Why Your Material Assets Eat Away At Your Bottom Line

Not long ago having a lot of inventory common. It was "smart", right and the industry norm. You had something when you needed it...if you ever needed it.

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I used to think this way as well.

I'd wake up every morning, sip on my coffee, and wonder how I was going to keep plenty of stock. Always. But then one morning I woke up and the coffee smacked me clear across the face.

We opened up various airline and MRO client financials and calculated furiously, Albert Einstein style. I tend to think him and I as one of the same, but anyway...

The financials argued against everything that was industry norm. Insurance premiums continued to soar, warehousing and distribution costs were at an all-time high, and overhead was out of control.

Carrying costs were clearly not in the best interest of our airline and MRO clients. 

Are you losing your ass-ets?

Inventory is necessary but excess is a sin.

Excess is overspent, unwanted surplus that you have no control over. It’s a blood sucking insect that is more of a pain than it is a benefit.

According to "Production Spare Parts: Optimizing the MRO Inventory Asset" they state some sobering facts:

• In a typical production plant, about 30 percent of the spare parts sitting on shelves are unnecessary.
• More than 60 percent of all stocked spare parts have not been used in three years.
• About 35 percent of all spare parts are critical to operations and not easily attainable with short lead time.
• Between 10 and 20 percent of the parts account for 80 percent of the total inventory value.
• Annual carrying costs associated with spare parts is between 20 and 25 percent, meaning the cost to a company of every spare part stocked doubles in four to five years.

Manage your assets the right way

Finding ways to avoid carrying costs is easy, but implementing them is a chore. 

It takes a planned strategy and proper support.

Here are a few ways we recommend for you to manage your aircraft assets and bottom line:

1) Streamlined Distribution: Procurement for aircraft checks will encounter bottlenecks. Talk with your trusted material advisers during this process and organize maintenance check material distribution strategy.

2) Vendor Managed Inventory: The JIT strategy benefits are low inventory, low wastage, high-quality production, and increased up-time. It reduces carrying costs and the effort into having to repurchase common material.

3) Repair management: Recycling your inventory through MROs is mandatory but dealing with the mess having to manage MROs is another story. A repair management program will do all the work for you. It'll save you a lot of money on freight and processing costs. 

4) Asset management: Whether you have surplus or you're slowly building the unwanted dust an asset management program will help you liquidate your surplus material. You'll recapture the lost capital tied up into your inventory. Or if you have an end of life aircraft consign it to a reliable party so they can tear it down and sell the assets. You'll have thousands of profitable spare parts generating revenue for you while keeping a depreciable asset.

Focus on stocking enough for minimum requirements and adopting new strategies for streamlined distribution. You owe it to your  bottom line. And stop losing your ass-ets. 

Need to sell your surplus? 

Wasting money? 4 Reasons Why an Aircraft Asset Disposal Program is Right for You

Are you frustrated with idle inventory? Do you wish the money invested into holding costs could be utilized more efficiently? I feel your pain!

I've visited aircraft graveyards in the Mojave as well as large warehouse facilities of airline material management divisions, much like yours.  But I also understand this because I too sit on millions of dollars worth of inventory that have long since been idle.

Whether it be planning for a surge in traffic with the forecast falling short of expectations, modification of an existing aircraft, or an  aircraft on their last stretch of useful life, these are valid reasons for a surge in surplus. But, is this necessary? Maybe.

Back in 1999,  Skylink acquired an  L1011 (see the trivia question to see which celebrity we bought this from), tore it down and began distributing the spares. Not shortly after all the major components we're sold, demand began to fall and we were left with low turnover inventory sitting on our shelves. Why does this matter you ask?

Well, this what our business model is based on, and yours…creating high yield routes, keeping the aircraft in good shape and providing safe transport.

Here are 5 Reasons you Should Consider an Asset Disposal Program:

Helps Fund Operations

Idle inventory never funds an airlines strategic initiatives. It's wasteful, time consuming, and costly. Liquidating this surplus to continuously help fund your operations is an incentive that can be considered.

Idle inventory, is just that, idle inventory. But the money from liquidating such inventory can be used throughout your organization.

Helps you Focus on Core Competencies

Ian Heller's Five Components of a Business Strategy states that in order for an airline to be competitive it must provide consumer benefits, a model that is difficult for competitors to imitate and something that can be leveraged widely to many products and markets.

So what does this mean for you?

Well, it means do what you do best. Create an unbelievably integrated organization that provides valuable services for the customer at the lowest cost. Idle inventory only adds to this cost and the time spent storing and funding logistical avenues for such inventory can be a burden to an airlines overall model.

Helps Reduce Staffing Cost

An aircraft asset disposal program can also reduce staffing cost. No, I don't mean by making cost cuts by eliminating positions, but more importantly utilizing  staff in areas that are more central to the core competencies.

This will allow you to be more efficient, by reducing staffing cost in unproductive idle inventory monitoring activities.

Helps with Higher Asset Turnover

Healthy aftermarket organizations  whom have been in business for decades know the market and what it takes to liquidate spares. They also have experience in quality control,  logistics, warehousing, inventory management and repair management, by which they perform day in and day out. This is their focus and this is what their good at.

In essence utilizing a good aircraft asset disposal  program may be of interest to you. Lowering costs, focusing on core competencies and engaging with a trustworthy aftermarket distributors is key to managing the over abundance of spares in your warehouse.

What would you want out of an aircraft asset disposal program? Respond in the comment section below.