HKU820 Asia Case RC Research Centre POON THE UNIVERSITY OF HONG KONG Poon Kam Kai Series BENJAMIN YEN AVIATION SPARE PARTS SUPPLY CHAIN MANAGEMENT OPTIMISATION AT CATHAY PACIFIC AIRWAYS LIMITED We have 2%billion Hong Kong dollars worth of spare parts on our shelves. Managing these spare parts effectively is instrumental in ensuring the efficient operations of our airline.This presents a significant challenge to the engineering department. -Robert Taylor,manager of inventory operations,Cathay Pacific A profitable and financially sound commercial airline,Cathay Pacific Airways Limited had every reason to be proud.It was voted"Airline of the Year"in the world's largest passenger poll,conducted by Skytrax Research in 2005,and named "Airline of the Year"by Air Transport World magazine in 2006.2 However,there was an operational pain that continued to bother Cathay Pacific.In March 2007,Robert Taylor,manager of inventory operations,and Paul Barwell,manager of procurement of aircraft components and maintenance,were requested to head up a task force to optimise the supply chain management of spare parts operations at Cathay Pacific.Aviation spare parts constituted a significant expense in Cathay Pacific's financial statements.From the balance sheet perspective,as of December 2005,the total inventory value of all aviation spare parts amounted to over US$350 million.Dead and inactive stock accounted for 3%per annum and was an issue to manage with care due to obsolescence and unpredictable demand patterns.Supply chain management for aviation spare parts was complex because of the need to ensure timely service availability of a huge variety of stock and to comply with stringent quality and regulatory requirements. Company interview on25 July 2007. 2For details,see Cathay Pacific's website:http://www.cathaypacific.com. Karen Lee and Jonathan Pelosi prepared this case under the supervision of Benjamin Yen for class discussion.This case is not intended to show effective or ineffective handling of decision or business processes. 2009 by The Asia Case Research Centre.The University of Hong Kong.No part of this publication may be reproduced or transmitted in any form or by any means-electronic,mechanical,photocopying.recording.or otherwise fincluding the internet)-without the permission of The University of Hong Kong. Ref09/382C This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Karen Lee and Jonathan Pelosi prepared this case under the supervision of Benjamin Yen for class discussion. This case is not intended to show effective or ineffective handling of decision or business processes. © 2009 by The Asia Case Research Centre, The University of Hong Kong. No part of this publication may be reproduced or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise (including the internet)—without the permission of The University of Hong Kong. Ref. 09/382C 1 BENJAMIN YEN AVIATION SPARE PARTS SUPPLY CHAIN MANAGEMENT OPTIMISATION AT CATHAY PACIFIC AIRWAYS LIMITED We have 2½ billion Hong Kong dollars worth of spare parts on our shelves. Managing these spare parts effectively is instrumental in ensuring the efficient operations of our airline. This presents a significant challenge to the engineering department. - Robert Taylor, manager of inventory operations, Cathay Pacific1 A profitable and financially sound commercial airline, Cathay Pacific Airways Limited had every reason to be proud. It was voted “Airline of the Year” in the world’s largest passenger poll, conducted by Skytrax Research in 2005, and named “Airline of the Year” by Air Transport World magazine in 2006.2 However, there was an operational pain that continued to bother Cathay Pacific. In March 2007, Robert Taylor, manager of inventory operations, and Paul Barwell, manager of procurement of aircraft components and maintenance, were requested to head up a task force to optimise the supply chain management of spare parts operations at Cathay Pacific. Aviation spare parts constituted a significant expense in Cathay Pacific’s financial statements. From the balance sheet perspective, as of December 2005, the total inventory value of all aviation spare parts amounted to over US$350 million. Dead and inactive stock accounted for 3% per annum and was an issue to manage with care due to obsolescence and unpredictable demand patterns. Supply chain management for aviation spare parts was complex because of the need to ensure timely service availability of a huge variety of stock and to comply with stringent quality and regulatory requirements. 1 Company interview on 25 July 2007. 2 For details, see Cathay Pacific’s website: http://www.cathaypacific.com. HKU820 This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Aviation Spare Parts Supply Chain Management 09/382C Optimisation at Cathay Pacific Airways Limited A bolt for a desk chair costs a dollar.The same bolt for a chair on an aeroplane would cost 30 dollars.It is that magnitude of difference. Everything for an aircraft is massively expensive. -Paul Barwell,manager of procurement,Cathay Pacific3 The challenge for the management team was to explore alternatives for optimising spare parts supply chain management and instigate process improvement. The Aviation Spare Parts Industry Managing spare parts in the aviation industry had always been a challenge for airline operators because the aviation supply chain was unusually complicated.The aviation industry was regulated by international and local authorities such as the US Federal Aviation Administration ("FAA"),the European Aviation Safety Agency ("EASA")and the Civil Aviation Department of the Government of the Hong Kong Special Administrative Region. Mechanics certified by the FAA were required to check all non-deferrable repairs before a plane's departure and verify that all regulations were met.In addition,the FAA had the authority to ground a plane if airline operators did not complete the deferrable repairs within the stipulated timeframe.4All suppliers of aeroplane spare parts were required to possess special legal certifications and formal protocols,which were stipulations that indicated assumption of responsibility in case of an accident.Turnaround time for repairs was critical, as highlighted by measurable and non-measurable costs.In addition to standard passenger compensation for flight delays such as hotel accommodation,it cost US$60 per minute to keep an aircraft on the runway.s Moreover,there existed a risk that customers might be upset or even shift to other airlines if delays caused them to lose their connecting flights.Therefore the cost of aircraft delays was a key decision making element in engineering. Aviation spare parts themselves