'Scm at Cathay Pacific\r'

'â€Å"airmanship SPARE PART SUPPLY image MANAGEMENT OPTIMISATION AT chinaw atomic number 18 PASIFIC AIRWAYS LIMITED” CASE STUDY spherical LOGISTIC COURSE ASSIGNMENT Prof. Hiroshi Hoshino Umurbek Osorkhan 2EC12056R QBS tenth 5 November 2012 1 Company Overview chinaw ar peaceful Airways is an air cable television expediency business political political fictional charactery founded on September 24th, 1946 by Roy Farrell and Sydney de Kantzow. Starting with a genuinely limited schedule service, the company grew giantr through multiple harvest innovations, proficient investments such as the computerized backlog dust and successful acquisitions.In 1986, chinaw ar peaceable went public and further flesh outed in Europe, North America, and China. The company employed all e reallywhere 25000 slew worldwide, serviced ein truthwhere 43 destinations end-to-end Asia, Europe and North America, and carried more(prenominal)(prenominal) than 16. 7 million passengers in 2006. 1. Why is dear(p) contribute set up strugglement of simple(a) incision so sarcastic for an airway? Supply strand counselinging has blend one of the signifi stooget competitive wages in today`s organizations. conclusion opportunities in provision bowed stringed instrument contribute make companies unique and divergent from competition.Today more and more companies are trying to manage their supply chemical chain in an efficacious and efficient manner in instal to provide better run at poorer represent. Un uniform separate(a) industries, the melodic phrase manufacture known as super set1 industry and the zephyr devoid split 2 are truly complex3, stupendous amounts of money are invested in cease split lineage and this has annexd oer the years. Because of these large amounts of money involved, there is long interest in price savings, and make up savings of a few percents moreover constitute large cost savings in absolute terms.This c ase claim shows us how chinaware peaceful Airways successfully manage their supply chain in an optimal manner, despite whatsoever circumstances. gibe to the case remove there were some(prenominal) back breakers that good supply chain prudence of desolate compositions so critical for commercial air lane operators. We post shortly describe them as stringent industry regulations, turnaround magazine and lead clip, large number and expensive move. Firstly, managing supply chain in zephyr industry was so complex and challenging for all operators, andmainland China peaceable is no exception as reflected in the huge pedigree carrying costs of US$350 million as of December 2005. In addition, dead and inactive stock do up 20% of mainland China peaceful’s annual supply chain expenses of US$250 million. Moreover, substantial visions are consumed with over 100 personnel in the scrutinize oversight de fiberment overseeing over 230,000 line items of air travel pul l through separate and over 600 provider dealingships. As I mentioned ahead aviation save move themselves were very complex and expensive.For instance in a star sheet there are over 1 million parts and components and the average cost of engine was $12 million. A nonher critical issue for the supply chain management in aviation industry was the imp interchangeable regulation of the aviation industry, which is regulated by international and topical anaesthetic authorities such as the US Federal Aviation Administration (FAA), the European Aviation Safety Agency (EASA) and the civilian Aviation Department of the Government of the Hong Kong (CAD). Airlines operators befool to comply with different statutory regulations.For instance, they drive home to complete the deferrable prepares within the stipulated timeframe, suppliers of aeroplane spare parts are undeniable to hold special legal certifications and formal protocols, as well as issues of reliability and gumshoety. 1 Because of safety issues the Aviation industry was regulated by international and local authorities such as FAA, EASA or some local regulatory bodies. 2 economise parts are defined as components, assemblies, and equipment that are all told interchangeable with like items installed or in use, which are used, or gage be used, to replace items distant during criminal maintenance and overhaul. Joseph D. Patton, 1984) 3 There were over 1,000,000 parts in a single airplane. 2 Initially safety issues are crucial for all operators and supplier. It`s accredited that strict rules and tight regulations are necessary-they defend consumers, customer safety, environment and separate things. provided sometimes it causes some burdens on businesses. It continuously increases the cost of operations. Also turnaround time for counterbalances was super critical and cost for rush delay was extremely huge. Customers king be upset or even gap to other airlines if delays caused them lose the connecting flights.Thus, the cost of aircraft delays was crucial element in technology. Bargaining business office of supplier, difficulty to forecast demand and sharp competitions were other important issues in aviation industry. As a result of tight aviation regulations airline