The Inventory Planning Gap
Inventory management for airline and MRO differs from standard manufacturing techniques and is much more complex. We are repairing and keeping serviceable highly engineered, mission-critical assets, as opposed to manufacturing from raw materials and distributing.
In MRO the inventory management team cannot expect nice, clean trend lines against which to forecast. The environment is characterized by a high volume of parts with low levels of demand. There are also decisions to be made for airline inventory management that are not considered or relevant in more standard industries. Unserviceable parts are repaired and reused, rather than discarded as in a typical manufacturing scenario. Consequently the operating model, material and value flows differ from production, manufacturing or retail operations. There is also a larger scale to consider, with thousands of parts across multiple, globally-distributed locations. Because of this, the well-understood, end-to-end process that exists in manufacturing, retail or production inventory planning, is generally missing in MRO.
There are also additional decisions to be made around inventory planning for airlines and aviation MRO. In addition to procuring raw materials, we make policy decisions around how to source availability, for example pool or exchange, as well as guiding execution to prioritize actions to maximize availability at the lowest cost. This includes decisions around:
- Prioritizing purchase of shortages based upon probabilistic demand and cost
- Liquidation of surplus for sale
- Non-repair of unserviceable surplus
- Prioritization of unserviceable components in repair to maximize availability
- Movement of material and post repair allocation of stock to proactively support probabilistic demand as opposed to actual request.
- Trade-offs in buy or exchange of replacement parts.
However, despite these essential differences, the transactional activities can appear similar to those of more standard industries. We buy, goods-receipt, store, issue, scrap and write-off. The material activity is similar; the volume transactions feel similar, but the planning is manifestly different. Superficial similarities can cloud the issue, and sometimes mean that the depth of difference between these industries is not fully acknowledged resulting in a system and process gap. But the differences outlined above, such as demand uncertainty and a completely distinct set of decisions to consider, make inventory planning for aviation a completely different proposition from standard inventory planning. Standard Sales and Operations Planning (S&OP) or Demand and Operations Planning (D&OP) methods that apply to manufacturing, retail and distribution, and which are embodied in many ERP systems are ineffective for aviation.
Many airlines apply an MRP system for fast-moving materials, but in fact this covers only a small percentage of the inventory by value. Reorder level planning is sometimes used, but again, this applies only to low-value materials, and does not adequately address the forecast uncertainty. The often-surprising consequence is that MRP and reorder levels are not broadly used. The gap is typically addressed in an ad-hoc manner using spreadsheets and tacit knowledge with unquantifiable results and little management control. Reacting to an AOG is often misperceived as planning when in fact it is exactly the opposite, i.e. the result of a lack of planning.
In summary, Inventory Planners are forced to develop less-than-ideal manual workarounds to fill the gap left by IT systems that are not adapted to meet the specific challenges of planning for aircraft spares.
Read on for ‘Bridging the Inventory Planning Gap‘