Smart Inventory Management unlocks the value in surplus assets

The aviation business is facing one of the most dynamic economic slowdowns in history. The difference between the winners and losers facing this new challenge will be determined by who plans to better manage warehoused aircraft parts stocks using current and up and coming technologies in combination with existing software, hardware and strategic relationships.


The new global financial meltdown is putting extreme pressure on financed inventory portfolios. Credit rating has dropped and the previous 3-5% interest rates that applied to funding inventory stock have climbed to upwards of 26% for some airlines, MRO’s and aircraft parts distributors.

With an average 20%-25% expected reduction in booked sales revenues for the airlines, this is creating an enormous squeeze on aircraft part costs from both ends of the spectrum.

Further adding to the problem is the fact that most airlines have postponed or canceled new aircraft orders and now need to fly their existing older fleet longer. And finally let’s not forget the roller coaster fuel costs that also affect the bottom line. Profitability at this point is not a goal, in this economic climate, reducing losses and better controlling expenses is the key to who will survive and who will not.

One new idea is to consider creating a Smart Inventory Management program. This program takes into consideration all of the related costs of managing inventory that exists today and integrating new sources of market information, new technology along with good some good old common sense.

What are the components of a SIM program? It is a combination of adding current and future technologies and integrating them to better manage aircraft parts inventories. The components are:

1. A smart SCM software – helps manage inventory levels and reports consumption
2. Web Based services - that can provide market intelligence on parts
3. Better inventory tracking- bar code, RFID
4. Partnering and/or outsourcing logistics and using Internet Auctions

1 - Evaluate your current SCM (Supply Chain Management) software. In order to reduce finance carrying costs, an airline for example needs to coordinate spare levels with the existing fleet they fly in combination with the usage and repair rates of that fleet. Airlines need to use their ERP software to review stock levels and replacement statistics and lower or increase stocks based on actual real time usage. Many airlines have a fleet program. Rarely do the airlines reduce part stock levels as they phase out aircraft. If you fly fifteen (15) 737-200’s and you reduce the fleet to eight (8), are the airlines reducing their aircraft parts levels by the same percentage? In most cases the answer is no.

Which begs the question, why not? Reducing these levels of stock to reflect the actual fleet size is Smart Inventory Management. The only reason to keep these parts is if the parts were discontinued or hard to find to stock and finance them. What typically happens is that as the entire model line is reduced to the last couple of aircraft, the parts are sold off in a lot or in some case just given to the last aircraft purchaser, all at a significant lost and write off to the airline. Not so smart, especially today when you factor in the cost of financing, warehousing and managing these parts. Most airlines today have enough losses and are not looking for more.
Each of the SCM software OEM’s offer their own unique set of services. For example; Carolina Davila of TRAX explains “TRAX has been providing customers with Web-services and integration to the outside world for some time now. TRAX customers have connections to spares portals to enable them to buy and sell parts as the need arises. However, TRAX is always open to new developments in the industry that can improve their Software and the facilities available to their clients. Materials can tie up large amounts of capital for customers and any way that this can be safely reduced will be a big benefit, particularly in these tough times.”

Implementing a SIM monitoring program includes looking to see if this capability exists or can be added to your current SCM system. Some SCM systems address the logistics issues of inventory management, "Look for software providing inventory visibility across multiple warehouses and airline maintenance depots around the world, specifically a web platform for on-line asset management collaboration between trading partners", according to Andrew Valley, Vice President - Sales, for Component Control. "

The software SCM players in this area are listed below in alphabetical order:
ADT, Aerosoft Systems, Inc., Componet Control,Climber Air Data, Commsoft,IFR, Infospectrum, MIRO Technologies, MRO, Software/IBM, MXi, Pentagon 2000 Software, Russell Adams (RAL), Ramco, SaSIM, Swiis Avaition Software, Tracware, TRAX

Peter Waugh of Pentagon 2000 also made an interesting observation, “Having a cutting edge SCM solution, such as Pentagon 2000SQL, that takes full advantage of advanced inventory tracking methods and is fully integrated with every aspect of your business is the best way to know where your active and potential profit centers lie. With real-time inventory tracking and detailed warehousing information a quality SCM solution is an essential part of any SIM system. Ideally one would have a system, like Pentagon, that integrates all of the SIM principles of SCM/ERP software, web service integration, Bar Code/RFID, and easy data sharing for logistical services. This would provide you with one reliable and comprehensive view of your entire business.”


2 - Integrate Web based services that provide Market Intelligence into you SIM program - Companies such as PartsBase can provide aftermarket aircraft parts intelligence and MRO intelligence tools.

