Advancing aviation 2013 global MRO supply chain benchmarking study

Transcription

1 Advancing aviation 2013 global MRO supply chain benchmarking study Executive summary

2 Welcome to the 2013 edition of Advancing aviation, a global maintenance, repair and overhaul (MRO) supply chain benchmarking study for the airline industry. Airline companies are increasing their focus on their supply chains to lower related maintenance costs while delivering higher service levels. In particular, MRO executives are looking to better understand the performance gaps that exist within their supply chains, and the opportunities that may result from improving their effectiveness. Advancing aviation provides critical insight regarding MRO supply chain performance and practices. In addition to comparing aviation participants against their industry peers, the study unveils areas in their operation requiring corrective action. This study is supported by several large global MRO organiza tions, airlines, and original equipment manufacturers (OEMs). The original analysis was conducted in 2011, and since then, additional participants have been included to refresh the data and expand upon the findings. We hope the information serves as a useful tool for supporting your organization s MRO supply chain strategy. 2 Advancing aviation

3 Overview % of leaders who rank the supply chain priority as very important or important Maximum delivery performance Minimized costs Maximum volume flexibility and responsiveness Complexity management Minimized risks Sustainability Tax optimization /efficiency 48% 66% 64% 63% 80% 92% 90% PwC s 2013 Advancing aviation study highlights what aviation MRO practitioners have always known: to succeed in this challenging industry, the supply chain must optimize delivery performance while minimizing cost. Combined with this, supply chains need to respond to unplanned events while managing the increasingly complex obligations of the airline. But how do managers know if they have achieved these critical objectives? The findings in our analysis can help to address these pivotal questions. PwC recognizes that while supply chain performance in other industries has had considerable focus, benchmarks for aviation service organizations are less developed. This, in part, is due to their unique characteristics, such as: Airline assets are moving, creating a unique service supply chain environment Much of the inventory value is in rotable parts A large amount of unique part numbers, most of which have little to no usage Other studies of airline/mro supply chain performance focus on inventory turns and supplier delivery performance. They don t consider its impact on service levels to maintenance and engineering (M&E) and overall airline departure reliability. Serving as the aviation industry s first comprehensive benchmarking study of its kind, Advancing aviation measures MRO supply chain service levels, costs to achieve those service levels, and the resulting airline departure reliability. Our analysis not only helps to understand performance levels, but is also designed to identify the contributing factors that impact performance. In addition, a practice assessment can provide greater clarity regarding the maturity of current supply chain practices and their correlation to performance. It is important to consider these operational results as a function of supply chain performance. A sample of some of the key insights from our survey follows. PwC 3

4 The efficient frontier Efficient frontier System fill rate 100% 98% 96% 94% 92% 90% 88% 86% 84% 82% Specific readout participant Turns* (Expendables and Rotables) Making parts available to the mechanic or technician for planned and unplanned maintenance is the ultimate objective of the aviation MRO supply chain. This can be particularly challenging, as demand for service-related supply chains is far less predictable than it is in manufacturing or retail environments. Providing high service levels to the mechanic can come with a very high cost of low inventory turns, if not managed properly. In an industry where profit margins are slim and cash management is critical, careful consideration must be given to achieving the right balance between service level and inventory of rotable and expendable parts. But how does airline leadership know they ve achieved that right balance for their service level strategy? Our analysis has enabled us to define the performance curve, or efficient frontier, for the optimum balance between service level (fill rate) and cost to serve (turns). Whether your strategy is to maximize service levels with existing inventory or to attain increased service levels through more cost-effective investments, the efficient frontier curve provides you with a tool for achieving the optimum balance. But what if you re not on the curve? The findings from our benchmarking analysis can help you uncover contributing factors for operating below the curve. You ll also gain insights regarding the quantifiable benefits of achieving the efficient frontier for your airline. Is it execution related? In an industry where profit margins are slim and cash management is critical, careful consideration must be given to achieving the right balance between service level and inventory of rotable and expendable parts. 4 Advancing aviation