were also expensive and complex.To illustrate,the average cost of an engine was US$12 million and comprised thousands components and assemblies ranging from nuts and bolts to ten thousands.In addition to manufacturing expenses,the high costs were attributed to regulatory and testing requirements of spare parts for reliability.The variability of aeroplane spare parts,coupled with the sporadic nature of demand for aircraft maintenance repair parts,made spare parts demand forecasting more difficult,necessitating increased manpower. Buyer's Market The carrying costs for aviation spare parts inventory were relatively expensive.Future demands for spare parts were made based on maintenance information,scheduled maintenance plans and past usage patterns such as flying hours or parts demand.However, the usage pattern of spare parts remained highly unpredictable because of the high level of demand variability.It was reported that 30%of the inventory of a traditional airline was active,another 30%was slow-moving but necessary to have on hand and the remaining 40% was dead stock.It was estimated that the airline industry spent over US$10 billion per year on spare parts,of which 10%came from airlines'and overhaul agencies'pre-owned stocks.7 The value of spare engines for major airlines was estimated at over US$11 billion and the 3Company interview on25 July 2007. 4 Sachon,M.and Pate-Comell,E.(2000)"Delays and Safety in Airline Maintenance",Reliabiliy Engineering and System Safery, 67(3),pp.301-309. Company interview on 25 July 2007. 6 Harrington,L.(2007)"From Just in Case to Just in Time".Air Transport World,44(4),pp.77-80. Doug,B.(2000)"Spares Apart",Aerospace International,27(6),pp.14-17. 2 This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Aviation Spare Parts Supply Chain Management 09/382C Optimisation at Cathay Pacific Airways Limited 2 A bolt for a desk chair costs a dollar. The same bolt for a chair on an aeroplane would cost 30 dollars. It is that magnitude of difference. Everything for an aircraft is massively expensive. - Paul Barwell, manager of procurement, Cathay Pacific3 The challenge for the management team was to explore alternatives for optimising spare parts supply chain management and instigate process improvement. The Aviation Spare Parts Industry Managing spare parts in the aviation industry had always been a challenge for airline operators because the aviation supply chain was unusually complicated. The aviation industry was regulated by international and local authorities such as the US Federal Aviation Administration (“FAA”), the European Aviation Safety Agency (“EASA”) and the Civil Aviation Department of the Government of the Hong Kong Special Administrative Region. Mechanics certified by the FAA were required to check all non-deferrable repairs before a plane’s departure and verify that all regulations were met. In addition, the FAA had the authority to ground a plane if airline operators did not complete the deferrable repairs within the stipulated timeframe.4 All suppliers of aeroplane spare parts were required to possess special legal certifications and formal protocols, which were stipulations that indicated assumption of responsibility in case of an accident. Turnaround time for repairs was critical, as highlighted by measurable and non-measurable costs. In addition to standard passenger compensation for flight delays such as hotel accommodation, it cost US$60 per minute to keep an aircraft on the runway.5 Moreover, there existed a risk that customers might be upset or even shift to other airlines if delays caused them to lose their connecting flights. Therefore the cost of aircraft delays was a key decision making element in engineering. Aviation spare parts themselves were also expensive and complex. To illustrate, the average cost of an engine was US$12 million and comprised thousands components and assemblies ranging from nuts and bolts to ten thousands. In addition to manufacturing expenses, the high costs were attributed to regulatory and testing requirements of spare parts for reliability. The variability of aeroplane spare parts, coupled with the sporadic nature of demand for aircraft maintenance repair parts, made spare parts demand forecasting more difficult, necessitating increased manpower. Buyer’s Market The carrying costs for aviation spare parts inventory were relatively expensive. Future demands for spare parts were made based on maintenance information, scheduled maintenance plans and past usage patterns such as flying hours or parts demand. However, the usage pattern of spare parts remained highly unpredictable because of the high level of demand variability. It was reported that 30% of the inventory of a traditional airline was active, another 30% was slow-moving but necessary to have on hand and the remaining 40% was dead stock.6 It was estimated that the airline industry spent over US$10 billion per year on spare parts, of which 10% came from airlines’ and overhaul agencies’ pre-owned stocks.7 The value of spare engines for major airlines was estimated at over US$11 billion and the 3 Company interview on 25 July 2007. 4 Sachon, M. and Paté-Cornell, E. (2000) “Delays and Safety in Airline Maintenance”, Reliability Engineering and System Safety, 67 (3), pp. 301–309. 5 Company interview on 25 July 2007. 6 Harrington, L. (2007) “From Just in Case to Just in Time”, Air Transport World, 44 (4), pp. 77–80. 7 Doug, B. (2000) “Spares Apart”, Aerospace International, 27 (6), pp. 14–17. This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Aviation Spare Parts Supply Chain Management 09/382C Optimisation at Cathay Pacific Airways Limited overall value of spare parts stored by the airline industry had increased from US$45 billion in 1995 to US$50 billion in 2002,of which 80%was owned by airline operators.3 Aircraft components were complex,high-level modules consisting of dozens or hundreds of parts.The life span of a component could exceed two decades,during which it might be repaired or overhauled more than a dozen times.These issues,combined with aviation authority requirements such as certification and traceability and issues of reliability and safety, increased the cost of obtaining and keeping aviation spare parts.Since the majority of the inventory value in the aviation supply chain was tied up in spare components,they represented the primary target for inventory value reduction. Supplier's Market Similar to any other industry,price and quality were two major determining factors for airline operators in evaluating their spare parts suppliers.As a result of tight aviation regulations, airline operators,as customers,were constrained in supplier