MRO Inventory planning is an impossible number game. The managers often face the challenge of maintaining thousands of items, with specific features that require time-consuming calculations.
Aviation MRO inventory generally includes:
- All maintenance spares stocked to supply unplanned breakdowns and scheduled maintenance.
- The consumables needed to keep the maintenance processes running.
- Spares stocked by OEMs (original equipment manufacturers) to service the equipment you’ve purchased from them.
Today, Aviation MRO Organizations without an optimized aviation inventory run the risk of over-paid and under-performing assets.
How to tackle a massive amount of obsolete inventory?
In order to avoid pricy shortages, inventory managers of an MRO often choose to work with caution when it comes to determining stock levels. But that strategy has its cons in terms of costs. Inventory consumes space, may get damaged, and sometimes can become obsolete – which carries surplus inventory costs on an organization. Over time, a massive amount of unused/obsolete inventory translates into waste and loss. When asked about tackling this problem of uncertain demand, around 80% of aircraft spare parts, where planners can’t predict what part will need to be replaced, where, or when, Brad Young, President of SkyTower Aviation Services said, “This is the Billion Dollar question. First, we look at fleet trends, maintenance planning trends, high failure units, ATA chapter patterns, and market patterns.” Here communication is the key. “Talking with our customers about their short-term maintenance schedules and inventory pain points is still the best way to plan inventory in an effective manner,” he further adds. Certain MROs like the FL Technics leverage their integrated MRO network capacity and capabilities both, in terms of resources and geography. In other words, FL Technics is able to tailor and adapt possible solutions even in ad hoc cases by using and combining different business lines within the FL Technics group, including – owned stock of parts and materials, in-house logistics and supply chain solutions, a vast network of partners and clients (OEMs and distributors), their own production and repair shops (including dedicated FL Technics Engine Services business), and of course the base and line maintenance capabilities say Giedrius Žutautas, Marketing Manager at FL Technics. The range of such resources awards us flexibility and a selection of possible solutions when it comes to the sourcing of spare parts. He further goes on to say that we are actively investing in extending our own asset pool/stock, not only by purchasing selected parts and components but also by acquiring aircraft for teardown projects (one of such is currently being finalized at one of our MRO hangars). Such teardown projects allow us to retrieve a large number of airworthy/serviceable components and use them in our own projects as well as resell and supply our clients and partners.
How to reduce inventory investment and improve service?
There is a general observation that MROs end up buying surplus spare parts leading to excess spending and surplus inventory, leading to tied-up capital in inventory. Despite this many times, the target service levels are not achieved. When asked about the ways to reduce inventory investment while improving service levels, Brad said, “This is an accurate observation. Capital is king and the MROs are making a decision to make such investments. In my opinion airlines and MROs can do a better job of incorporating suppliers to assist in planning, delivery, and cost control.” According to Giedrius, risk management, rigorous analysis, and evaluation, as well as own capacity of resources play a crucial role in such scenarios. You need to have highly experienced teams to be able to control these aspects as well as the global perspective of trends and needs within the aviation/MRO industry. FL Technics boasts such capacity and as mentioned previously is set to further increase investments in asset business, including high-value assets (engines, LGs, APUs).
Optimized Inventory
The right balance between demand and supply ensures an optimized inventory. Optimized inventory maintains a level of spares inventory that virtually eliminates out-of-stock conditions while improving efficiency and cutting inventory costs. Optimized spares inventory suggests that an MRO organization is putting its inventory investment where it should & when it should, without incurring unhindered future risks. An optimized inventory forms a continuous enhancement loop that produces tangible, sustainable results over the period of time – driving asset performance, competitive benefit, and positive bottom-line results.
Are newer aircraft posing more challenges to inventory planning?
Nowadays new aircraft are introduced every other day with the latest features and advanced technology, in such times planning an inventory of different and constantly updated fleets and different aircraft configurations is a bigger challenge.Out of all the aircraft introduced, many of them fall off or fail to make an impact. At Skytower we stick to what we know, which is Boeing and Airbus. It is a very niche industry and all successful companies specialize in one way or another says, Brad Young. Some specialize in business model, ATA Chapter, Sale vs. Repair, Core products, etc. Specialization is the key to success, he further adds. FL Technics mainly focuses on new generation aircraft, that our MRO teams are certified for and can work on various projects, from the base and line maintenance to engineering and DOA comments Giedrius Žutautas. Meaning if we are working on any client aircraft or fleet, we can support it with our aftermarket services and source parts and materials on-demand based on synergies described above, he further adds.
