AVIATION SPARE PARTS SUPPLY

CHAIN MANAGEMENT
OPTIMISATION AT CATHAY PACIFIC
AIRWAYS LIMITED
 COMPANY HISTORY
• Cathay pacific airways was founded in Hong
Kong on 24 September 1946 by two ex-air
force pilots, American Roy Farrell and
Australian Sydney de Kantzow.
• Launched its first routes between Hong Kong,
Sydney, Manila, Singapore, Shanghai, and
Canton.
• In 1948 Butterfield & Swire group had bought
45% share in Cathay pacific and became
flagship carrier of Hong Kong.
• Cathay Pacific Airways Limited was voted
“Airline of the Year” in 2005.
• It is named “Airline of the year” by Air
Transport World magazine in 2006.
• In 2006 had turnover exceeded US $ 7.77 bn
and profits of US $523 mn. Company has
employed over 25000 staff worldwide.
 MAIN ISSUE IN THE CASE
• The issue is managing dead and inactive stock
which accounted for 3% P.A
• Managing these stock need utmost care due
to obsolescence and unpredictable demand
patterns.
• The SC of aviation spare parts is very complex
because need to ensure timely service
availability of stock and stringent quality and
regulatory requirements.
AVIATION SPARE PARTS INDUSTRY
• The aviation industry was regulated by US
Federal Aviation Admin. (FAA), European
Aviation Safety Agency (EASA).
• The aviation spare parts were expensive and
complex.
• The variability of aeroplane spare parts,
coupled with the sporadic nature of demand
for aircraft maintenance repair parts, made
spare parts demand forecasting more difficult,
necessitating increased manpower.
 Buyer’s Market
• The carrying cost for aviation spare parts
inventory is very expensive.
• The 30% of inventory was active, 30% was
necessary to have on hand and 40% was dead
stock and estimated expense was over US$
10bn.
• The aircraft components were complex, high
level modules consisting dozens or hundreds
of parts.
 Supplier’s Market
• Price and quality were two major factors for
airline operators in evaluating spare parts
suppliers.
• Sometimes situations were dominated by single
supplier who are original equipment
manufacturers (OEM).
• The tight regulation and over dependence on
OEM’s , seeking an alternative suppliers was a
challenge for the company.
• To alleviate this over dependence operators had
explored opportunities for sourcing certain
categories of approved parts manufactured under
PMA (part Manufacturer Approval) program.
• The supplier selection was based on old or
new part models.
• Generally OEM’s were preferred for new
models and for older and non critical models
PMA was preferred.
 SPARE PARTS SC MANAGEMENT
• The commercial section had 3 functions:
procurement (commercial responsibility with
supplier), inventory operations ( day- to- day
operations) and planning.
• The spare parts were classified based on
functions and criticality.
• By Functions they divided spare parts into 5
primary classes: rotable (expensive and long
lasting like engine), repairable (fuel pump),
expendable (bearings, springs, bulbs, brackets),
consumable (chemicals, paints, fabrics) and
expendable- repairable (seat arm caps).
• By criticality they divided into critical and non-
critical components and classified by codes as
0,1,2,3 and 4.
• Critical components are the parts associated
with operating safely and effectively an
aircraft. These are expensive and complex.
• Non- critical components are not essential for
effective and safe operation like in- flight
entertainment system.
 CURRENT PRACTICE
• The strategy is ensuring quality and service to
aircraft operations in most cost efficient
manner.
Procurement
• They had ensure timely availability of spare
parts all time.
• They had cross functional team in selecting,
monitoring, evaluating and managing
relations with part providers.
• The KPI’s are average lead time, quality levels,
quality.
Inventory Management
• It is determining the right quantity of spare
parts and material at right time and at right
place to meet anticipated and unanticipated
demands to maintain aircraft operations at
desired service levels at optimal costs.
• The KPI is monitoring stock turnover for
efficient stock management.
• They have come up with some options to
meet the immediate and urgent need i.e same
day express delivery when aircraft- on- ground
(AOG).
Contd….
• They retrieved parts by borrowing from other
aircraft
• Pool loans to manage part shortages.
• Borrow parts from one of its other aircraft.
Repair Management
• They managed over 80000 repairs/year, over
7000 repairs/month so selected repair shops
based on type of spare parts shop specialised
in, quality, price and service levels.
• In 2000, company had came up with Aero
exchange program where system is designed
to have information on types of spare parts
availability and suppliers list etc. This was an
BPR at Cathay pacific.
Logistics Management
• The SC was dependent on effective logistics
management because it was a practice to
minimise the duration and number of process in
transportation.
• They shipped parts individually between repair
house and hubs to minimise lead times.
• To minimise cost they consolidate parts that were
less sensitive to lead time.
• Reducing inventory level depended on reducing
lead time from supplier and turn around time
from repair shops. Company came with JIT in
order generate lowest inventory holding cost.