selection.Moreover,there were situations that were dominated by a single supplier,as with parts solely supplied by an original equipment manufacturer ("OEM").OEMs were companies who were original manufacturers of a component for a product that might be resold by another company.The limited choice and high concentration of OEMs limited airline operators'negotiation power. Unlike consumable products,the criticality of the engine and the long usable life of an aircraft had contributed to strong resistance among airline operators to switch engine spare parts suppliers.Moreover,there was limited room to negotiate after an aircraft was purchased;the purchaser was now dependent on the OEM's products. Because of tight regulations and dependence on OEMs,seeking alternative suppliers was a challenge for Cathay Pacific.The supplier's market was concentrated in a handful of aerospace conglomerates,including Goodrich Corporation and Honeywell Aerospace.This was very much unlike the car industry,in which Volvo could choose from a number of suppliers to purchase a new engine for a new car.Joint purchasing activities amongst airline alliances to influence procurement processes were also likely to be opposed for anti-trust reasons.Joint purchasing activities pursued by airline alliances were deemed as similar actions undertaken by a conglomerate trying to influence the supply market.Strict regulations were in place,in countries like Australia,to govern the extent of joint purchasing activities allowed. To alleviate over-dependence upon single source suppliers,airline operators had begun exploring opportunities of sourcing certain categories of approved parts manufactured under a regulated program called "PMA"(Parts Manufacturer Approval).Through the PMA process these categories of part were generally available at more competitive pricing with reduced lead times. Supplier selection was also influenced by whether the parts in question were new or old part models.Because OEMs were the original manufacturers,they were generally the preferred suppliers for new part models owing to their level of expertise in maintenance and repairs. For older,non-critical models,PMA suppliers were a viable option. sKilpi,J.and Vepsalainen,A.PJ.(2004)"Pooling of Spare Components between Airlines",Transporr Management,10 (2),pp.137-146. Kilpi,J.and Vepsalainen,A.PJ.(2004)"Pooling of Spare Components between Airlines"Journal ofir Transport Management,10 (2),pp.137-146. 1Company interview on25 July 2007. Company interview on25 July 2007. 3 This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Aviation Spare Parts Supply Chain Management 09/382C Optimisation at Cathay Pacific Airways Limited 3 overall value of spare parts stored by the airline industry had increased from US$45 billion in 1995 to US$50 billion in 2002, of which 80% was owned by airline operators.8 Aircraft components were complex, high-level modules consisting of dozens or hundreds of parts. The life span of a component could exceed two decades, during which it might be repaired or overhauled more than a dozen times. These issues, combined with aviation authority requirements such as certification and traceability and issues of reliability and safety, increased the cost of obtaining and keeping aviation spare parts. Since the majority of the inventory value in the aviation supply chain was tied up in spare components, they represented the primary target for inventory value reduction.9 Supplier’s Market Similar to any other industry, price and quality were two major determining factors for airline operators in evaluating their spare parts suppliers. As a result of tight aviation regulations, airline operators, as customers, were constrained in supplier selection. Moreover, there were situations that were dominated by a single supplier, as with parts solely supplied by an original equipment manufacturer (“OEM”). OEMs were companies who were original manufacturers of a component for a product that might be resold by another company. The limited choice and high concentration of OEMs limited airline operators’ negotiation power. Unlike consumable products, the criticality of the engine and the long usable life of an aircraft had contributed to strong resistance among airline operators to switch engine spare parts suppliers. Moreover, there was limited room to negotiate after an aircraft was purchased; the purchaser was now dependent on the OEM’s products. Because of tight regulations and dependence on OEMs, seeking alternative suppliers was a challenge for Cathay Pacific 10 . The supplier’s market was concentrated in a handful of aerospace conglomerates, including Goodrich Corporation and Honeywell Aerospace. This was very much unlike the car industry, in which Volvo could choose from a number of suppliers to purchase a new engine for a new car. Joint purchasing activities amongst airline alliances to influence procurement processes were also likely to be opposed for anti-trust reasons. Joint purchasing activities pursued by airline alliances were deemed as similar actions undertaken by a conglomerate trying to influence the supply market. Strict regulations were in place, in countries like Australia, to govern the extent of joint purchasing activities allowed.11 To alleviate over-dependence upon single source suppliers, airline operators had begun exploring opportunities of sourcing certain categories of approved parts manufactured under a regulated program called “PMA” (Parts Manufacturer Approval). Through the PMA process these categories of part were generally available at more competitive pricing with reduced lead times. Supplier selection was also influenced by whether the parts in question were new or old part models. Because OEMs were the original manufacturers, they were generally the preferred suppliers for new part models owing to their level of expertise in maintenance and repairs. For older, non-critical models, PMA suppliers were a viable option. 8 Kilpi, J. and Vepsäläinen, A.P.J. (2004) “Pooling of Spare Components between Airlines”, Journal of Air Transport Management, 10 (2), pp. 137–146. 9 Kilpi, J. and Vepsäläinen, A.P.J. (2004) “Pooling of Spare Components between Airlines”, Journal of Air Transport Management, 10 (2), pp. 137–146. 10 Company interview on 25 July 2007. 