Cathay Pacific understands that aviation spare parts supply chain management in the aviation industry has always been taxing in the operation of any airline. For Cathay Pacific, this operation includes procurement and inventory management by in-house employees of the company and repair management and logistics management provided by third-party service providers. This case study seeks to look into other methods and ways of improving the spare parts operations of Cathay Pacific.
Benjamin Yen; Karen Lee; Jonathan Pelosi
Harvard Business Review (HKU820-PDF-ENG)
February 24, 2009
Case questions answered:
- What are the supply chain management issues for spare parts operations that Robert and Paul need to consider in their recommendation proposal?
- What is Cathay Pacific’s purchasing power in aviation spare parts procurement?
- How does the company handle Shortage Management? What are the possible alternatives for improvement in the purchasing process?
- Which type of aviation spare part(s) is (are) suitable for procurement outsourcing? Why? What are the criteria for spare parts outsourcing?
- What are the advantage and disadvantages for the company to use third-party logistics (3PL) for her repair management and logistics management? What are the criteria for Cathay Pacific to choose the 3PL partners for repair and logistics management?
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Case answers for Aviation Spare Parts Supply Chain Management Optimisation at Cathay Pacific Airways Limited
Problem – Aviation Spare Parts Supply Chain Management Optimisation at Cathay Pacific Airways Limited:
Cathay Pacific and other airlines face a somewhat unique aviation spare parts supply chain management issue, specifically in that their spare parts inventory, which is crucial to the safety of their passengers. If an airplane fails to operate effectively midflight, this could cause an event that could shut down the whole airline. Additionally, if a flight is delayed for any reason, including maintenance, the cost is equivalent to $60 per minute at the airline’s expense. Knowing these factors, it can be inferred that timely and effective maintenance of planes is crucial to the success of Cathay Pacific.
On the other end, it is very expensive to hold all of these spare parts in inventory. The case cited that there are over 1,000,000 parts on a single airplane and Cathay Pacific has over 380,000 line items for spare parts. In aviation, spare parts are also notoriously expensive. This creates the dilemma of how to effectively hold the necessary amount of spare parts (or have immediate access to the necessary parts) while reducing the number of parts in inventory.
The question that Robert Taylor should be asking is: “How do we reduce the amount of inventory without reducing the overall accessibility and speed at which our planes can be serviced”?
Unfortunately, forecasting the optimal inventory level is difficult because 79% of the demand for spare parts is unscheduled and unpredictable. This makes JIT (Just-In-Time) inventory management practices difficult. The proposal to address this question cannot sacrifice the planes’ reliability or the passengers’ safety as a primary constraint. Secondly…