Take Flight: Earning One's Spend Management Wings in A&D

In every industry, it seems like things are done slightly differently when it comes to procurement. And aviation is no different. Recently, Aviation Week featured a fascinating feature that examined the Spend Management practices of a number of major players in the market. While there's not time in this blog entry to hit on all of the major elements of the article -- if the post piques your interest, I'd suggest you read the entire piece -- I'll try and hit on some of the more pithy elements. For example, it's no surprise that in the aviation world, that "whether you're an MRO provider, OEM or supplier, size and status adds contractual clout. As a result, purchasing philosophies toward vendors and suppliers tend to be shaped by their industrial importance and the size of the buyers that need their products."

When I look at the aviation industry as a procurement and supply chain outsider, what jumps out at me is not the deployment of strategic sourcing strategies such as supplier tiering, supplier rationalization, competitive negotiation -- all of these are standard now in larger providers, not the exception -- but rather the tight integration of inventory focused programs such as just-in-time to improve service levels and reduce carrying costs. According to one procurement organization quoted in the article, they've observed JIT's key benefits to be "increased availability, reduced stock holding and improved planning information for suppliers." Of course this also pushes inventory risks -- and costs -- off to the suppliers (in case you were wondering).

For more advanced procurement organizations, supplier partnering is a central theme in the aviation world. In contrast to the automotive "smash-and-grab” strategy of the eighties and nineties, one provider notes, "our approach is to build relationships in line with our philosophies, sharing resources to eradicate costs and exploring mutual benefits to minimize costs ... that is the way to streamline supply chains -- not by badgering and forcing down margins."

Outside of the need for enhanced partnering, another major issue aviation providers are contending with right now is the declining value of the US dollar and the appreciation of the Euro and other world currencies. One strategy which aviation companies are deploying to combat this is to buy and sell in the local currency wherever they do business, so that "exchange rates have little impact." Now that's trading advice that will hold for just about any organization doing business worldwide.

Jason Busch

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