Introduction
As Martin Woods sipped his morning coffee, he thought back to the meeting he had earlier with the Vice President of Parts Services.
“We cannot let these assets sit here indefinitely during a time when we are pushing for inventory reductions!” the VP claimed ecstatically. “Martin, I am going to need you to put together a plan to deal with this landing gear. Engage the team and schedule a meeting with me next week to walk through the proposal.”
Earlier in the year, as a result of a customer support initiative, Bombardier ended up with an extra set of used landing gears for the Q400 aircraft. Now the initiative is over, it is up to Parts Services to decide what to do with the gear. Given that a new set of landing gears cost $5 Million USD List Price, the leadership team is eager to either generate revenue with this asset or liquate it into cash. As Martin contemplated the challenge in front of him, he realized that he would need to consult experts within the organization for more information. In addition, the plan will need to take into consideration everything from the high level context to understanding the operational impacts of any particular solution. With no time to lose, he started looking over his notes….
Airline Part Provisioning
In order to operate an aircraft, airlines need a constant supply of spare parts to replace failed units on wing. Spare parts can range from a single bolt to large items such as a generator. Smaller, cheaper parts are usually discarded upon failure but larger, more expensive units are usually repaired at a shop and put back into service. To support the time required for the replacement and repair of components, airlines will traditionally purchase a stock of inventory to maintain their operations. In recent years, as fuel prices continue to rise and airline margins become thinner, an increasing number of airlines are turning to alternative methods to support their inventory needs. These methods include options such as leasing, financing, or paying for access to an inventory pool. This allows the airline to avoid costly upfront investments and spread out their expenditures to match with their revenues. As a result, companies managing various asset management solutions have flourished.
About Parts Services
Part Services is a Bombardier division focused on providing parts support to Bombardier aircraft customers as they set up and maintain operations. The organization supports both business and commercial aircraft customers by providing spares sales and related part support services to the market. Traditionally, part sales have driven a large portion of Parts Services revenues. However, in recent years, the market has shifted to a more service oriented focus. On business aircraft, the innovative Smart Parts cost by the hour program was launched 25 years ago to great success as a way to protect customers from repair cost and reliability risks. The program combines repair management and inventory pooling to offer business aircraft operator a turn-key solution to spares management. For Commercial Aircraft, the Q400 Smart Parts program was launched in 2008 and has now captured 25% of the world wide fleet. In order to drive continued growth, the leadership team is very interested in developing more services and solutions to compliment the component programs.
About the Q400 Landing Gear
Figure 1 – Main Landing Gear (MLG)
Figure 2 – Nose Landing Gear (NLG)
The Q400 Landing Gear shipset consists of three pieces: 2 MLGs and 1 NLG. Since the condition of the Landing Gear is paramount to the safety of the aircraft, Airworthiness Authorities (TC, FAA, EASA, etc.) have mandated that the shipsets must be overhauled every 10,000 flight-cycles. During overhaul, life limited parts are replaced and repairs are made such that the units can be returned to service for another 10,000 flight-cycles. The average utilization for a Q400 Aircraft is 2500 flight-cycles annually.
Supply Chain Analysis
The Supply Chain group has already been contacted to learn more about the aftermarket Landing Gear market. Through many months of tough negotiating, the Supply chain group was able to sign a support agreement with Worldwide Landing Gear Inc. In the contract, Worldwide committed to overhauling each landing gear shipset for Bombardier at a fixed price of $250,000 per event and a turnaround time of 40 days for the whole process.
Sales Analysis
When asked, the Sales team was able to dig up some old analysis that showed that the entire fleet of Q400s (500 aircraft) will require Landing Gear overhauls in the next 10 years. The consensus from the sales team is that if Bombardier had a program (see Figure 3) that provided a combined asset lease and overhaul solution, 30% of the fleet would sign up. Furthermore, the Sales team was able to perform a competitive assessment, and determined that the benchmark price for a lease and overhaul program is $300,000 per event. Lastly, through analyzing past transactions, the Sales team was able to establish a fair market value of $3,500,000 for the Landing Gear assets (i.e. the Sales team could sell the Bombardier asset for $3,500,000).
Figure 3 – Typical Landing Gear Lease and Overhaul Program
With his notes in order, Martin has a better idea about how he should proceed. The challenge now will be to organize all his thoughts into a comprehensive pack that will fit into the VP’s 30 minute window for next week.
Guiding Questions – The questions below are listed to help guide the candidate’s thought process. There is no requirement to answer each question separately and in the order listed. The presentation should flow naturally and include all the relevant points.
- What is the context and objective of this meeting? What is the expected outcome?
