American Airlines’ Approach To Examining Supplier Performance

American Airlines says communication is the key to better vendor relationships.

A version of this article appears in the October 6 issue of Aviation Week & Space Technology.

When things go wrong, it is not always the supplier’s fault. Airlines can play an important role in making things right by working differently with their suppliers.

John Henke, a professor of marketing at Oakland University in Rochester, Michigan, has studied the relationship between the six major automakers and their top suppliers for more than 20 years. The result of his research is striking: While the procurement of materials and services is typically thought of as an adversarial relationship, where companies believe they have to be tough with their suppliers to get the best deals, Henke’s research shows that the automakers with the most trusting and collaborative supplier relationships—what he calls supplier trust—are the most profitable. They also gain earliest access to the most innovative ideas being developed by their suppliers.

“We believe that if top management of any company does anything less than work to ensure their firm has trusting supplier relations, they are mismanaging the company,” Henke says.

Craig Harry, managing director of supply chain materials administration for American Airlines, might agree. He says the airline industry has some catching up to do compared to other industries when it comes to supplier relationship management (SRM). The industry “needs to partner with our suppliers,” Harry says. “You need to have confidence that they’re working in your best interests and to do that, we have to share more information with them.”

Harry says the customer is not always right and the supplier is not always wrong when things go awry. In the most productive supplier relationships, the airline is equally accountable. “In the old way of thinking, failures are always the supplier’s fault, and we move the business to a new supplier,” he says.

“As an industry, we have to learn that as customers, we contribute to the relationship. We need to do a better job of communicating our expectations with our suppliers,” Harry notes. “That’s the maturity path we have to be on.”

Scorecards, or metrics, must not only measure what is important to each airline but also be communicated to suppliers so they understand them—and know via regular communications whether the supplier is meeting, exceeding or missing the targets.

In the case of American Airlines, for instance, 45% of a supplier’s scorecard is based on turn time and parts availability; 40% is based on the quality of the part, repair, or service; and 15% is based on customer service, which Harry defines as how a supplier supports American’s needs when it comes to processes such as quotations, invoicing and expediting a part or repair.

“Every operator needs to establish their own metrics based on what’s important to their operation,” he says. “That’s true for their internal shops as well.”

By building more trust, and collaborating more, relationships may well become an imperative as the base of suppliers shrinks through mergers and acquisitions. “In the current environment, if an operator has a supplier who is failing, the inclination is to cut your losses and take the business elsewhere,” Harry says. “But as the supplier base shrinks, there are fewer options. You’re going to be more motivated to help that relationship.”

For American Airlines, building a productive supplier relationship begins with planned events. When the airline is preparing for a modification program driven by reliability or another requirement, suppliers are brought in to review the maintenance plan and discuss removal rates, turn times and parts availability. “We’re going to provide demand information and they’re going to provide supply information,” Harry says.

The real point, he adds, is that the planned events are the easy ones, which they ought to get right. Unplanned events are hardest to forecast and can have the most impact on operations. Strong supplier relationships are more likely to result in better responses when the chips are on the line. “I want consistent turn times and lead times, consistent quality and consistent costs,” he says. “The more information and data we share, the more likely it is that their performance is going to be consistent. That’s the value to us.” 

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