11 Company interview on 25 July 2007. This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Aviation Spare Parts Supply Chain Management 09/382C Optimisation at Cathay Pacific Airways Limited Company History Cathay Pacific Airways was founded in Hong Kong on 24 September 1946 by two ex-air force pilots,American Roy Farrell and Australian Sydney de Kantzow.With a single Douglas DC-3(a small passenger plane),Cathay Pacific launched its first routes between Hong Kong, Sydney,Manila,Singapore,Shanghai and Canton,with limited scheduled service to Manila, Singapore and Bangkok.In 1948,Butterfield Swire,which later became the Swire Group, bought 45%of Cathay Pacific and had since then become the de facto flagship carrier of Hong Kong. The 1960s to 1990s marked the development and growth era of Cathay Pacific [see Exhibit 1],owing to successful corporate strategy implementation in product innovation and to acquisitions.During the 1970s,Cathay Pacific had demonstrated its commitment to product innovation through its introduction of flight simulators and one of the industry's first computerised reservation systems.These technological investments further enhanced Cathay Pacific's service offering.In addition,Cathay Pacific had made timely acquisitions allowing the airline to become one of the world industry leaders.With access to capital markets for fund raising following their initial public offering in Hong Kong in 1986,Cathay Pacific pursued its plan of expansion into Europe and North America.Recognising destination reach as a critical factor for excellent customer service and acknowledging the increasing demand in China,in September 2006,Cathay Pacific not only integrated with Dragon Air but also enhanced its cooperative agreement with Air China.Cathay Pacific was also one of the founding members of the oneworld Alliance in 1998,a network of airlines designed to increase efficiency by offering nearly 700 destinations.12 Turnover in 2006 exceeded US$7.77 billion and profits surpassed US$523 million.Cathay Pacific employed over 25,000 staff worldwide,serviced over 43 destinations throughout Asia, North America and Europe and carried over 16.7 million passengers in 2006. Spare Part Supply Chain Management at Cathay Pacific Managing the inventory is tough.With the aviation business,the supply chain tends to be much more complicated compared to regular businesses.This is due to all the restrictions,the turnaround time,lead time,repair time, expensive components,how many should I keep on the shelf.my float level. -Robert Taylor,manager of inventory operations,Cathay Pacific3 Cathay's Engineering Commercial section was made up of mainly three functions, Procurement,IOPs(Inventory Operations),and Planning [See Exhibit 2].For the scope of spare parts management,IOPs was in charge of the day-to-day operation while Procurement took up the commercial responsibilities with suppliers.IOPs was operating on an annual budget of over US$450 million'4. Owing to the diversity in the nature of parts and the fact that there were over 1,000,000 parts on a single aeroplane,there were over 380,000 line items in Cathay Pacific's database as of February 2007.Accordingly,there were over 2,300 suppliers to meet the spare parts demands of Cathay Pacific's fleet of over 117 planes consisting of 11 models with an average age of 11 For details,see Cathay Pacific's website:http://www.cathaypacific.com Company interview on25 July 2007. 4Company interview n Juy007. This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Aviation Spare Parts Supply Chain Management 09/382C Optimisation at Cathay Pacific Airways Limited 4 Company History Cathay Pacific Airways was founded in Hong Kong on 24 September 1946 by two ex-air force pilots, American Roy Farrell and Australian Sydney de Kantzow. With a single Douglas DC-3 (a small passenger plane), Cathay Pacific launched its first routes between Hong Kong, Sydney, Manila, Singapore, Shanghai and Canton, with limited scheduled service to Manila, Singapore and Bangkok. In 1948, Butterfield & Swire, which later became the Swire Group, bought 45% of Cathay Pacific and had since then become the de facto flagship carrier of Hong Kong. The 1960s to 1990s marked the development and growth era of Cathay Pacific [see Exhibit 1], owing to successful corporate strategy implementation in product innovation and to acquisitions. During the 1970s, Cathay Pacific had demonstrated its commitment to product innovation through its introduction of flight simulators and one of the industry’s first computerised reservation systems. These technological investments further enhanced Cathay Pacific’s service offering. In addition, Cathay Pacific had made timely acquisitions allowing the airline to become one of the world industry leaders. With access to capital markets for fund raising following their initial public offering in Hong Kong in 1986, Cathay Pacific pursued its plan of expansion into Europe and North America. Recognising destination reach as a critical factor for excellent customer service and acknowledging the increasing demand in China, in September 2006, Cathay Pacific not only integrated with Dragon Air but also enhanced its cooperative agreement with Air China. Cathay Pacific was also one of the founding members of the oneworld Alliance in 1998, a network of airlines designed to increase efficiency by offering nearly 700 destinations.12 Turnover in 2006 exceeded US$7.77 billion and profits surpassed US$523 million. Cathay Pacific employed over 25,000 staff worldwide, serviced over 43 destinations throughout Asia, North America and Europe and carried over 16.7 million passengers in 2006. Spare Part Supply Chain Management at Cathay Pacific Managing the inventory is tough. With the aviation business, the supply chain tends to be much more complicated compared to regular businesses. This is due to all the restrictions, the turnaround time, lead time, repair time, expensive components, how many should I keep on the shelf, my float level. - Robert Taylor, manager of inventory operations, Cathay Pacific13 Cathay’s Engineering Commercial section was made up of mainly three functions, Procurement, IOPs (Inventory Operations), and Planning [See Exhibit 2]. For the scope of spare parts management, IOPs was in charge of the day-to-day operation while Procurement took up the commercial responsibilities with suppliers. IOPs was operating on an annual budget of over US$450 million14. Owing to the diversity in the nature of parts and the fact that there were over 1,000,000 parts on a single aeroplane, there were over 380,000 line items in Cathay Pacific’s database as of February 2007. Accordingly, there were over 2,300 suppliers to meet the spare parts demands of Cathay Pacific’s fleet of over 117 planes consisting of 11 models with an average age of 11 12 For details, see Cathay Pacific’s website: http://www.cathaypacific.com. 13 Company interview on 25 July 2007. 