Analysis
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Supply Chain Logistics

How have supply chain logistics providers in the aviation industry survived the economic downturn and how are they tackling new challenges such as integrated IT solutions and impending safety legislation? Hannah Davies sought to find out.

"Aerospace logistics requires specific expertise and innovative solutions in order to fully meet the exacting demands of the industry,” says Lee Purdy, business development manager aerospace at SDV; and the ability to tackle aircraft-on-ground (AOG) situations 24/7/365 is the expected standard across the industry.

In such a fast-paced industry with high cost pressures, it is crucial that “each segment of the aerospace supply chain, no matter how small, is regarded with the same critical importance,” adds Purdy.

The supply chain can quickly change owing to new routes, maintenance locations or aircraft, meaning that logistics providers must be flexible to meet customers’ needs. In addition, the implementation of new integrated IT solutions and impending safety legislation puts pressure on logistics providers to quickly react to change, meaning that they are always striving to stay one step ahead of the game.

Surviving the downturn

In a time of economic downturn it is important to control costs and proactively look for new solutions for both old and new customers; “in a depressed market there are always opportunities as organisations,” says Purdy, whether through increased margins, reducing the cost base or increased business. A logistics provider should always be “looking to drive down costs by innovations rather than purchasing”, says Keith Leonard, regional sales director, B&H Worldwide.

There are various ways to reduce costs for both the customer and the logistics company; one of the more common methods is indirect shipping, which uses a system that sends orders to a store-and-forward facility prior to its final destination. It is the around-the-clock service provided to customers that logistics providers say keeps them afloat. But with seemingly low profit margins — Ralph Perkins, managing director of Aviation Logistics Network (ALN) uses the example of a CFM engine shipment giving an average profit margin of below 0.05 per cent — it is vital to maintain a high level of communication with clients in order to retain business and meet demand.

Indeed, any project “presents a highly complex supply chain” according to Purdy, for which operations are “subject to strict budgetary controls”. Going forward, the aviation supply chain could become more cost-efficient by “working in partnership with all the elements in the chain to eliminate wasteful practices and poor communications”, says Perkins, who stresses that supplier, client and logistics provider should work together as one in order to fulfil a contract.

According to Leonard, “the aerospace industry has held up pretty well” in relation to the downturn, a point that is supported by the company’s growth “in terms of head count” over the last two years. SDV has also managed to increase its customer base during the downturn through “external acquisition and internal processes”, helping the growth of the business. Similarly, Perkins says that ALN and Davies Turner Aviation, which is part of the ALN network, had a “record year” in 2012, achieved by an increase in clients and in the volume of sales opportunities for the network.

Linking the network's success to its “dedicated staff who understand the pressures on both shipper and recipient”, Perkins states that “paramount above all is to have staff that understand the relevant needs of the industry”, providing “quality in everything you do from customer-facing operations and liaison between supplier and consignee”. He regards employing qualified aerospace professionals who have previously worked as pilots, flight engineers, purchasing and procurement managers or maintenance engineers as hugely beneficial, as well as having a Tier 1 aircraft manufacturer as a key stakeholder in ALN – Daher Group.

The success of any business is determined by the formation of strong relationships with customers. In the aviation supply chain this may be with an airline, repair vendor or stockist, and in order for the logistics provider to succeed it must ensure that the two parties develop “together rather than independently”, comments Leonard.

Location, location, location

“Investment as a company is driven by customer requirements,” says Leonard, who notes the importance of being close to customers in terms of location. B&H has recently opened a new office in Germany due to increased business in that area, obtained through its agency partner, the Aerospace Logistics Group (ALG) — the association founded in January 2007 by a group of international freight forwarders to provide global logistics services.

Although offering a local support network is important, overseas services are even more highly sought-after. Logistics providers can assist those clients who don’t have the necessary warehouse function or positioning of stock by offering to hold stock in locations outside the major steer of operations, providing customers with inventory management or small stock holdings, reducing the need for further investment. This service still gives customers full visibility of any stock and engineers, while leaving the logistics provider responsible for the management of its inventory.

Perkins is also keen to stress the importance of location. Davies Turner has “over 20 offices in the UK” and has additional support from a 24/7 AOG team located at London Heathrow Airport. Perkins believes that “regular review meetings and agreed improvements” have contributed to ALN's success.

Meanwhile, with 540 offices globally, SDV allows customers to “test the water” of key markets, such as China, Africa, Mexico and Indonesia, through its local platforms and existing warehouses. Purdy explains how original equipment manufacturers (OEMs), lessors and financial organisations have benefited from this system, allowing them to concentrate on core business, minimise financial risk and generate sales.

SDV also provides “translation services and legal advice for new customers looking to explore wider regions”, adds Purdy, and site representatives in these areas are further assisted by local contacts and a support office if necessary.

Implementing IT solutions

The aviation industry has quickly become a force driven by innovation and integrated IT solutions, with next-generation aircraft and apps that can do anything from checking inventories to testing cabin crew fatigue levels. Introducing new IT systems into logistics management helps to “provide solution-driven services” to customers, according to Purdy.

