Smart Logistics Can Shave 10-15% Off Bottom Line

Logistics expediters offer tips for cutting cost and time—including weighing distinctions in taxes and other matters between different countries.

If it is a truism that no one flies alone, it is equally true that no one overhauls an aircraft alone. Repairs are carried out by a network of shops, manufacturers, engineers, distributors and other entities. That system is tied together by logistics, and lean logistics is as important as selecting top maintenance, repair and overhaul providers.

The ultimate aim is to get the right part to the right place at the right time as economically as possible. Logistics involves two key components, transport and storage, as well as many smaller elements such as demand modeling, inventory optimization and customs management to enable the pieces to fuse cost-effectively. Fortunately, there are opportunities to economize across the board

Abdol Moabery, president and CEO of GA Telesis, says it is becoming easier to ship parts to anyplace in the world. “There are very few places airlines do not fly these days. You can get anything, anywhere, much more quickly than you could in the past.” For slower, more economic sea transport, Moabery sees a surplus of capacity: “Rates are lower than ever; capacity is not as tight as it once was.”

To exploit all these opportunities, the Internet has brought complete transparency of pricing. This means shippers can cut out middlemen, or at least cut down on them. GA Telesis may now use only one freight forwarder instead of the three or four that were formerly necessary. Often cargo carriers offer excess capacity at discounts, whereas in the past this space remained untapped. Smart logisticians have used the Internet to identify truckers who continue to add fuel surcharges, even after oil prices plummeted.

New aircraft like the Boeing 777-300 have ample belly cargo space that enables direct shipments rather than roundabout journeys. GA Telesis used to ship parts from Miami to Frankfurt to Beijing. Now it moves aircraft-on-ground (AOG) parts directly from Miami to Asia the next day. “Our logisticians are confident they can get it there without going through a hub,” Moabery says.

Shipping by sea is more economical when speed is not essential. For annual replenishment of European stocks, GA Telesis consolidates its inventory on a boat, and it arrives door-to-door in 30 days. 

GA Telesis handles some of its own logistics, with a three-person staff whose head holds a doctorate in logistics. It also partners with UPS. Expert logisticians at UPS manage large volumes of package freight that have to go to many locations. GA Telesis handles, for example, shipping an engine for overhaul from the U.S. to Europe. “That is not complex; it is heavy. We know what we need to get it there,” Moabery says. But partnering with a logistics provider has been essential for other situations. “We selected UPS, but DHL and FedEx are also excellent.”

Strategic storage is another requirement for lean logistics. GA Telesis has two warehouses in the U.S. and one each in  Beijing, Helsinki and Istanbul. Much like the hubs of hub-and-spoke passenger carriers, these warehouses support local regions and each other. Helsinki is one of Europe’s largest hubs for Asian traffic and offers 10 daily flights to Asia. Istanbul has an immense population, including booming India, within reach of a 4-hr. flight.

To plan for the optimum amount of parts stock at each warehouse, GA Telesis uses models and massive data to forecast demand, which can fluctuate weekly. An expert statistician manages forecasts. Data are also used to decide where to part out aircraft. Unlike 10 years ago, teardowns can be done almost anywhere in the world, including Europe and Asia.

In choosing a teardown location, GA Telesis factors in where the aircraft are, where the parts will be repaired and the time and expense of transporting parts to repair shops. The company can now disassemble aircraft in China and get parts to Miami by ship in 30 days. “You have to have models these days,” Moabery emphasizes. “If not, you cannot be efficient.” Data and modeling can reliably forecast demand and help move parts economically.

One common error is ignoring distinctions among countries, for example in customs, taxes and trade agreements. Turkey used to have an open border with Russia, so goods once moved freely between the countries. Moabery says it is easier to move parts from the U.S. to Brazil than from Argentina to Brazil, although these nations are neighbors. He must move parts from Istanbul to Brazil via Miami, because Turkey and Brazil lack a trade agreement.

Intercountry differences also influence warehouse sites. It does no good to have a great geographical location in a low-cost country with plentiful flight options if the host country lacks efficient trade agreements and low taxes on exports to key markets. 

