Pratt & Whitney’s announcement in June that it is opening a new 600,000-sq.-ft. distribution center in New Hampshire to support the ramp-up of its new engine line was not unusual. What is different is that the facility will be operated by a third-party logistics provider—in this case, .
Like other industries in which service is critical, the MRO side of commercial aviation has traditionally operated its own facilities and managed its own logistics. Given the cost of an AOG, airlines and their suppliers maintained a surplus of just-in-case inventory positioned in numerous locations throughout the supply chain. Needed parts were often put on the next flight out.
Logistics today is about more than just storing and moving a lot of just-in-case parts. Given that fuel prices and labor costs are relatively fixed, inventory and logistics represent an area where maintenance providers can reduce their costs. “If an airline is spending a billion dollars or more a year on materials and 60% of that is in parts, there’s an incentive to turn that number down,” says Joshua Abelson, senior vice president-supply chain solutions, for AeroTurbine, a third-party logistics provider (3PL) that specializes in parts management and logistics solutions for the commercial aviation industry.
Increasingly, some companies are turning to a third party to manage those processes for them. 3PLs like AeroTurbine, UPS, DHL and FedEx can bring tools to the table that may not be in an OEM’s or MRO’s tool kit, such as network design, demand planning software, and an existing infrastructure. “Airlines, OEMs, and MROs are looking to logistics providers with the expertise to control costs and manage inventory in new ways,” says Tom Upshaw, UPS’s director of operations for its aerospace segment. “Their challenge is not just movement but planning, so that they’re not holding an excessive amount of inventory in any one location.”
Several catalysts are driving logistics management and the trend for airlines to work with 3PLs.
Mergers and acquisitions: Airline and OEM consolidation is opening the door for 3PL relationships. “When two airlines merge, they find that their fleets overlap and they often have completely redundant warehouses and inventories,” says Abelson. “In time, they’re going to shed facilities and rationalize their inventory.” They may even consider starting fresh with a new logistics center to support a base of operations or support the rollout of a new product, like Pratt & Whitney. “Yes, they can build a new logistics center if they want to, but why should they invest that capital when 3PLs have built out a network to support this industry?” argues Abelson.
Emerging markets: Airlines may be reducing the number of flights they offer in mature markets, but emerging markets such as the Asia-Pacific region are growing. An airline may not have the infrastructure or experience to support those new opportunities, but a 3PL may already be in the region. “A 3PL like UPS has hundreds of stocking locations around the globe and experience operating in those markets,” says Upshaw. “We also have parts-planning software capabilities that allow us to look in those locations at historical demand from other customers and to forecast what may be needed in the future.”
Better customer service: Putting a part on the next flight out means that in certain regions of the country, parts aren’t moving after 8 p.m. A 3PL with its own fleet, on the other hand, often takes orders until midnight for next- morning delivery. That expands the order cutoff time by up to 4 hr.
Better parts management: Parts management is a lot like the game of hot potato. “No one gets points for having inventory sitting on shelves in a warehouse,” says Abelson. With best-in-class inventory management tools, Abelson can tell an airline or OEM partner that a part has been sitting in the warehouse for more than 60 days. Since AeroTurbine gets demand from all over the world, Abelson can sell a part that’s been sitting and replace it later. “There’s more to the relationship than just providing a static warehouse and filling orders,” he says.
Better fill rates: Improved parts planning and forecasting can help a maintenance provider reduce its inventory costs. A by-product of better planning is an improvement in the first-time order fill rate in the location where the part is needed. “If we’re stocking parts in multiple locations, we can do a better job of planning inventory levels in the fulfillment center that supports a specific repair depot,” says Upshaw.
At the end of the day, these trends highlight that logistics is no longer just about moving a part from Point A to Point B. The increasingly sophisticated needs of the industry are resulting in equally complex solutions to control costs.