14 Company interview on 25 July 2007. This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Aviation Spare Parts Supply Chain Management 09/382C Optimisation at Cathay Pacific Airways Limited years.'5 Another 46 planes,including three new models,were expected to be delivered in the next five years. Spare Parts Classification at Cathay Pacific Spare parts were dually classified according to their function and their criticality Spare Parts by Function'5 Cathay Pacific's system divided airplane spare parts into five primary classes:rotable, repairable,expendable,consumable and expendable-repairable. Rotables consisted of the most complex,expensive and longest-lasting parts of an aeroplane (ie,the engine).In addition,they included serialised assemblies,end items,line-replaceable units and units that incorporated repairable parts.Because they were assembled units,they could consist of parts belonging to the other four categories of spare parts,meaning rotables could be built from parts which were expendables or consumables.For example,an engine was a rotable component,but there were many different assembly parts inside the engine. Rotables were depreciable over time and had an extensive life expectancy through repetitive overhaul processes that would,under normal operating conditions,equal the life of an aircraft. Unserviceable units were normally routed to overhaul/repair shops for inspection,repair or overhaul and were recertified for serviceability based on authorised procedures. Repairables included parts that were considered economically repairable and were continually rehabilitated in the normal course of operation to a fully serviceable condition over a period which was usually less than the life of the flight equipment with which they were associated. These parts were repaired until declared no longer of value because of obsolescence either of themselves or of the flight equipment to which they related,or because the assemblies had become damaged beyond repair.A fuel pump in the aeroplane was an example of a repairable part. Expendables included both integral and non-integral parts of assemblies that were reused or replaced based on inspection findings.Some examples of integral expendables were dowels, pins and sleeves.Examples of non-integral expendables included bearings,springs,bulbs and brackets. Consumables included replacement items that were discarded and replaced at each assembly overhaul pursuant to overhaul specifications and procedures.Examples of consumable parts were oil,chemicals,paints,fabrics and metals. Expendables-repairables included any expendable that might be recovered through minor repairs,such as seat arm caps. These five classes could also be addressed from two different points of view.The first was an inventory management perspective that focused on whether the units could be repaired or not. For example,rotables and repairables were components that could be repaired.The second perspective was that of accounting and focused on depreciable lifespan.Rotables,for instance, had a lifespan equal to that of an aircraft. 15 Cathay Pacific's website:http:/www.cathaypacific.com/pa/en US/aboutus/exbackground/factsheet (accessed 14 May,008). 16 Definitions taken from:Cathay Pacific(1 May 2006)"Engineering Procedure Manual Inventory Operations Volume 9A", Company Presentations. 5 This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Aviation Spare Parts Supply Chain Management 09/382C Optimisation at Cathay Pacific Airways Limited 5 years.15 Another 46 planes, including three new models, were expected to be delivered in the next five years. Spare Parts Classification at Cathay Pacific Spare parts were dually classified according to their function and their criticality. Spare Parts by Function16 Cathay Pacific’s system divided airplane spare parts into five primary classes: rotable, repairable, expendable, consumable and expendable-repairable. Rotables consisted of the most complex, expensive and longest-lasting parts of an aeroplane (ie, the engine). In addition, they included serialised assemblies, end items, line-replaceable units and units that incorporated repairable parts. Because they were assembled units, they could consist of parts belonging to the other four categories of spare parts, meaning rotables could be built from parts which were expendables or consumables. For example, an engine was a rotable component, but there were many different assembly parts inside the engine. Rotables were depreciable over time and had an extensive life expectancy through repetitive overhaul processes that would, under normal operating conditions, equal the life of an aircraft. Unserviceable units were normally routed to overhaul/repair shops for inspection, repair or overhaul and were recertified for serviceability based on authorised procedures. Repairables included parts that were considered economically repairable and were continually rehabilitated in the normal course of operation to a fully serviceable condition over a period which was usually less than the life of the flight equipment with which they were associated. These parts were repaired until declared no longer of value because of obsolescence either of themselves or of the flight equipment to which they related, or because the assemblies had become damaged beyond repair. A fuel pump in the aeroplane was an example of a repairable part. Expendables included both integral and non-integral parts of assemblies that were reused or replaced based on inspection findings. Some examples of integral expendables were dowels, pins and sleeves. Examples of non-integral expendables included bearings, springs, bulbs and brackets. Consumables included replacement items that were discarded and replaced at each assembly overhaul pursuant to overhaul specifications and procedures. Examples of consumable parts were oil, chemicals, paints, fabrics and metals. Expendables-repairables included any expendable that might be recovered through minor repairs, such as seat arm caps. These five classes could also be addressed from two different points of view. The first was an inventory management perspective that focused on whether the units could be repaired or not. For example, rotables and repairables were components that could be repaired. The second perspective was that of accounting and focused on depreciable lifespan. Rotables, for instance, had a lifespan equal to that of an aircraft. 15 Cathay Pacific’s website: http://www.cathaypacific.com/cpa/en_US/aboutus/cxbackground/factsheet (accessed 14 May, 2008). 