Image Credit: Veryon.
Maintenance inventory planning is about ‘planning for the unplanned’ To mitigate the risk of delays or grounding aircraft, airlines and MROs buy more of the spare parts they believe they may need, leading to excess spending and surplus inventory. This often results in significant capital tied up in inventory and yet target service levels are not delivered. The balancing act is to then find a way to reduce inventory excesses and investment thereof, while delivering impeccable service.
In 2013 total MRO supply chain spending had increased to $60.7billion with indications showing that on average materials and components account for 50% of an airline’s direct MRO cost.
Commercial airlines according to Trawex hold inventory approximately to the tune of 45 billion USD in spare parts worldwide.
A rough estimate of the cost of holding this inventory is 6.1 billion USD per year. Reducing this directly frees up capital for the client and reduces operating costs. Maintaining an aircraft in pristine condition can only result in the best possible utilisation of the aircraft.
Given the complex nature of aircraft operations, and given its uncertainty, requirements or demand for components and spare parts involved, for MRO inventory too becomes uncertain. One can imagine how mind-boggling it can get when large-scale planning with thousands of part numbers and components are involved.
MRO providers, then need a comprehensive solution, that can address deeply concerning challenges of reactive decision making, leading to service providers, in-house or otherwise, to stock and see a pile-up excess inventory over time. To mitigate the risk of delays or grounding aircraft, airlines and MROs buy more of the spare parts they believe they may need, leading to excess spending and surplus inventory. This may result in significant capital tied up in inventory and yet target service levels are not delivered. The balancing act is to then find a way to reduce inventory excesses and investment thereof, while delivering impeccable service.
Therefore ‘planning for the unplanned’, needs to be the gameplan! Legacy planning models work from the premise that all parts will be consumed as per the planned production schedule. However, such a model is unsuitable for rotable inventory which travels around a Repair Cycle Process (RCP) and is returned to serviceable stock to be used again.
It starts with airlines that need to opt for methods of aircraft and its components repair that would lower costs, maintain quality, and keeps aircraft utilization high.
For example, if a part is taken out for repair and support, a similar part will be supplanted on the aircraft by taking it out from the stock held. Now, stock availability will allow the aircraft to be returned to service quickly, but there will naturally be a cost attached to holding that stock. This part could be taken from an in-house shop or a parts supplier/vendor. The quicker it is to predict its need in advance, for it to be repaired and returned, the fewer component spares will need to be kept in stock, also avoiding a stock-out situation.
During an overhaul of assemblies and subassemblies, 100% of all possible required parts must be available right from the start. Spare-part inventories /stocks must be as lean as possible, to minimize carrying costs. but without compromising on safety. Small aircraft fleet owners maintain the Minimum Equipment List or MEL as per the requirement
Challenges of MRO Inventory Planning
In comparison to other sectors, say automotive inventory planning, for aviation maintenance the challenges are humungous: Here is why: Aviation MRO providers and inventory planners must deal with:
Repair to Reuse
This type of planning works with the premise that rotable items journey around the Repair Cycle Management (RCM) process; they are removed from the aircraft in an unserviceable state, and sent for repairs. Post that, they are returned into stock ready to be reused. Consumable and expendable inventory in the MRO sector, is replenished to support aircraft and rotable repairs. Both inventory types with similar demand profiles make use of the R2R model concept.
Experts believe that a ‘Repair to Reuse’ model works well, and additionally ties in well with sustainability goals. Consumable materials are replenished, based on uncertain demand, and used to support planned and unplanned maintenance events.
What planners need are modern-day tools and techniques that provide solutions to make the ‘Repair to Reuse’ models work. The requirement then is for a solution that displays analytical and computational prowess, capable of handling inventory planning on a massive scale. A system must be in place enabling strategic decision making, so that inventory is available optimally, and make sense and best use of the investment; To get a fix on inventory planning, greater control, and visibility over MRO inventory planning, right through the entire supply chain, must be ensured.
Using certain proprietary systems /software – MROs can sometimes achieve up to 40% reduction in inventory expenditure and ensure the delivery of quality service excellence.
The challenge is to balance the perennial issue of surplus inventory and reduced spend, optimized investment and increased inventory availability to airlines and MROs.
Holding Surplus Inventory
On average investments of more than 40% are towards rotable inventory and 26-35% for consumables. This falls under the category of active surplus, (parts are required for the operation, but the quantity held is more than the amount required). In addition to this, studies show that most entities hold high amounts of obsolete inventory that have depreciated and virtually of no value in the supply chain. Importantly, parts that are repairable must be repaired and returned to serviceable status, adding to enough services parts that are already available within a repair and reuse cycle, to meet the demand anticipated.
