IMPORTANCE OF MRO INVENTORY PLANNING

An industry analysis done in 2009 based on a study revealed that the global MRO inventory held by the commercial aviation sector was USD 47 billion, where the MRO supply chain spend totalled USD 45.7 billion.

That MRO supply chain spend, scaled up to USD 60.7 billion in 2013. This indicated that components and material roughly accounted for 50% of a commercial airline’s direct MRO cost.

Managing surplus inventory is a challenge for the industry, where more than 40% of rotable inventory investment and 26 -35% of consumable investment come under ‘active surplus.’ A part is said to be active when required for operations, but the quantity held is in excess of the amount actually required. However, quite aside of active surplus, there are substantial levels of inactive surplus that can be termed obsolete with little or no use throughout the supply chain.

Inventory planning then needs intelligent data analysis and systematic planning. Importantly, investing in cutting edge technology to sift the grain from the chaff so to speak, is the name of the game. The resultant substantial savings from holding realistic levels of inventory that is driven by demand planned and unplanned, and maintenance work, is necessary for the very viability of the business, where operational safety is tied up with smart investments and efficient planning. Aviation particularly due to its scale and complexity of operations, poses quite a challenge.

The objective is to reduce investment and spend in MRO inventory and at the same time have reliable parts availability support that delivers service and operational excellence.

CHALLENGES IN INVENTORY PLANNING FOR THE UNFORSEEN

Maintenance events can be planned and scheduled and the demand for inventory can be somewhat forecasted with certainty. Like a modification or consumables required for an A – check. Aviation MRO demand is mainly unpredictable not knowing which components are required when and where, on what aircraft. Again, components have various sub-sets that are repaired and re-used and those planning must ensure that the parts are repaired and made serviceable for reuse and available in sufficient numbers so as to meet anticipated demand.

Some of the challenges of MRO inventory planning need to foresee and overcome are the myriads of inventory required for large- scale operations with several carriers operating large number of airline fleet straddled across the globe. The MRO support and requirements need to be serviced by several maintenance bases that hold thousands of individual part numbers and components.

Demand for nearly 80% of parts is as uncertain as it gets, where MRO planners have to constantly forecast, some from historical data perhaps – what is needed where, for parts replacement. This is compounded further because each part may have a different demand type like planned/unplanned/line and base maintenance, as also AOG requirements. Parts requirements for different fleet with different configurations make the inventory management process truly mind-boggling.

Criticality occurs, and at times drastic, when a part which is a ‘must -have’ may not be available and this comes at a huge cost. Safety is involved and so has delay and stalling of operations, AOG and their collective financial downslide. And then again, some parts may not have much of an impact if not available, as a defect rectification may be deferred.

Parts have varied attributes such as costs, repair TAT (Turn Around Time) scrap -rates, and similar.

SOME APPROACHES FOR EFFECTIVE INVENTORY PLANNING

Companies follow the R2R model (Repair to Reuse) for inventory planning based on maintenance demand, supporting rotable, and types of inventories that are repairable, consumable and expendable. Parts are repaired and once again made serviceable and held as stock for future availability as required to support demand. Consumable and expendable inventories are replenished to support aircraft and rotable parts repairs. This approach according to studies is suitable for aviation MRO due to its constantly varying scenarios brought about by massive scale of operations and related intricacies, as compared to a P2C (Purchase to Consume) used for enterprises that can determine certainty in demand.

APPLYING OPTIMAL STRATEGY

Each and every airline and MRO unit need to identify what according to them is optimising inventory planning. These assume huge significance as they have direct implications of proper investment and financial planning. Parts availability, fleet size, configuration changes, routes utilisation, network planning, and service levels expected are all determining factors that will help achieve optimal inventory planning.

SOME GOOD PRACTICES

Leading companies are known to develop ‘plan for every part’. Parts are segmented by value and demand volatility. High value and easy to forecast parts can be clubbed with consumption-driven replenishments. High value and high volatility items (difficult to forecast) like major housings and casings, work well within a ‘use one buy one’ strategy.

