Sourcing of availability services : case aircraft component support

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School of Business | Doctoral thesis (article-based) | Defence date: 2008-12-05
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Date
2008
Department
Major/Subject
Logistiikka
Logistics
Mcode
Degree programme
Language
en
Pages
[180] s.
Series
Acta Universitatis oeconomicae Helsingiensis. A, 336
Abstract
In the competitive environment of the aviation industry, it is paramount to secure aircraft availability by providing the aircraft fleet with efficient component support. The availability services in general and the aircraft component support in particular are examined in this study under the topics of demand fragmentation, cost structure of the availability services, benefits of inventory pooling and potential ways to implement inventory pooling. Each topic is discussed in a separate paper. One of the most important factors in the airline operation is the availability of aircraft for their scheduled missions, i.e. the technical dispatch reliability. It is kept at an adequate level by the maintenance, repair and overhaul (MRO) function in the airline. This is accomplished by replacing failed units, i.e. aircraft components, quickly by functional units and repairing the failed ones afterwards. This allows the aircraft to continue operation immediately without waiting for the repair work to be finished. The demand for aircraft component availability services is inherently fragmented. Airlines operate with varied fleets from a multitude of hubs and have a strong interest in keeping the spare units that support their fleets as close as possible. In contrast, the availability services would significantly benefit from demand consolidation, as the demand is caused by a random phenomenon of component failures. While the cost pressures in the airline industry require efficiency improvements in the availability services, they have to be performed without compromising dispatch reliability. The airline fleet structure has a significant impact on the airline costs and particularly on the demand fragmentation of the component availability services. Numerical methods are presented here for measuring the uniformity of an aircraft fleet and its potential for achieving scale economies. Considering one airline providing the spare components for its operations in-house, the scale of its fleet determines the cost level of the availability service. When several airlines operate in the same region, the scale of their total fleet determines the potential for achieving scale economies by cooperative arrangements between those airlines. This study includes an empirical analysis of the full history of all commercial jet aircraft. The analysis shows that the average uniformity of the airline fleets has been steadily decreasing, while the average fleet scale has been steadily increasing. Decreasing uniformity causes extensive complexity in the airline management but increasing scale allows new levels of efficiency to be achieved. The predominant cost item in the availability services is the ownership cost of the spare units, which directly originates from the valuation and depreciation principles applied. The challenge of valuing repairable components is that, unlike other production assets and disposable spare parts, they repeatedly change between production asset role and spare part role. They require different valuation and depreciation rules in these three cases: in the revenue generating role as common production assets, in the insurance-like role as spare components and while they are changing from one role to the other. According to a basic model of availability, a simple but feasible pooling arrangement can save over 30% of the availability service costs if the pool members are willing to endure some delivery delays from a remote pool stock. A pool member experiences higher service level with lower cost but needs to wait for the spare units longer compared to an airline providing its spare components in-house. The cost savings achieved by the whole pool are determined by the total fleet scale of the cooperation. The pooling benefits in optimal conditions are generally higher when more demand for one component type is served by one pool. Conflicting interests between the potential cooperating parties may easily result in less efficient pooling arrangements. The primary cause of the conflict is the issue of allocating the costs of the availability service between the pool participants, which is complicated by the fragmentation of the spare component demand. A deeper examination of the different ways to implement pooling is required to measure the potential of each alternative to capture pooling benefits in the availability service of aircraft components against a variety of external conditions
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Supervising professor
Vepsäläinen, Ari P.J., professor
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