companies, as a customer, were constrained in supplier selection. economise parts solely supplied by solely single dominated supplier as called OEM (original equipment supplier). The limited choice and extravagantly assiduity of OEM`s limited airline operators` dialog force play.According to the M. Porter`s five advertise analysis aviation industry has low entrance barrier and it cause very intensive competition between airlines operators. A few decades ago flying with airline was very expensive for ordinary people but today everyone can usefulness from this because airline ticket prices have forever and significantly fallen. Finally, demand forecasting was very difficult. The forecast for spare parts is make based on maintenance development, plan maintenance plans and past drill patterns.Even so, the usage pattern of spare parts remained highly unpredictable because of the irregular behavior and the high level of demand variability of airplane spare parts for aircraft maintenance resurrect parts, which make the demand forecasting very challenging and tough to deal with. 2. develop the fiscal repair of having higher ancestry level of spare parts. It`s writ large successful supply chain management is focuses in an farm animal and stock list cook management.A common perception and experience is that supply chain management leads to cost savings, closely through minimizing arsenal holding costs. As I mentioned before certain risks (delaying aircraft can lead huge cost) airline operators was essential to hold certain level of spare parts that could satisfy all workable demand of its aircraft. However, this was both financially and operationally impossible. Thus , managing balance between most hard-hitting inventory levels to hold onto relative to the responding service level is very important.According to the case composition spare parts constituted a significant expense (total inventory grade was $350 million in BS) in chinaware peaceful`s financial statement. Followings are several financial drawbacks of having higher inventory level of spare parts. ? It could increase the carrying inventory cost. High inventory increases the warehousing cost (facility, handling, etc. ), the investment cost ( acceptation and opportunity, etc. ) and holding cost (insurance, tax, obsolescence, etc. ) without delay linked to the increase of inventory. It could also increase the labor cost.High inventory level conducts to inventory discrepancies, so lots of counting and recounting, track and tracing costs associated. It had negative impact on cash flow. More demoralize spare parts, components and assembles or any goods ungenerous more consume cash save holding inventory. Moreover, holding high inventory levels perpetually hide process inefficacies where inventory is made to cover malfunctions such as breakdowns, quality issue, long die switch over time even risks of mistakes. ? ? ? 3 3. How do you evaluate mainland China peace-lovings logistics management?I was very impressed and fascinated with chinaware pacific’s logistics management. Despite of brisk challenges such as heavy regulations, take careence on OEM`s, large numbers and complexness of spare parts and supplier relations and so on chinaware peace-loving was successfully manage their supply chain and made themselves different other airlines. As a result she has become a leading airline company in the world. Cathay peace-loving handles all procurance and inventory management in-house whilst tierce party logistics service providers are employed for repair and logistics management. through following successful procurement, inventory management, re pair management, and logistics management Cathay Pacific could perfect their supply chain management of spare parts operation. ? Despite large graduated table of operations with thousands of suppliers and distributors cross functional teams at Cathay Pacific helpered in gaining leverage on purchase by applying a systematic process of reducing the cost of spare parts purchased from different vendors. The procurement process gave an edge to Cathay Pacific in monitoring, evaluating and managing relationships with suppliers to discipline operational effectiveness.With its implementation, the airline was able to leverage purchasing power across different divisions and negotiate golden prices with the suppliers. Strategic sourcing also focused to consolidate the supplier’s database and chose the preferred ones. Through the finding following options Cathay Pacific successfully was handled the shortage. †Express Shipping: This post happens when aircraft is grounded and co uld not take off collectable to the nonavailability of certain part. The system at Cathay Pacific generates an urgent AOG (Aircraft on Ground) drift request and the parts are evince shipped for same day delivery.The express merchant vessels situation clearly shows the shortcomings of current purchasing practices and inventory management of Cathay Pacific. †espousal: The other method Cathay Pacific uses is of borrowing form other Airlines. acceptation seems to be a good sentiment so far Cathay Pacific cannot depend on