AOG situations come every day, that’s the beauty of a challenge…
However, the biggest challenge that an Inventory planner can face is the unavailability of a particular spare during an AOG situation. Naturally, such situations can come from time to time. In most cases, we are able to resolve and meet the demand (yet again leveraging the scale and integrity of FL Technics group) said Giedrius. In the future, such strategy and approach will be further developed by expanding our certifications, investing in assets, and new businesses across the globe. Answering the question regarding financial and operational consequences – obviously, it depends on negotiations, but the outcome will most likely be related to increased costs (reduced profit), or simply time delays of a certain level, he added.
We face such situations almost every day says, Brad. Experience is the problem solver for this challenge. Each situation is coming with unique circumstances that cannot always be mitigated or planned for. Our strategy is to learn from previous situations, plan as much as possible, and remain agile he continues further.
Inventory Management software
Since forever, inventory management software has lent a helping hand to MROs to ensure that they have enough inventory to meet the demand, minimizing costs at the same time. Such software provides real-time stock-level insights and automates replenishment. Besides this the inventory management software tracks historical trends, making it easier to schedule orders to build up stock when high demand is anticipated and to decrease orders at off-peak times. However, the COVID-19 pandemic was an exception to the above rule. No software predicted the outcome of the pandemic on the aerospace industry.
COVID-19 pandemic changed the rules of the game…
Even during and early post-pandemic time, many MROs continued to buy engines for teardown to expand the inventory. Industry predictions were that with the re-opening of the market the demand for spares will rise, and that is exactly what happened. Certain MROs like Next level aviation expanded their operations in Ireland anticipating strong USM demand. Their new Ireland subsidiary plans to support the customers, in Aircraft on Ground (AOG) situations, by strategically placing used serviceable material (USM) inventory in Ireland. As per the predictions, Next Level Aviation -Ireland is expected to grow to USD 100MM+ in annual revenues within five years through USM sales and used aircraft/engine asset transactions. Jack Gordon, Chairman, and CEO of Next Level Aviation said, “This new subsidiary will expand our geographic footprint by strategically placing USM inventory in Ireland, closer to our EMEA customers and trading partners. The establishment of Next Level Aviation-Ireland, Ltd. will also mark our entrance into the used aircraft/engine asset trading business, where NLA seeks to develop a reputation as an efficient and reliable counter-party in the monetization of asset portfolios by airlines, leasing companies, and financial owners.”
APOC opened a new warehouse facility in 2021, at the peak of the pandemic in Miami to meet the expansion of its narrowbody inventory and consignment program. This is the second part of its ongoing strategic plan to expand the global footprint.
C&L Aerospace invested heavily in additional inventory to meet customer demands during the pandemic time with the purchase and teardown of 15 aircraft. “Despite the market uncertainty over the past year, we are committed to continuing investing in the regional and corporate aircraft we support. These inventories allow us to be preferred partners for our customers who rely on us to support their needs,” said Chris Kilgour, CEO of C&L Aviation Group.
The market forecast
The Chinese MRO market has almost reached the pre-pandemic levels, while the Indian market is hopeful of a rapid comeback by the end of this year. Looking at these trends, Brad predicts that post-pandemic times will see the highest levels of demand and volume that the industry has ever seen. Pre-Covid, E-commerce was increasing demand for freight which was driving MRO volume.
Covid has once again shifted consumer patterns and the population is utilizing E-commerce for everyday items which will continue to drive freight, he adds.
The passenger side of the industry will be serving pent-up demand from consumers that have had the travel bug through Covid, and people will not only want to catch up on travel but will travel more often as they will have a new appreciation for it, Brad concludes.
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FL Technics indicated a strong recovery in US and EU as well and is strengthening our teams and supply chains in respective regions (e.g. recently announcing new VP Business Development in Americas, to expand our assets trading business in the continent) said Giedrius. For us, the Americas play an important role when it comes to high-value assets projects (engines, landing gears, APUs) as well as aircraft redelivery projects, where we leverage our global MRO presence. On the other hand, in Europe, we face unexpected uncertainty caused by the recent war escalation in Ukraine. We spectate similar uncertainty across all MRO business areas, including aftermarket, causing a slowdown in previously strong expectations of recovery, he signs off.
