American Airlines: Three Spend Management Lessons That Extend Beyond Procurement (Part 1)

Even though American Airlines has the historic reputation of being the scrooge of both domestic and international air travel (e.g., the airline that took the olive out of the salad and pillows out of coach), there's actually quite a lot to admire and learn from when it comes to spend management policies at the carrier that extend beyond basic procurement and sourcing activities. In a multi-part post on some of American's current and historic tactics, I'll provide a number of examples that we can apply to other industries as well. Let's start with some historical examples of where American has been able to reduce or contain costs by taking unorthodox approaches that go beyond simply reducing services or beating up suppliers.

In the above-linked story from six years ago in the Christian Science Monitor, there are a number of timeless examples of cost reduction that stem in part from empowering employees to make decisions that can lead to precisely that. These include two mechanics that "didn't like having to toss out $200 drill bits once they got dull" who were eventually able to create their own tool to address the issue, saving "as much as $300,000" in a single year. It also includes "a group of pilots who realized that they could taxi just as safely with one engine as with two."

In addition to empowering workers at all levels of the organization to make decisions that can lead to cost savings, American has historically made sure that everyone knows "where to take their ideas and how to get them implemented." The airline has also challenged workers to find creative solutions on their own to saving money, even if it means a vertical reintegration of sorts. In one case the article cites, American was able to save 90% on lavatory mirrors by fabricating them in their own facilities rather than buying them from suppliers.

Creating a culture of employee-led cost savings is different than creating one of just cost accountability. Even though the best procurement and supply chain organizations can be successful at stripping cost out of an equation year-over-year, it's the front-line employees who are often must capable of nominating ways so that it never gets there in the first place as well as finding alternative ways of going about their jobs and all aspects of costs that they directly or indirectly oversee. Stay tuned as we flash forward six years and look at what American Airlines is doing today to achieve the same ultimate goal of non-procurement-led cost take-out.

Jason Busch

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