5 Airline supply chains: key impacts Impact of poor inventory accuracy Our analysis reveals a correlation between inventory accuracy and the ability to serve the needs of the airline. Airlines with lower bin inventory accuracy will likely experience higher parts-related delays and cancellations (D&Cs) than those that have better control over their stockrooms. While best-in-class supply chains achieve >99% accuracy, it is not uncommon to see 60% 80% accuracy at the airlines. In many cases the true level of gross bin accuracy (a supply chain metric) is masked by the airline s choice to measure net inventory accuracy (a finance metric). Using net inventory accuracy skews management s perception by netting out overages and shortfalls, which dilutes the true picture of what is in the bin. Net inventory accuracy too often indicates greater than 90% accuracy, when in reality the number of bins with an accurate record of parts is much smaller. Having an inaccurate record of stock levels is not an issue so long as some parts are in the bin. Unfortunately, since a vast majority of parts in stock rooms have very little usage, they also have a very low target stock level. Our experience at clients throughout the air transport industry suggests that many of these parts are actually in a zero-bin state, while the inventory record suggests that parts are in stock. Achieving acceptable levels of inventory accuracy requires adopting and complying with new practices. The first key practice is to track gross bin inventory accuracy, as opposed to just focusing on related financial measures. Correlation between bin accuracy and parts-related D&Cs Bin inventory accuracy (Expendables) Specific readout participant 55% Part D&Cs/100 Departures Is it planning related? PwC 5

6 Correlation between bin accuracy and parts-related D&Cs Complexity index Specific readout participant Rotable turns Impact of high network complexity Airline supply chains vary in terms of their complexity, based on factors such as the number of fleet types, destinations, and maintenance network design. Our data suggests high network complexity influences the amount of inventory required to properly support M&E operations and, therefore, overall inventory velocity. Experienced supply chain practitioners could have drawn this same conclusion. What the benchmark provides to managers is greater insight regarding the correlation. Knowing there is an impact and being able to estimate what the impact might be are very different things. In this time of airline consolidation, where the post-merger airlines have increased the number of fleets and destinations flown, finance and M&E executives are particularly interested in better understanding the inventory impact for their new maintenance network. Execution alone won t combat inherent complexity. MRO executives should re-evaluate their planning regimens to identify alternative approaches that can help offset the cost and reliability impact of complex supply chains. This can include implementing an integrated supply/demand planning process for rotable repairs, using alternative material planning methodologies (e.g., MRP planning for scheduled maintenance), or incorporating multi-indentured, multi-echelon (MIME) planning practices to optimize inventory across the network. Whichever actions you take, understanding how you re performing relative to your network s complexity is a key first step. This finding also reveals the important role M&E can play in fleet planning, so that these decisions are made with a full understanding of total costs. The cost for doing nothing can be significant Our analysis shows that in addition to service level impacts, there are clear cost penalties to poor performance. For example: 50 60% of maintenance costs are driven by supply chain it clearly should be an area of focus. Even though the supply chain is not a major contributor to D&Cs it accounts for less than 4% of the total maintenance-related delays part-related delays can cost a midsize to large airline $15 million to $16 million annually. Best-in-class performers enjoy a 40% lower total supply chain cost (all costs associated with managing the supply chain, not including the value of inventory in stock); automation and process maturity play an important role Best-in-class performers get 30% more out of their inventory of rotable and expendable parts than average performers 6 Advancing aviation

7 Conclusion Whether your focus is cost, operational results or finding the optimal balance of both, supply chain performance has a large influence on the effectiveness of maintenance operations and, with it, airline dependability. Unfortunately, constant financial pressures from other critical sources (e.g., labor, fuel) limit the flexibility airlines have to invest in more inventory. MRO leaders must find ways to maintain or improve service levels at or below current budget threshold. Doing so requires a deeper understanding of performance. In addition, as airlines take ownership of the next generation of aircraft, where access to flight and equipment data will increase significantly, having a supply chain that can take advantage of this information to reduce maintenance costs and better position maintenance parts will separate leading performers from the rest of the pack. PwC 7

8 Contacts To have a deeper conversation about the subjects discussed in this paper, please contact: Jonathan Kletzel US Transportation & Logistics Leader +1 (312) [email protected] Dirk De Waart US Transportation & Logistics Advisory Partner +1 (213) [email protected] Anthony Paolini US Transportation & Logistics Advisory Director +1 (214) [email protected] Richard Wysong US Transportation & Logistics Advisory Director +1 (415) [email protected] Bryan Terry US Transportation & Logistics Advisory Director +1 (678) [email protected] For general inquiries, contact: Diana Garsia US Transportation & Logistics Marketing Sr. Manager +1 (973) [email protected] 2013 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. NY