Robert Traylor and Paul Barwell are tasked with optimizing supply chain management for Cathay Pacific Airways (CX), one of the most profitable and respected airlines in the world. In order to maintain its outlook on growth in this increasingly competitive industry, their team must reduce operating costs while improving their customers’ flight experience.
Since spare components represent most of the inventory value in their supply chain, spare parts operations should be the key focus. From the airline’s perspective, the key supply chain issues are as follows: the high level of inventory and the total value that it represents (US$350 Million); Compliance with required statutory regulations (FAA (US), EASA (EU, and CAD (HK)); high inventory holding costs in order to maintain the right amounts of active stock; spare parts shortages and the service level implications; total number of spare parts (over 380,000) and suppliers (2,300); and the high level of variability in spare parts demand.
In order to maintain the desired service levels, the airline holds a buffer inventory at an additional cost that was deemed necessary and acceptable to the company. Because it is operationally and financially impractical to carry the level of inventory that is truly needed, this additional stock is not comprehensive enough to guarantee that the airline will always be able to cater to the needs of the aircraft. The situation often arises where a part is needed, but not in stock. CX handles this “shortage management” in several ways. The first of these is issuing “Aircraft-on-ground” orders. This method guarantees that correct part is available at the market price, but comes with a high transportation cost and a long lead time.
Borrowing from another airline is another option that may come with shorter lead times, but the precise stock availability is uncertain and any spare parts obtained this way would almost surely come at a premium cost. Rather than borrowing from other...
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