- What are the options under consideration? What is your recommendation to the VP?
- Who are the key stakeholders involved in this project? Whose buy-in and support is required?
- What do the financials look like?
- What is the expected phasing of the project and high level milestones that the leadership has to be aware of?
MBA Assignment
Context and objective
The background of this meeting, between Mr. Martin and vice president in charge of parts services is to with deal with inventory management. The vice present was aiming for the inventory to be reduced to a certain level which will be well management and benefit to the company. The main agenda for the meeting was to dispose of the parts of the airline which have no use currently in the operation, for example of the part is landing gear. This all was as an outcome of support from customer initiative which now is over and the gears have no use again either to be disposed of and generate revenue for the company or get cash through liquation (Brown, 1967).
After all this discussion the main objective was for Mr. Martin to do a detailed research involving all parts concerned on how to handle with spare landing gear available. The outcome was for Mr. Martin in the following discussion to come up with a proposal on how to have a solution toward this challenge in the organization in a positive way.
The decision under consideration and recommendation
After Martin has done some research towards the ides, he found some several concepts which should put under consideration. For example:
- Experts from Airline Measure Provision they had the opinion of leasing, paying or financing the access of spare parts pool so as to reduce the high cost on sincere investment and reduce the expenditure which will result to high revenue earning.
- From the parts services, the point to be considered is how the management team will have interest in coming up with new and more solutions in combining module program. Like having the way of protecting the client form reliability hazard and repair charges. Also, they have considered Q400 gear because can manage 10,000 flight sequence and 2500 flight each year.
- Supply analysis after is under, the point to be considered was on how to have the contract with worldwide landing gear company which will have the permanent price of $250,000 as per event and shift time of forty days for the complete process (Shanley, 1960). This was to reduce the expenditure and increase the savings.
- The point to be considered through sales investigation is to establish a fair price marketplace which will offer a landing gear at $3,500,00 for rest of its life.
The recommendation according to the above consideration to vice president as per my view is the company to lease the gears which are more expensive to be acquired and maintained. Then the others acquire constant stock maintenance as they protect customers from experiencing any risk cost. Or purchase long-lasting landing gear that is Q400.
Main stakeholders
In every project, they are supposed to have main parties involved for it to be successful. In this project of identifying the way out to have stock control management, they have main stakeholders involved. They include:
- Part service which is through in charge of Vice president. He/she is the one who raised this idea of disposing of the idle assets. This aims for spreading the expenses and increasing the revenue inside the company.
- Martin is another part. He is the individual was given the assignment of doing research and coming up with solution proposal. This is to be submitted in the next meeting for more analyses. Martin went on and involved more parties in this investigation like parts service, supply chain and sales.
- Department of service parts. This deals with customers set up plus maintaining the aircraft operations. This sector is the one coming up the program for repair maintenance and stock pooling.
- Experts in supply. They involved in doing the analyses market constant price of the landing gears. They involved in negotiating with different external parties like worldwide landing gear and have a solution like the constant price of $250,000 as per event.
- Sales experts. This was involved in doing competitive analyses and benchmarking the price of leasing and program of an overhaul which was $3000,000 according to the event. The team also helped in analyzing the market price of the gears.
All the stakeholder they combined more effort to come up with a proposed solution.
Financial stands
The financial stand as from all analyses made are as follows:
- From sales investigation, they found the previous transaction was $3,500,00 market price for assets like landing gear.
- Supply analysis has acknowledged that fixed value was $250,000 per occasion. This was for 40 days towards complete cycle.
Project expectation from leaders
After all, this analyses from Mr. Martin was towards positive result since experts have been involved. All this are from an expected qualified team like supply and sales experts. Martin is ready to present a proposal to the vice presented with the right research. Now the expectation from the analyses is to deal in the right way with the stock management and increase the revenue of the business.
The management through its leaders should be aware of the ways of achieving its goal through the above investigation. They are interested in coming up with a new solution which will benefit the organization. They should work tirelessly focusing the above consideration so as to get the solution (Shanley, 1960). They include Purchase Q400 which it seems long lasting and more valuable to the aircraft since it has Soundness conditions from Air Authorities. Or lease the expensive spare parts and maintain the stock of cheap one or include customers to bring their supports towards aircraft administration. The administration should be responsive to all consideration and recommendation from the analyzes so as to achieve success and face the challenge completely. Using competitive organization in aircraft line has it will help the organization to achieve a lot if they will cooperate. Example of such companies: Worldwide Landing Gear and Bombardier.
References
Brown, R. G. (1967). Decision rules for inventory management.
Shanley, F. R. (1960). Weight-strength analysis of aircraft structures. Dover Publications.