This service allow airlines, MRO’s and parts distributors the ability to upload their inventory part numbered stocks and repair capabilities and share them with the industry to provide searchers with the ability to find and purchase these parts or repair services . This is important when it comes to parts they do not have in stock for an unscheduled repair (AOG) or plan for scheduled maintenance repairs and replacements of consumables, rotables and airframe parts such as C and D checks.

Web based services can provide the industry with part number based statistics on market demand. Data such as how many times a part was searched and an RFQ sent over the last 90 days. They can even provide annual data over the course of a year which can be compared to an airline, MRO’s or distributor’s sales and inventory activity level. This data can result in SIM reports that produce inventory intelligence that can be compared and used to better manage current and future stock levels.

The result is that airlines, MRO’s and distributors will add more overstocked part numbers for sale. Slow moving or no activity aftermarket parts should be turned in to cash or placed on consignment and sold off in lots or even auctioned This results in a better cash position and reduces financing and all related coasts, selling them for full market value vs. 10 cents on the dollar when the industry is phasing out the same model of aircraft such as the current situation with 727 and MD series aircraft.

PartsBase provides these services as part of their overall membership package. Their inventory intelligence tool compares a member’s inventory to actual search activity and RFQ activity. This information can be compared to the SCM activity and stock levels can be adjusted. It also can tell the aircraft parts owner that if he has 0 activity parts on the SCM system, and good activity on the Web based service he stand a great chance of unloading those parts at full value.
PartsBase offers direct inventory data feeds to some of the SCM systems with pans to help integrate with others to enable SIM programs. These direct feeds insure the most current inventory level data and RFQ activity data on a daily basis. Parts Base’s NEW MRO intelligence tools can also help MRO shops and service provider’s accurate market demand information with detailed Turn Around Time (TAT) data for inspection, repair and overhaul.

3 - Bar Code Vs RFID- a SIM program should have some type of technology inventory control capability. The gap in cost is closing between Bar code and RFID technology. When it comes to aircraft parts the jury is still out. There is no doubt that bar coding is less expensive and more standardized in the industry. However, the RFID community is finding ways to reduce the costs associated with RFID technology. We do see light at the end of the tunnel for RFID, especially as a cost, security & loss control component to a SIM program. Good inventory control and management is means knowing where your parts are at all times and being able to track when they came in to a warehouse facility and when they went out and to whom. RFID over the next few years has the potential to better control and manage inventory.

4 - Logisitic Services and outsourcing inventory management and using Internet Auctions- There are companies that offer turnkey consignment and/or onsite inventory management programs. These companies know how to manage inventory better than in house management. Logistic services can implement SIM programs for Airlines, MRO’s and Distributors. They can react to technology changes quicker without all of the political and internal control issues some larger organizations tend to create simply by their sheer size and slowness of the decision process when it comes to making changes and implementing a SIM program.
Some of the companies that specialize in this market are:
Aircraft Inventory Management Services, ALN, DB Schenker, Kongsberg,
Kuehne + Nagel, Lufthansa Services, Sterling Services, TWI

One you have implemented a SIM program, you will be faced with a need to turn surplus parts into cash. Selling them off on a service like PartsBase is a good idea when trying to get full market value.Market vaule is defined as whatever some is willing to pay. Once you check the market intelligence, you will find non activity parts that just need to be liquidated to make room for higher turnover more profitable parts.

One company’s surplus asset is another company’s treasure. Specialised internet auction websites such as GoIndustry DoveBid offer a very effective sale option called Exchange auctions. The full turnkey solution for Airlines and Manufacturers can also include up-to-date valuation and appraisal services. GoIndustry DoveBid’s Aviation Exchange is one of 11 industry-specific global marketplaces, providing a streamline auction process to sell surplus or unused assets, from uploading and marketing them worldwide to processing the transaction safely. Inventory and Equipment from various sellers is bundled into one auction sale event offering individual lots to be bid on online in real time, thus getting the most money in a competitive bidding process and by a defined closing date. Buyers have an interest in everything related to aviation including: A/C Parts and Engines, GSE, Tooling, Machinery & More. Exchange auctions take place on a monthly basis in various Industries (Aviation, IT, Test & Measurement, and Transportation) to name a few. See more details on the www.Go-Dove.com website.

At the end of the day, it all comes down to looking at how your organization is reacting to the current economic environment, recognizing that any organization needs to be proactive, not reactive to managing their aircraft part stocks and consider implementing a SIM program at a level that does not disrupt the current flow of parts, but questions the current associated costs (purchase price, repair price, finance costs, warehouse and logistic costs) in place and planning to insure your organizations survival and quick return to profitability using these IT technologies and some good old fashioned common sense.

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