16 Definitions taken from: Cathay Pacific (1 May 2006) “Engineering Procedure Manual Inventory Operations Volume 9A”, Company Presentations. This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Aviation Spare Parts Supply Chain Management 09/382C Optimisation at Cathay Pacific Airways Limited Spare Parts by Criticality Cathay Pacific further subdivided their spare parts by classifying the above five categories broadly into critical components and non-critical components,which could further be classified by the criticality codes 0,1,2,3 and 4 [see Exhibit 3]. Critical components were parts that were essential to operating an aircraft safely and effectively.They could make the difference between a safe landing and a mid-air catastrophe. These parts were usually very expensive and complex.An example of a critical component was the US$I million Electronic Engine Controller7. Non-critical components encompassed all parts of the plane that were not essential to the effective and safe operation of an aeroplane.There was a diverse range of non-critical components,from in-flight entertainment systems to nuts and bolts.Expendables and consumables qualified as non-critical components in the majority of cases.Nevertheless,there were instances where these types of parts were considered critical components,such as a dowel required to keep a rotable part in operational form. The critical and non-critical dimension could be applied to all five classes of materials [see Exhibit 4].18 Current Practices in Aviation Spare Parts Supply Chain Management The spare parts supply chain operations at Cathay Pacific flowed from procurement and inventory management to repair management and logistics management.Cathay Pacific's internal supply chain strategy had been driven by ensuring quality and service to the aircraft operation in the most cost efficient manner. Procurement The supply chain of spare parts at Cathay Pacific was a very complex,large-scale operation with thousands of suppliers and distributors.Aviation spare parts were handled and directly purchased by Cathay Pacific.The purchasing activities were transaction-orientated,from sourcing and storage to consumption and repurchase.Cathay Pacific's procurement process could be triggered by normal replenishment,initial provisioning or special provisioning [see Exhibit 5].In line with the nature of the business,Cathay Pacific had to ensure that adequate airworthy spare parts were available at all times.In addition to purchasing activities,the procurement process involved Cathay Pacific's cross-functional teams in selecting, monitoring,evaluating and managing relationships with part providers to ensure operational effectiveness.Key performance indicators were set as quantifiable objective measures to assess the quality and the performance of the parts.Some of these measures included average and variance of lead time,quality levels and component performance. The airline industry had very few choices for critical parts component suppliers.Moreover, the sensitive nature of these critical parts limited Cathay Pacific's ability to switch suppliers because of the significant costs associated with switching. There was a greater level of flexibility for non-critical spare parts,with over 200 consumables and expendables suppliers.This,however,had,consumed much of Cathay Pacific's resources in managing supplier relationships. 7An electronicengineoror is used to monitor nd conrol the operation of the engine sCathay Pacific(IMay 206)"Engineering Procedure Manual Inventory Operations Volume 9A",Company Presentations. 6 This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Aviation Spare Parts Supply Chain Management 09/382C Optimisation at Cathay Pacific Airways Limited 6 Spare Parts by Criticality Cathay Pacific further subdivided their spare parts by classifying the above five categories broadly into critical components and non-critical components, which could further be classified by the criticality codes 0, 1, 2, 3 and 4 [see Exhibit 3]. Critical components were parts that were essential to operating an aircraft safely and effectively. They could make the difference between a safe landing and a mid-air catastrophe. These parts were usually very expensive and complex. An example of a critical component was the US$1 million Electronic Engine Controller17. Non-critical components encompassed all parts of the plane that were not essential to the effective and safe operation of an aeroplane. There was a diverse range of non-critical components, from in-flight entertainment systems to nuts and bolts. Expendables and consumables qualified as non-critical components in the majority of cases. Nevertheless, there were instances where these types of parts were considered critical components, such as a dowel required to keep a rotable part in operational form. The critical and non-critical dimension could be applied to all five classes of materials [see Exhibit 4].18 Current Practices in Aviation Spare Parts Supply Chain Management The spare parts supply chain operations at Cathay Pacific flowed from procurement and inventory management to repair management and logistics management. Cathay Pacific’s internal supply chain strategy had been driven by ensuring quality and service to the aircraft operation in the most cost efficient manner. Procurement The supply chain of spare parts at Cathay Pacific was a very complex, large-scale operation with thousands of suppliers and distributors. Aviation spare parts were handled and directly purchased by Cathay Pacific. The purchasing activities were transaction-orientated, from sourcing and storage to consumption and repurchase. Cathay Pacific’s procurement process could be triggered by normal replenishment, initial provisioning or special provisioning [see Exhibit 5]. In line with the nature of the business, Cathay Pacific had to ensure that adequate airworthy spare parts were available at all times. In addition to purchasing activities, the procurement process involved Cathay Pacific’s cross-functional teams in selecting, monitoring, evaluating and managing relationships with part providers to ensure operational effectiveness. Key performance indicators were set as quantifiable objective measures to assess the quality and the performance of the parts. Some of these measures included average and variance of lead time, quality levels and component performance. The airline industry had very few choices for critical parts component suppliers. Moreover, the sensitive nature of these critical parts limited Cathay Pacific’s ability to switch suppliers because of the significant costs associated with switching. There was a greater level of flexibility for non-critical spare parts, with over 200 consumables and expendables suppliers. This, however, had, consumed much of Cathay Pacific’s resources in managing supplier relationships. 