American Airlines: Three Spend Management Lessons That Extend Beyond Procurement (Part 2)

In the first post in this series, I looked at an oldie but goodie story about how American Airlines has worked to trim costs by tapping employee ideas, rather than focusing on just sourcing and supply chain led activity (not to mention cutting just about all of the amenities from coach that they can). After all, there reaches a point of diminishing returns when it comes to beating up vendors and clearing the cabin of pillows, blankets, etc. in those MD-80s that feature state-of-the-art technology dating back to the Carter administration. Yet fleet choices and parsimonious treatment of customers (and suppliers) aside, it's clear that American embraces a culture of cost reduction that we can all learn from, if not apply directly to our everyday professional lives. A recent article in the Chicago Tribune sheds light on how American is replacing labor with automation wherever possible -- even when it comes to pulling its aging planes into the gate.

Specifically, American is replacing the ground staff that formally directly planes into the gate with a new laser-guided system that it claims will not only reduce costs, but will also provide competitive all-weather advantage compared to other carriers (our research suggests ground staff that marshal airplanes to the gate can make between $12 per hour to $37,000 per year according to different sources on the web). Moreover, as the Chicago Tribune says, "Taking humans out of the equation allows pilots to dock planes so that passengers can disembark even during thunderstorms ... when the threat of lightning strikes [forces} O'Hare to close down ramps and send ground workers indoors." The main idea behind the move is speed -- in other words, increasing capacity utilization while reducing fuel and other costs even further by reducing the time it takes to bring airplanes in and out of their gates.

Safegate, the provider of the Safedock system that American is using, also suggests safety and claims reduction is a compelling reason for automation in this particular case on its website. The statistics speak for themselves, with airlines facing "one accident per 1,000 arrivals" and "8% of all incidents result[ing] in personal injury." As we look at this example, it's clear in the case of commercial aviation arrivals and departures that replacing labor with technology can provide, at least in theory, significant direct and indirect cost savings while enhancing the passenger experience. Extending this example further, procurement organizations should learn from American's approach and look for ways, especially when it comes to developing strategic suppliers which may not have access to talent or capital to make such investments on their own, to enable joint cost-take initiatives and investments that can benefit both parties. And they should also consider similar initiatives within their own four walls as well.

Jason Busch

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