Today the national air fleet of Russia is composed of over 1500 various types of aircraft, whilst a mid-sized Russian commercial airline operates a fleet of approx. 20 aircraft, produced by both Russian and Western manufacturers. However, due to the ongoing ‘westernization’ of the fleet, the demand for relevant aircraft spare parts is continuously increasing, while the existing deficiencies in the local supply chain keep sabotaging the profits of Russian carriers.
‘Most Russian carriers employ a team of approx. 6 procurement managers who are working with quite a long list of 50-70 spare parts’ vendors. Should a carrier employ a smaller team, it would be forced to deal with a massive workload and thus the company would certainly face a number of serious human-factor related issues. The added stress may contribute to the acquisition of wrong or unnecessary parts which sometimes may account for up to 20% of all airlines’ purchases. However, more people in the purchase Dep. imply bigger HR-related costs and more complex supply process management,’ comments the CEO of Locatory.com Zilvinas Sadauskas.
A traditional airline’s supply chain process is quite time-consuming and mostly implies manual management of separate procurement channels. Managers have to request, analyze and consolidate all offers from their approved suppliers manually. And should none of the suppliers present a decent offer, the managers continue the search on the open market and then have to consolidate the possible solutions manually once again. In terms of hard-to-find components the procurement process can become a true challenge for an airline, particularly in situations of a sudden technical malfunction of an aircraft (AOG situation).
Table 1. Traditional procurement process of the average Russian airline
An AOG situation of a single narrow-body aircraft may cost the operator approx. $40,000 per day. This naturally urges airlines to find the fastest solutions and get the replacement component delivered in the shortest possible period of time. Unfortunately, in such situations airlines with limited choice of suppliers are sometimes forced to acquire the necessary by overpaying the vendor up to 100% due to the urgency of the matter. Moreover, though recently the Russian authorities have made significant concession to airlines with regard to importing parts and components in AOG situations, the customs clearance and final delivery may still take as long as 3 days or even more.
‘Russia, along with Belarus and Kazakhstan, which are operating under one Customs Union, are increasingly importing Boeings, Airbuses as well as other types of Western aircraft. Also, many local operators and MRO providers have already formed minimal component stock for the aircraft. These spare parts may be potentially leased or exchanged to other local operators in urgent situations. But in order for the market players to find truly efficient and timely solutions they can no longer afford to rely on telephones and emails alone. They are in need for an integrated and unified solution,’ comments Zilvinas Sadauskas.
Some of modern E-commerce solutions are designed to meet the specific needs of airlines, operating in the emerging markets, where the industry players have not yet developed enhanced intercommunication. Such spare parts trading platforms as Locatory.com unites local, regional and global suppliers, MRO providers and airlines under one system thus providing all of its members with an opportunity to find the closest next-door vendor which may sell or lend the required component.
‘E-commerce solutions have been widely used by Western carriers for over a decade now. They have proven to significantly shorten and simplify the entire parts procurement process. Today a procurement manager may send a request with regard to a particular part to all of its suppliers as well as the open market with literally just a single click. Moreover, all the offers are being consolidated and compared automatically which significantly accelerates the procurement process. Based on our experience, we can estimate that the purchase team of a mid-sized Russian carrier may save up to 1680 working hours per year with the help of easy-to-use yet very efficient e-tools,’ comments the CEO of Locatory.com.
Table 2. Procurement process on the E-commerce basis
Automating the company’s procurement process has also proven to provide carriers with up to 15% savings on the prices of parts due to the extended list of potential suppliers. Left alone the savings on logistics, should local carriers and other market players start interacting with each other through a common system. All in all, airlines, particularly from the emerging markets, which strive to keep their planes high and delays down, should reconsider their traditional business processes, and shift not only to modern and innovative aircraft, but also to more efficient supply chain solutions.