How much does all this matter? Moabery estimates that GA Telesis saves about 5% of costs by employing lean logistics—a crucial difference in a low-margin business. For example, consider the complexity of logistics for an engine overhaul in Helsinki. Scrap parts must be shipped to Miami and replacement parts shipped from Miami in time to complete an engine repair in 50 days and return it to the customer in 55 days, all as economically as possible.

With its high-level logistics staff in place, GA Telesis has applied for a logistics license and plans to sell spare transportation capacity to other companies.

Moabery’s partner, UPS, has been in the logistics game since 1907, notes Gregg Thompson, manager of UPS Procurement Services. “We are continually looking for ways to improve our logistics offerings for external as well as internal customers,” he says.

Some of UPS’s understanding of aircraft maintenance stems from maintaining its own fleet of 237 aircraft. Lean MRO logistics helps the company offer time-definite cargo service at the lowest cost possible.

UPS uses a multi-echelon approach to parts provisioning to ensure parts are at the right place or within a practical recovery window for unscheduled demand. It achieves this by looking at inventory levels across the supply chain and taking into account the impact that inventories at each level have on other levels.

For example, streamlined service at the distribution level means less stock needs to be kept at downstream-user levels. Multi-echelon inventory optimization works by continually appraising stock levels across all levels. Moreover, “supplier performance, customer service and internal asset metrics are consistently monitored to enable continuous improvement,” Thompson says.

UPS considers every option, not just their Express Critical service, to ship an AOG part. The company may choose a more expensive counter-to-counter option that drops off and picks up the AOG part at a ticket counter, luggage service or freight office.

Lean logistics for planned maintenance is different. Here, UPS aligns procurement and distribution with the maintenance plan whenever possible, using just-in-time methods to minimize inventories. Again, constant feedback ensures continuous improvement. UPS keeps supplier scorecards on metrics such as repair turnaround time, purchase lead times and responsiveness.

Erik Goedhart, head of Kuehne + Nagel (KN), says his company keeps logistics lean by continuing to innovate: “For instance, we developed KN SparesChain to make sure unserviceable parts get to the repair shop on the shortest connection from the location of the AOG, while at the same time managing the repair flow for MROs.”

The company also developed the KN Airline solution to deliver parts directly to the hands of mechanics serving aircraft, especially for AOGs at outstations of major airlines. “For heavy overhaul, we prepare packages of needed parts to reduce transport time and shorten turnaround times,” Goedhart adds.

For lean production logistics, KN reengineers supply chains to reduce working capital while meeting on-dock dates of manufacturers. In the aftermarket, KN supports power-by-the-hour and spare-parts pooling agreements of MROs.

Smart logistics planning and management can shave 10-15% of the bottom line if you factor in time saved, estimates Chris Edwards, co-founder of Goairlandsea. His company handles about 70% AOG logistics, and the rest comprises more normal component supply chains from its base in Auckland. Edwards is currently doing a study on buffering supply disruptions for a major aviation client.

Some aftermarket customers in Southeast Asia choose between local suppliers in places like Singapore versus U.S. MROs based on both price and time, which equates to distance. Others go with price alone. Edwards agrees with Moabery that transportation options have become more plentiful and less expensive. “There are more direct flights from our region to Houston, Los Angeles and Atlanta than there were four years ago,” he says. At the same time, many nonaviation enterprises are choosing sea rather than airfreight, leaving capacity available and rates depressed.

Crossing borders can still pose problems. Edwards says most Southeast Asian countries allow easy transit of borders and are “less officious” than the U.S.

To ease shipment to and from the U.S., his company arranges a continuous bond with any U.S. MRO with which he is dealing, which relieves worries about who pays customs and other taxes. “It takes away the hassle and arguments,” Edwards says. He also has a person permanently assigned to expedite shipments in Los Angeles, which he says can save 2-3 days of time.

For AOGs or time-conscious supply chains, applying these measures works out to real money. 

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