The invention of new products geared toward improving the supply chain is “fundamental” to the success of logistics organisations, says Perkins. For example, ALN Germany’s stakeholder Central Global Cargo has created applications to “answer specific logistics challenges”; developing and patenting an engine stand for Pratt & Whitney’s (P&W) 120 engine, the ‘Securium’ AOG storage system and ‘Com4Cube’ — packaging dedicated to “delicate avionics and navigation systems”.

Advances in technology have allowed the industry to maintain high levels of service whilst using the “power of buying to keep costs down”, says Purdy — crucial to remaining successful in an industry with high cost pressure, stating that “integrated IT solutions are the backbone of cost efficiencies seen in the supply chain”.

The most common IT solution available to customers is the track-and-trace system which allows “stock owners to hold their own stock in more locations around the world but with total visibility of the contents”, according to Leonard. This gives customers control of every shipment, using track-and-trace technology with enterprise resource planning (ERP)/electronic data interchange (EDI) capabilities, further creating “synergies within the supply chain” and helping to “drive greater productivity”, says Purdy.

In addition, ALN has introduced a stock inventory programme called ‘Red Prairie’, which can “keep track of inventory and many thousands of part numbers in our logistics hubs in the UK and through ALN partner offices worldwide”, states Perkins.

Safety legislation

In Q4 2010, an international shipping incident involving UPS posed a threat to the way logistics providers operated in regards to safety. The suspicious printer cartridge packages being shipped through cargo networks from Yemen to the US led to an investigation that ultimately encouraged organisations to adopt stricter safety measures, though no legislation was imposed as a direct result.

Although authorities are constantly looking for improvement, SDV, B&H and ALN have already received the HMRC-audited Authorised Economic Operator (AEO) status for compliance and supply chain security. ALN partners also have USA CT-PAT provision — the US customs’ trade partnership against terrorism, UK AIMSS — a security accreditation by the Metropolitan Police and Tapa protection — a transport asset protection accreditation; invoking a higher level of security as per the Department for Transport’s (DFT) requirements.

Leonard sees the global supply chain regimes as trying to be “proactive” but in reality being more “reactive”; referring to the UPS incident he highlights the fact that no one was looking for the suspicious packages before they were found - but now that they have been, the industry is reacting.

According to Perkins, ALN is “regularly audited” in relation to security legislation, however the individual companies have adopted “multi-layered safety” measures voluntarily, such as X-ray scanning machines for consignments. B&H has invested in a shipment scanning machine to improve internal safety procedures and help minimise disruptions, threats and airline delays.

The overall consensus is that there are no major impending safety legislations, but Purdy describes amendments to the supply chain legislation as being “constant”. Although some logistics providers have already invested in the AEO, B&H says it has yet to feel the benefits — such as faster customs procedures, but expects to do so in the “not too distant future”, according to Leonard.

As well as implementing new safety protocols within the organisation, careful decisions are made as to what regions a logistics provider will travel to. ALN uses the local knowledge of its “strategic partners” to grasp the “variations of worldwide destinations”, says Perkins, adding that “locals know their markets best” but a “lack of infrastructure in some developing economies is still a challenge, together with the myriad of local customs practices that are involved”.

According to Perkins, a “wide range of solutions are available” to combat the challenges posed by problematic areas. Recently, ALN chartered an executive jet with its own onboard courier to respond to an AOG situation in Bali and delivered a “very sensitive piece of equipment”; at the time commercial airlines were unable to assist, but within an hour the charter flight had left Oxford Airport.

In the last few years ALN has “increased its footprint into Kuwait and the United Arab Emirates (UAE),” for which it is already seeing “considerable gain”. The company is also looking at expanding into the military market as a “possible next step in the development of our services to the aerospace industry”, says Perkins.

Future outlook

With ALN reporting an “increase in the volume of sales opportunities” and new IT solutions being implemented to help aid the smooth running of such companies, it seems that the supply chain is going from strength to strength.

There are some hurdles still to be overcome, both at a local and international level. Perkins, for instance, explains that the “continued uncertainty” of additional runways at London Heathrow is an issue, as are the “increased costs through government and security regulations and the ability to absorb those costs”. He also sees “decreased margins and a culture where value is solely calculated on lowest price, not expertise” as challenges, especially when “the movement of an engine worth millions [of pounds is entrusted] into the hands of someone who has no concept of how to correctly handle them”.

Purdy believes it is important to “maintain a step in line” and meet the technology advances head on, giving the example of an aircraft that can identify faulty parts while in flight, as this allows the supply chain to “provide an infrastructure” and bring the available parts to the airport in a cost-effective way.

It is evident that the supply chain has survived the downturn, exceeded safety requirements and faced IT challenges head on, and with measurement systems put into place companies hope to benefit from “the identification and removal of dysfunctionality and performance deficits,” as Purdy puts it; and by offering “total transparency of operational activity” to customers, greater productivity can surely be achieved.

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