17 An electronic engine controller is used to monitor and control the operation of the engine 18 Cathay Pacific (1 May 2006) “Engineering Procedure Manual Inventory Operations Volume 9A”, Company Presentations. This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Aviation Spare Parts Supply Chain Management 09/382C Optimisation at Cathay Pacific Airways Limited Inventory Management Inventory management for Cathay Pacific is determining the right quantity of spare parts and material at the right time and at the right place to meet anticipated and unanticipated demands to maintain aircraft operations at the desired service level at the optimal costs -Engineering Procedure Manual,Cathay Pacific Monitoring of stock turnover,which was an indicator of the efficiency of stock management, was thus an integral component of Cathay Pacific's inventory management process.Timely stock replenishments were needed once reorder points were reached.An extensive system, Ultramain,was in place for management of components replacements and newly acquired spare parts [see Exhibit 6 and 7]. Cathay Pacific also needed to minimise inventory holding costs.In theory,an exhaustive inventory was needed to reach a service level that could satisfy all the possible demand of its aircraft.Because this was financially and operationally infeasible,Cathay Pacific had to operate in the most economically responsible way and strike a balance between the most effective inventory levels to hold on to relative to the corresponding service level. To guard against the risk and cost of prolonged downtime,Cathay Pacific normally built in a buffer stock and,as a result,additional cost was incurred to engineering operation in general. Despite Cathay Pacific's efforts to manage their spare parts inventory in an optimal manner, they still encountered circumstances where a certain part was needed and no stock was available.Coping with such a situation was referred to as"shortage management".Shortage management was a process of sourcing parts that,for one reason or another,were unavailable to meet the expected demands.When Cathay Pacific required a spare part immediately and none was readily available,they explored several options to meet the urgent need: Aircraft-on-ground("AOG")orders were employed in situations where a Cathay Pacific plane was grounded and could not take off without a certain part.When an AOG order was placed,the part would be shipped via same-day express delivery. Cathay Pacific could retrieve the necessary spare part by borrowing it from another airline. Pool loans were another way Cathay Pacific was able to manage part shortages.By signing a contract with the International Airline Technical Pool,Cathay Pacific was granted access to a network of over 100 airlines with which they could share spare parts when in need without incurring a surcharge. Cathay could also borrow a part from one of its other aircraft. Repair Management On average,Cathay Pacific managed over 80,000 repair orders per year,or over 7,000 repair orders per month.20 After determining whether faulty parts were repairable or not,Cathay Pacific had to determine whether their existing repairers had both the required capability as well as necessary capacity to repair the full range of components installed on its aircraft.To this end,Cathay Pacific compiled a database of over 300 of the world's major aeroplane spare part repair shops.Repair shops were selected based on the types of spare parts the shop specialised in,quality,price and service level. In 2000,Cathay Pacific collaborated with 13 other airlines to develop Aeroxchange,a system designed to facilitate the sharing and exchange of information,such as repairer sourcing, Company interview on 15 December 2006. 2Company interview on 15 December 2006. This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Aviation Spare Parts Supply Chain Management 09/382C Optimisation at Cathay Pacific Airways Limited 7 Inventory Management Inventory management for Cathay Pacific is determining the right quantity of spare parts and material at the right time and at the right place to meet anticipated and unanticipated demands to maintain aircraft operations at the desired service level at the optimal costs - Engineering Procedure Manual, Cathay Pacific Monitoring of stock turnover, which was an indicator of the efficiency of stock management, was thus an integral component of Cathay Pacific’s inventory management process. Timely stock replenishments were needed once reorder points were reached. An extensive system, Ultramain, was in place for management of components replacements and newly acquired spare parts [see Exhibit 6 and 7]. Cathay Pacific also needed to minimise inventory holding costs. In theory, an exhaustive inventory was needed to reach a service level that could satisfy all the possible demand of its aircraft. Because this was financially and operationally infeasible, Cathay Pacific had to operate in the most economically responsible way and strike a balance between the most effective inventory levels to hold on to relative to the corresponding service level. To guard against the risk and cost of prolonged downtime, Cathay Pacific normally built in a buffer stock and, as a result, additional cost was incurred to engineering operation in general. Despite Cathay Pacific’s efforts to manage their spare parts inventory in an optimal manner, they still encountered circumstances where a certain part was needed and no stock was available. Coping with such a situation was referred to as “shortage management”. Shortage management was a process of sourcing parts that, for one reason or another, were unavailable to meet the expected demands.19 When Cathay Pacific required a spare part immediately and none was readily available, they explored several options to meet the urgent need: • Aircraft-on-ground (“AOG”) orders were employed in situations where a Cathay Pacific plane was grounded and could not take off without a certain part. When an AOG order was placed, the part would be shipped via same-day express delivery. • Cathay Pacific could retrieve the necessary spare part by borrowing it from another airline. • Pool loans were another way Cathay Pacific was able to manage part shortages. By signing a contract with the International Airline Technical Pool, Cathay Pacific was granted access to a network of over 100 airlines with which they could share spare parts when in need without incurring a surcharge. • Cathay could also borrow a part from one of its other aircraft. Repair Management On average, Cathay Pacific managed over 80,000 repair orders per year, or over 7,000 repair orders per month.20 After determining whether faulty parts were repairable or not, Cathay Pacific had to determine whether their existing repairers had both the required capability as well as necessary capacity to repair the full range of components installed on its aircraft. To this end, Cathay Pacific compiled a database of over 300 of the world’s major aeroplane spare part repair shops. Repair shops were selected based on the types of spare parts the shop specialised in, quality, price and service level. In 2000, Cathay Pacific collaborated with 13 other airlines to develop Aeroxchange, a system designed to facilitate the sharing and exchange of information, such as repairer sourcing, 19 Company interview on 15 December 2006. 