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Supply Chain Paradigm
1. XXXXXXXX
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The Supply Chain Paradigm
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April 22, 2010
2. Agenda
• XXXXXX Supply Chain Overview
• Material Cost Structure
• Inventory Optimization
• XXXXXX’ New Model
• Conclusion
2
3. XXXXXX Supply Chain Overview
Expendables
Spare Engines
• XXX fleets serviced 10%
24%
Recoverables
• 123 Stations serviced 27%
- 76 Domestic stations
Others
- 47 International stations 2%
• 58 domestic & international warehouses
Rotables
37%
• Over 3,000 stocking transactions per day
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Total Inventory ~ $1 Billion
• Over 5,000 issuing transactions per day
It is an enormous task to get the right part at the right place at the right time and
the right cost
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4. Material Cost Structure
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Operating Costs United Airlines
Maintenace
Costs
Other
17%
Operating
Costs
83%
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Maintenance Costs United Services
Support
13%
Airframe
Engine
11%
41%
Component
14%
Material Costs
Line
21%
Material
55%
Material is a key driver for maintenance costs
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5. Material Cost Structure
COST OF OWNERSHIP
The cost of managing materials is more than the cost of material itself
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6. Inventory Optimization
Inefficient S
I ffi i t Supply
l
ventory Level Chain
High cost of
Inventory
I t
Parts shortage affects
airline operations
Inv
Efficient
Supply Chain
65% 88% 99% +
Service Level
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7. XXXXXX’ New Model
Fully integrated services
Enhanced services ownership
Inventory
Rotable optimization
Demand fulfillment
Responsive & Reliable
Inventory Management
Material TCO
Allocation Strategies
Service Level
Warranty Recovery
e
Distribution, Logistics,
Inventory Control, Planning
Procurement, Scheduling
Quality & Performance Mgmt
Mgmt.
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United Services
Basic services
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8. XXXXXX’ New Model
• Fully aligned divisional metrics
• Guaranteed service levels
• Total inventory control
• Reduced inventory & overhead leading to p
y g predictable costs & reliable service
• Optimized cash flow
Current Focus Areas Future Focus Areas
• Expendable planning • Guaranteed service level
• Recoverable planning • Quality and performance management & Continuous
• Inventory Control Improvement
• Warehousing, Distribution
Wareho sing Distrib tion & Logistics • Alternatives for every critical situation
• Purchase order administration • Strategic planning & long period scheduling
• Vendor Management • Contract & Relationship management
• Sourcing • Cost control & Accounting
• Financial Budgeting & Control
• Surplus inventory
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9. Conclusion
• Material is a key driver for maintenance cost
• Supply Chain management is not just a function of the Airline
• Supplier owned and managed inventory is an appealing future prospect
• Material reduction along with an increased Service level is a desired future state
• No current model exists which can fit XXXXXX’ Supply Chain requirements
pp y q
Third Party owned inventory will be a key strategy for many operators
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