The key is early investment in inventory that is expected to be in demand to support the recovery.
AOG situations are part of everyday life for an MRO, the key is to avoid an AOG situation by having the correct part on the self at any given time. When this situation does arise, you must have a team that can locate that part anywhere in the world says Jeff Lund, CEO, Kellstrom Aerospace Group when asked about how Kellstrom deals with everyday AOG challenges. He went on to further explain how the pandemic has led to bigger problems in the supply chain domain and the market is soon to recover with the demand coming back faster than the supply chain to handle. He further explained the details of Inventory Management and Planning and how Kellstrom has aced it all, in an Exclusive Interview with Swati. k
Q – How are you dealing with post-pandemic recovery? For aftermarket Used-Serviceable Materials (USM) what changes in strategy did you make in order to serve the changing market conditions.
A – The largest challenge coming out of the pandemic is the supply chain. It has been clear to me over the last 18 months that demand will come back faster than the supply chain can handle. This is where Kellstrom has been performing analysis for USM and OEM distribution along with our Vortex engine shops. We have been preparing to support the demand by making sure our inventory and spare modules are ready as the demand comes back. This includes tearing down assets earlier in the process and ensuring all parts are through the repair process. We recognized early that the repair shops including OEM Turn Around Times (TATs) would be longer than was customary prior to the pandemic due to a lag in recruiting skilled labor to fill roles vacated during the pandemic, late delivery of raw materials and cold start parts to the shops. We have invested early in key inventory that will be demanded to support the recovery knowing that many elements of the supply chain continues to struggle.
Q – Was there any drastic change in the working policy pre- and post-pandemic?
A – In 2019, with oil prices around 30 dollars a barrel and the heavy demand for lift, it was high demand that drove the working policy for operators more than cost savings. Fast forward to the post pandemic recovery in 2022, the model has clearly shifted to a cost savings focus and an appetite for fuel efficient platforms that drive synergies and lower cost. The bailout funds have been depleted, oil prices are well over 100 dollars a barrel, interest rates are rising, and supply chain challenges and rising inflation are forcing higher wages. These are the key issues confronting operators in the post pandemic environment. Over the last 24 months during the pandemic, Kellstrom has built two new facilities, one in the US and one in Dublin, Ireland, remodelled our 168,000 square foot logistical centre of excellence in in Chicago, IL, launched a new cloud-based ERP system, launched a new e-commerce web site, started building our artificial intelligence (AI) commercial platform along with launching our new Kellstrom Technical Services Group which includes The Aircraft Group, Vortex Aviation and Kellstrom Aerospace Technical services (KATS) working in concert to provide a total nose to tail solution for operators and lessors. These platforms have synergies to provide millions of dollars of direct and indirect cost savings to operators. Already, we are witnessing customer demand in our Vortex organization for engine operators and asset owners looking to minimize workscopes, consume USM, reduce TAT and avoid large shop visits and keep these assets flying.
Q – The Chinese MRO market has almost reached the pre-pandemic levels. What is your prediction of the global MRO aftermarket recovery?
A – The Chinese aftermarket is very different based on the new regulations being implemented by the CAAC. There still is clarification needed for tearing down assets, tagging components off those assets along with taxation and ongoing values. These changes will result in USM being used within China and bringing components out of China to be consumed by other countries. We will see more partnerships between China and other business outside of China to create teardown and aftermarket facilities that will be successful within China. Given the current political, logistical/customs and taxation issues still going on, it will take some time.
Q – In Inventory management how do you tackle the 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?
A – Again, this is a supply chain issue. It’s working with the operators to help manage the inventory levels both on the USM and the distribution side of the supply chain. Kellstrom has done a great job working with our customers and suppliers to deal with this problem and we believe we have the right inventory on the shop and/or in the repair process to meet the expected growing demand. We are also working with our Artificial Intelligence (AI) development to analyze and plan inventories and repair management to help the operators.
Q – Nowadays every other day a new aircraft is introduced with the latest features and advanced technology, how do you manage/plan inventory of different and constantly updated fleet and different aircraft configurations?
This is an issue we deal with every day through our Total Technical Solutions and our new OEM distribution partners. There are several situations including service bulletins, AD’s, engineering mods, conversions and part configurations that are consistently being reviewed by the operators. We have several programs through our Total Technical Solutions that can track, analyse, and manage these cases. The Kellstrom people are what enables these solutions to be beneficial for our customers. We work hard at retaining and attracting technical and commercial experts that understand the genealogy of an airframe, an engine and a component. Although aviation products change over time, only a few technological step changes have happened that have dramatically changed an application. Generally, changes happen over time and the new version is often a derivative of a previous version, which the Kellstrom technical personnel stay on top of to differentiate our value proposition.
Q – Have you ever faced a challenging situation wherein a critical part was not available during an AOG situation? What are the financial and operational consequences of such a situation? How do you plan to tackle such challenges going ahead?
The key is to avoid an AOG situation by having the correct part on the self at any given time. When this situation does arise, you must have a team that can locate that part anywhere in the world. Kellstrom has people all over the world including people on-site within the operator or MRO. In those MROs and operators, we are managing surplus inventories and in other cases Kellstrom is managing active inventories as well. The biggest issue is whether the new OEM’s have the parts; again, it’s the supply chain issues that we will need to deal with for some time.
Q – 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. Is there a way to reduce the inventory investment while improving service levels?
The key is to understand the timing of the inventory, cost of the inventory relative to turn times, scrap rates and repair management. If this is not managed correctly then you will continue to tieup capital in inventory cost. Kellstrom has several programs, including engine management services where we review the tabletop inspection of a given engine to manage the USM outcome for the build, manage the build time through repair management and inventory exchanges to a void heavy repair cost and excessive lead times. We also have inventory management programs where we can provide consignments for the needed inventory we manage and an outlet to monetize existing inventories to generate capital for new inventory.
