Why do you spend millions on unnecessary inventory?
This questions riddles you with turmoil.
You dance with excess inventory to support your fleet, or gamble with an AOG because your component source dropped the ball.
Yelling and screaming gives you some relief, but you’re still dancing.
And let’s be honest, is dancing something you’re good at?
If you’re anything like me, dancing is not a pretty sight.
Millions of dollars are put into inventory to sit and gather dust just for “piece of mind.”
It’s either that or subject yourself to mediocre service levels.
So what are you supposed to do?
Aircraft component pooling
Don’t worry, I’m not going to be your Wikipedia for pooling.
It’s rather simple.
You need a part, you have immediate access to inventory that you didn’t have to invest in, and you install the component on your aircraft.
That’s a reduced definition, but you get the point.
Aircraft component pooling allows you to have access to an agreed upon inventory that you can tap in to at any given moment. Gone are the days of you having to invents millions in inventory.
Playing with inventory is not your strong suit and it’s definitely not where you make money.
Aircraft component pooling has many benefits and since the average airlines spends 8x more than they have to to support their fleet, there’s some serious strategies to reduce the inventory burden.
Time is money, and money is… money
How much is your departments time worth?
I’m sure once you get into the cost of time, the number is shocking.
Now add on the cost of inefficiencies and you’ll get a real time picture of where the money is bleeding out due to operational inefficiencies.
Maybe it’s chasing a supplier for shipment confirmation on a PO, babysitting an MRO for the OH of your units, or trying to resolve an AOG.
Whatever it is, everything has an opportunity cost.
If your department is spending too much time on processing orders there’s something else they’re missing out on.
What’s their opportunity cost?
Aircraft component pooling helps you to focus on core activities, while making it easy to access mission critical components.
Reduced administrative costs
When you focus less time on processing orders and fixing problems, you drastically reduce your administrative costs.
Just imagine the costs you could save if you didn’t have to process POs.
You would save time and money on:
- Data entry
- Order follow-up
- Working with freight forwarders
- Managing vendor issues
- Getting approval from finance
- Determining if the quality meets your QA standards
- The list goes on and on, and all of these activities have a cost.
A cost that is controlled through a pooling strategy.
Less money lost to holding costs
According to Jetblue, they spend 20% on holding costs per unit, per year.
So if they held a $10,000 actuator in stock it would cost them $2,000 per year to hold that actuator in stock.
I’m sure your holding costs aren’t much different.
By utilizing a pooled inventory you no longer carry this stock burden.
You’ll save $2,000 a year just on this one component. Now imagine if you had 52 similar parts.
That’s $104,000 in savings on holding costs alone.
Now doesn’t that sound like a no-brainer?
More cash and less financial burden for inventory investments
Who wouldn’t want more cash?
Let’s say you have a new aircraft being added to your fleet. There’s 52 no-go components that could leave your poor bird stranded if something happened.
Those 52 components would cost you $500,000 to acquire and put in to inventory.
And don’t forget your holding cost.
If you’re like Jetblue this inventory would cost you an additional $100,000 per year in holding costs.
By utilizing a component pooling program you would avoid the upfront capital expense and holding costs, giving you an additional $600,000 for year one.
You could use this additional cash for anything, but I’m guessing it would be best spent on expanding or fine tuning your operation.
Increase in productivity
Similar to saving time, a pooling strategy will increase your departments productivity.
Gone are the days having to chase a supplier for an AOG component, worrying if a freight forwarder picked up, and checking your email every 5 minutes for a status update.
When you have the right components, at the right place, at the right time, your productivity skyrockets.
You’ll be able to focus your attention on other things that matter most.
Whether you think this is a dream or not, streamlining your operation has the potential to save you millions of dollars every year.
Of course, every airline is different, but think hard about the possibilities.
Spending less money on inventory, and having more time for mission critical activities is a good place to be.