One study estimated that each $1 million in MRO spending could create 3,500 purchase order cycles, each requiring separate purchase orders, invoices and receipts.

Did you know that the Jumbo Jet Boeing 747, popularly known as the ‘Queen of the Skies’ is made up of six million parts!

EFFECTIVE INVENTORY MANAGEMENT WITH AUTOMATION AND STATE-OF-THE-ART SYSTEMS

An automated business model is built around automation and consignment, where users pay for materials purely when they need them, thereby avoiding placing large orders in advance. Here the material is located at the customer’s site and representatives are on site to assist ensuring stock availability within easy reach – saving time and the customer’s own manpower resource.

Companies acquire surplus, aging material that have reached obsolescence from an old aircraft model, and then makes it available for distribution in the industry.

Concepts like enabling zero inventory

A business model and concept that allow an inventory planner to move towards Zero Inventory, entails moving the inventory to the customer’s site location as consignment or hold back at the supplier location. In either of the scenarios, customer demand can still be met as also the lead time requirement from the customer.

A ‘Bulk Buy’ inventory planning keeps the customer forecast for inventory in mind, and items are stocked at the customer’s MRO facility, however the invoice for a part is raised only when a requirement arises.

‘Speculative Buy’ on the other hand waits for such a buy to have happened, the inventory is moved and placed at the customer site for them to forward. At that point an invoice is raised.

TECHNOLOGY ENABLING HIGH VOLUME, HIGH SPEED, FULLY AUTOMATED PROCESSES

A fully automated system here allows dealing with challenges like handling thousands of POs (Purchase Orders) flowing back and forth between customers and suppliers. With nearly zero inventory in place, the system enables a high volume of transactions to be fulfilled at great speed, in a fully automated multi-enterprise process.

MROs are reliant on historic data of ‘average part demand’ to predict future demand. However, variables make prediction difficult. Automation is effective to circumvent these problems.

A fully automated systems have allowed smart companies to save precious time and money. The image below depicts the workings towards saving lead time.

With an automated system, a company could gain on an average, 20 minutes per each Purchase Order, and given the thousands of PO flow every month, the savings are usually substantial.

Automation allows a ‘Frictionless Experience’. Where facial recognition is used by a mechanic to sign-off, no hassle of a log -in or time -consuming verifications. Systems enable entire business transactions to be carried out without logging into a system, but via emails and notifications. Keeping it simple and smooth-flowing is the mantra
Tracking and monitoring inventory through a centralized inventory management system. Ensure critical items availability
Monitor overall consumption of MRO inventory, for accurately forecasting, budgeting and planning to meet demand
Educate employees across the company on MRO procurement process
Vendor-managed inventory at the customers’ site. Vendors monitor and replenish inventory levels automatically

REDUCE INVENTORY, WHILE INCREASING SERVICE LEVELS

Lean inventory management can be achieved where parts are segmented by value and demand volatility: those of high-value and somewhat (easy-to-forecast) demand can be included in a consumption-driven replenishment scheme. High-value parts with high volatility, such as major housings and cases, can be replenished by “use one-buy one” strategies or pooling.

Lean inventory can be achieved by deciding for each part with an ease of forecasting – the procurement lead time and desired service levels. Leading companies develop ‘plan for every part’ customisation for very different part dynamics.

armacsystems.com describe ‘service levels’ as “…the number of times a part demand is fulfilled, expressed as a percentage of the total demand.” An example could be when 10 demands for a part are fulfilled 9 times, then that translate to a service level of 90%!

Aramac defines achieving optimal service levels, when – parts are available at point of demand; available within the supply network within required timescales; service level benefit which assesses the improvement derived from inventory investment.

Ultimately it is the optimal balance which is arrived at between inventory investment and inventory availability.

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