this method as it cannot ensure the availability of parts as the parts required might not be available with other airline. Also borrowing might even be not possible as different airlines uses different aircraft models. Again it will be dearly-won option for Cathay Pacific because other airline might charge a premium. Airline Technical Pool: The third option Cathay Pacific has for coming together shortage is by pool loan, Cathay Pacific has signed a center with International proficient pool which maintain internet of 100 Airlines. With this use of this interlock Cathay Pacific can fate spare parts when in command without a surcharge. Collaborating through this network is a good option for Cathay Pacific, however shut up it cannot ensure the availability of required parts. Cathay Pacific cannot rely completely on this option. Also it might me time consuming and costly to ship the part form different regions.Being part of this network Cathay Pacific also adopt to share their inventory with other Airlines which could nominate instability in their own system. †intimate Borrowing: The final option Cathay Pacific has is of internal procurement, whenever a part is needed Cathay Pacific can borrow it form their Aircraft. This solution might make the part available in short term but it does not necessary solve the actual occupation as they will still be requiring the part in future. Similar to the other options Cathay Pacific c annot rely on this option because it does not ensure the part availability when needed.In addition improving and introducing Ultramain information system, which enables Cathay Pacific`s technical log process and support the maintenance management afterwards was clearly helped to perfect their supply chain management of spare parts. Another successful supply chain optimization at Cathay Pacific was implementation of Aerochange system Development of a collaborated supply chain system to expand the sharing and exchange of information (Spare parts availability and suppliers list) with different airlines gave an advantage to Cathay Pacific to select a supplier from the huge database.After its launch in 2000, technological advancement in Aeroxhange made this system capable of doing numerous tasks which helped the airlines to be more effective in their procurement. ? ? ? 4 ? E. g. : In 2001, Aeroxchange launched its e-procurement platform to integrate the partners for quote management and also it incorporated the service put together management in 2005. Finally, Cathay Pacific was successfully outsourced to third-party logistics (3PL) companies to transport their parts to mingled repair houses across the globe.This outsourcing approach allowed Cathay Pacific to save costs and indeed rivet financial risks. Assets required gear up distribution centers and networks normally need a huge amount of money that encompasses financial risks and hence by outsourcing, this risk can be spread to 3PL partners. Also the achieve of repair and logistics management activities Cathay Pacific pays millions of dollars. However outsourcing these activities will result in saving the capital which can be spent on further expansion of the airline. . Any advertion for the company to reduce the inventory cost while maintaining safe operation of aircrafts? Although Cathay pacific invested a lot of time and money to better their procurement, there are still some rooms for the advanceme nt in their processes. The accounting of Cathay pacific says that they have always tried to lock the deals with the airlines and individual suppliers to evoke their procurement process.On the other hand, one point that should have been taken into account was establishing strategical alliances with the suppliers or manufacturers (Boeing and Airbus) for the procurement activities. (According to the case study Cathay Pacific ) An alliance where manufacturers should focus on the materials management and help Cathay pacific to focus on nubble business activities. The integrated alliance with Boeing and airbus services will help to achieve great transparency and efficiency in the resource operations.These services are acquired by most of the big players in the market like Delta airlines and Singapore airlines where they succeeded in generating good revenues by focusing on their core activities. The other alternative for improvement is to reward the suppliers to suggest the cost savin g ideas. This will help the airline to develop a sand of competition among suppliers for developing a sustainable and cost effective model for procurement which will eventually result in increasing the productivity of the fleet.Despite the Cathay Pacific`s efforts to manage their spare parts inventory in an optimal manner, they still encountered several circumstances. Dealing with spare part shortage they have offered express shipping. emphatically express shipping is a very costly option for Cathay Pacific and should be avoided by keeping the AOG parts in inventory. Finally outsourcing whole engineering division can be some other suggestion to improve inventory cost. By this it could save enormous costs and risks. 5\r\n'