In MRO inventory planning, every piece of component or part needs to be identified –the condition, the part is in assessed, its suitability for re-use, and its allocation. Just so that a part is readily available on tap, as its non-availability can cause AOG situations (highly avoidable for both client and service provider), an MRO planner gets over-cautious and invests in additional, extras for covering a ‘just in case’ situation. But at that very point of requirement, is the available part the right fit? Not always. Hence the need for effective and appropriate systems and processes.
Earmarking responsibility and accountability are equally important, as is setting KPIs for a job that needs meticulous planning and execution of tasks that align with the Management’s vision and mission to stay ahead of the game.
MRO Inventory Planning for Optimization of Investments and Maximising Part Availability
Effective MRO inventory planning is about working out an optimal strategy for the airline or MRO organisation. Trial and error methods can be costly so better way is to create and execute several “what if” scenarios. This would help gauge financial requirements versus operational one’s. What investment level would bring in the ideal level of parts availability, is about working out the best inventory planning.
Important parameters to consider
Fleet – Changes in fleet configurations with changes in aircraft, routes and utilisation are important elements in determining the optimal inventory planning strategy. Fleet augmentation and phasing out of fleet/ aircraft have an impact on future policy decisions based on historical data on demand categorisation and its proper analysis. Seasonal changes in airline operations and redeliveries are also to be considered. Planners should set the target for minimum service levels or minimum fleet requirement.
Service Level Policy can be described as the number of times a part demand is fulfilled, expressed as a percentage of the total demand. For example, if for ten demands, a part is available for nine of those demands, that equates to a 90% service level.
Important then, is availability at the point of demand, within required timelines, the tangible improvement seen by investing in that inventory, all this leads to arriving at an optimal balance or trade-off between inventory investment and inventory availability.
MRO Supply Network Structure
The MRO supply network structure, could be a hub and spoke operation or a more vastly distributed structure, need to be considered for arriving at what the optimal inventory planning strategy should be. While a single location will target maximum availability of inventory at the storage point, a multi-location network will have cascading relationships between the various locations and stores. Here, a main store will support regional stores, which in turn support line stations where the requirement is needed.
Transit times and costs between locations; default routes for replenishment or backfill from higher level stores or lateral supply of inventory, all impact on service levels and naturally costs.
Investment
Investment policy will determine the finances available for the inventory planning process. the service level delivered from incremental investment means that, for each incremental investment the rate of service level increase, diminishes. Therefore, it is critical to plan investments determine the relationship between so that a desired service level benefits are accrued. Thus, optimizing investments.
Finance Policy
Financial policy sets the guidelines and limits for the planner decision making for managing assets throughout the RCM and MRO inventory planning process. Depreciation policy affects net book value, like liquidation/disposal of surplus stock.
Flexibility between – Backfill, lateral re-supply, stock transfer order – Parts are incrementally positioned at a location in the network to achieve the highest probability of satisfying demand.
Repair expedite– Availability of parts can be improved through the repair cycle. A better solution is to identify the unserviceable items that would best mitigate availability risk, and prioritise those for repair.
Replenish – to request allocation of a contractually consigned part from a supplier, where the actual stock level for that part is below the contracted level.
Modern-day Tool & Real-Time Integration with Maintenance Management System
Streamlining inventory management in the airline industry is critical with a fully integrated and real-time approach to inventory
Yet, because of the fast advancement of current information technology, it gets workable for the organizations to share more data progressively, e.g., request inventory status update alongside inventory information. A request can be made by the technician, streamlining, and documenting the inventory into the workflow. Inventory status must be automatically updated about a part installed, with the where, when, and how information attached and available in a transparent and reportable manner.
With today’s technology, handheld devices such as a tablet or smartphone, allow users to use the installed camera for multiple complex functions. These include scanning of barcodes and custom QR codes scan, record, update, catalogue, and assign all from one tool that can go with them from the office to the floor.
Operations across multiple bases can have the entire inventory information, in real-time. Mobile applications allow access and users can act on-demand and in real-time with a quick Excel download, aided by robust filtering.
Again, information must be passed between inventory data directly to the financial/accounting system to offer a real-time insight into the purchasing and reconciliation process. Tools should bring in ease of doing business, other than become a burden.
Request anticipating is a skill to be honed for inventory management. Forecasting with accuracy for arranging of inventory levels, is key. One must be mindful of the cost of engine repair and overhaul and transportation costs thereof, which are indeed significant for most operators.
