio. Excellece i these five strategies represet othig more tha a fudametal trasformatio of capabilities. We have observed that, withi 18 moths of implemetig the five strategies, a MRO orgaizatio ca achieve cost improvemets i the order of 8-15 percet. Eve more importat, cotiuous aual improvemets ca move from 2-3 percet to 4-5 percet. O the balace sheet, ivetory turs may double, depedig o the startig poit. Obviously, a compay could be motivated to take such cost reductios to the bottom lie. Alteratively, a portio of the savigs could be re-ivested i advaced repair developmet, ivetory poolig across customers, ext-geeratio techology, ad alterative material solutios to help make the MRO busiess a distictive performer. Chart M. Typical beefits realized Cosistet TAT Maiteace plaig Ivetory maagemet MRO IT Outsourcig Potetial reductio Overhead costs 8-17% Outside services 7-10% Materials 5-8% Direct labor 5-20% Total cost savigs of MRO 8-15% Mior impact Major impact Source: Deloitte Bechmarkig Smarter MRO 19

20 Cotacts Author Michael Reopel Pricipal Deloitte Cosultig LLP Cotacts Adam Weisseberg Vice Chairma ad U.S. Travel, Hospitality & Leisure Leader Deloitte & Touche LLP Scott Roseberger Pricipal ad U.S. Travel, Hospitality & Leisure Cosultig Leader Deloitte Cosultig LLP This publicatio cotais geeral iformatio oly ad is based o the experieces ad research of Deloitte practitioers. Deloitte is ot, by meas of this publicatio, rederig busiess, fiacial, ivestmet, or other professioal advice or services. This publicatio is ot a substitute for such professioal advice or services, or should it be used as a basis for ay decisio or actio that may affect your busiess. Before makig ay decisio or takig ay actio that may affect your busiess, you should cosult a qualified professioal advisor. Deloitte, its affiliates, ad related etities shall ot be resposible for ay loss sustaied by ay perso who relies o this publicatio. About Deloitte Deloitte refers to oe or more of Deloitte Touche Tohmatsu Limited, a UK private compay limited by guaratee, ad its etwork of member firms, each of which is a legally separate ad idepedet etity. Please see for a detailed descriptio of the legal structure of Deloitte Touche Tohmatsu Limited ad its member firms. Please see for a detailed descriptio of the legal structure of Deloitte LLP ad its subsidiaries. Certai services may ot be available to attest cliets uder the rules ad regulatios of public accoutig. Copyright 2012 Deloitte Developmet LLC. All rights reserved. Member of Deloitte Touche Tohmatsu Limited