What’s the case mainly about? The case is mainly about how Cathay Pacific to manage aviation spare part and optimal its aviation spare part management process, so as to reduce the huge cost by on this. Cathay Pacific is one of the leading companies in the airline industry, however, it also suffer from the high cost in managing spare part inventory. Cathay Pacific was founded in 1946, which provide only a few route with a small passenger plane at that time. It is a company that is innovative on using new technology in doing business, such as introducing the flight simulator and computerised reservation system. Nowadays, the Cathay Pacific is one of the top airline companies in the world, with profit about US$523 million in 2006 and providing service over 43 destinations throughout the world. However, due to the characteristic of the industry, Cathay Pacific has a total inventory value of aviation spare parts amounted to US$350 million, and 3% of them are dead or inactive inventory.
The result for this is due to the complicated aviation supply chain, high standard requirement for the parts, limited numbers of suppliers and highly unpredictable demand on the parts. The case will be about how Cathay Pacific manage its spare parts supply chain, from procurement, inventory management, repair management to logistic management in order to reduce the cost and maintain the efficiency. Question 1: What are the supply chain management issues for spare parts operations that Robert and Paul need to consider for their recommendation proposal? The aim of the recommendation proposal is to optimize the supply chain managem ent of spare parts operation, so, those considerations must be inside the supply chain management flow which is from procurement to inventory management, then pass to repair management and lastly logistics management. Consideration of supply chain management issues: 1) Procurement Within the procurement process, Robert and Paul have to develop an effective cooperation between procurement processes: sourcing and storage to consumption and repurchase. They have to keep on controlling the procurement process in order to achieve the optimization objective in procurement.
To develop the effective procurement processes, critical issue Robert and Paul might need to consider is what kinds of spare parts can purchased from other sources and the supplier selection. As the airline industry had very few choices for critical parts component supplier, it would be less flexible to switch supplier for the critical parts. But for the noncritical parts, it had a greater level of flexibility for choosing the suppliers who under the Parts Manufacturer Approval program. Provided that, Robert and Paul could consider to purchase the critical parts and noncritical parts component from different way. For supplier selection, Robert and Paul could also consider to choose supplier with the following criteria such as the average and variance of lead time, quality levels and co mponent performance.
2) Inventory Management For optimization supply chain management of spare parts operation, inventory plays an important role so it is a must to have an efficient inventory management to facilitate the optimal objective. Items of inventory management that could be consider Stock turnover monitoring To consider and determine in which points to reorder the parts can be the more optimal point in order to have the right quantity of spare parts and material can be used when the time in need. Inventory holding To consider how many inventory should be held in order to achieve the balance between minimizing the holding cost and achieving the most effective inventory level to hold on to relative to the corresponding service level. Shortage management To consider how many buffer stock should be stored and what options could be chosen to meet the urgent parts need to deal with the inventory shortage problem.
3) Repair management To determine whether or not the unserviceable parts can be repair is importance, once the parts can be repair, it helps to reduce the cost of repurchasing the new part in order to facilitate the optimization objective. Items of repair management that could be consider: Maintain the relationship with the repair shop