20 Company interview on 15 December 2006. This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Aviation Spare Parts Supply Chain Management 09/382C Optimisation at Cathay Pacific Airways Limited between the participating airlines [see Exhibit 8].Information such as the types of spare parts availability and suppliers lists was available through the Aeroxchange program, Cathay Pacific forecasted future demand for components on projected fleet utilisation and an individual component's life cycle.However,this only represented part of the picture as the method lacked the ability to forecast demand arising from unscheduled removals,which counted for nearly 79%of all removals.. Logistics Management Given that appropriate quality and quantity of inventory was available and that the inventory was processed and repaired accordingly,effective supply chain management was dependent on effective logistics management.Logistics management in this context was the practice of minimising the duration and number of processes required to transport spare parts from one place to another.Cathay Pacific's logistics management arm was responsible for managing the shipment of ordered inventory from warehouse to aeroplane as well as to and from the repair centres.In order to reduce lead times,Cathay Pacific usually shipped parts individually between repair houses and Cathay Pacific hubs.However,in order to minimise costs,Cathay Pacific consolidated shipments of spare parts that were less sensitive to lead times.In Australia,for example,a fixed import tax was charged on every shipment.Cathay Pacific would therefore weigh the time and costs associated with allowing several spare parts to be accumulated for the purpose of consolidating them into one shipment. Cathay Pacific outsourced to third-party logistics companies to transport their unserviceable parts to various repair houses across the globe.This outsourcing approach allowed Cathay Pacific to capitalise on the expertise possessed by the logistics partners in shipping and handling fragile parts,which in turn generated cost savings to Cathay Pacific.Due to the high level of sensitivity of some of the spare parts that were transported,Cathay Pacific conducted extensive due diligence on potential logistics prior to establishing relationships.Factors considered included:satisfactory previous shipping record;the appropriateness of licenses and insurances held by the logistics companies;transportation networks of the logistics companies;and extent of performance reviews. Reducing spare parts inventory level depended on reducing the lead time from suppliers and turn around time from repair shops.Through the just-in-time practices,Cathay Pacific attempted to balance quality service with minimal inventory levels in order to generate the lowest inventory holding costs possible. Supply Chain Management Optimisation Proposal Although Cathay Pacific was known to be one of the most profitable airlines in the world and well positioned for future expansion,it was critical for Cathay Pacific to maintain its competitive position in the cutthroat airline industry by examining ways of reducing operating costs while improving customers'flight experience.Cathay Pacific was challenged by the need to manage at least 380,000 spare parts and over 2,300 suppliers.Should the company devote more internal resources to the endeavour or collaborate to a greater extent with third- party logistics service providers?Was the solution to invest more heavily in both? 21 Just-ntime systems organize materials to arrive just as they were needed.Just-in-time practices the supply and demand of materials.(Waters,D.(2003)Logistics-An Introduction to Supply Chain Management,Palgrave Macmillan: London,p.179.) 8 This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Aviation Spare Parts Supply Chain Management 09/382C Optimisation at Cathay Pacific Airways Limited 8 between the participating airlines [see Exhibit 8]. Information such as the types of spare parts availability and suppliers lists was available through the Aeroxchange program, Cathay Pacific forecasted future demand for components on projected fleet utilisation and an individual component’s life cycle. However, this only represented part of the picture as the method lacked the ability to forecast demand arising from unscheduled removals, which counted for nearly 79% of all removals. . Logistics Management Given that appropriate quality and quantity of inventory was available and that the inventory was processed and repaired accordingly, effective supply chain management was dependent on effective logistics management. Logistics management in this context was the practice of minimising the duration and number of processes required to transport spare parts from one place to another. Cathay Pacific’s logistics management arm was responsible for managing the shipment of ordered inventory from warehouse to aeroplane as well as to and from the repair centres. In order to reduce lead times, Cathay Pacific usually shipped parts individually between repair houses and Cathay Pacific hubs. However, in order to minimise costs, Cathay Pacific consolidated shipments of spare parts that were less sensitive to lead times. In Australia, for example, a fixed import tax was charged on every shipment. Cathay Pacific would therefore weigh the time and costs associated with allowing several spare parts to be accumulated for the purpose of consolidating them into one shipment. Cathay Pacific outsourced to third-party logistics companies to transport their unserviceable parts to various repair houses across the globe. This outsourcing approach allowed Cathay Pacific to capitalise on the expertise possessed by the logistics partners in shipping and handling fragile parts, which in turn generated cost savings to Cathay Pacific. Due to the high level of sensitivity of some of the spare parts that were transported, Cathay Pacific conducted extensive due diligence on potential logistics prior to establishing relationships. Factors considered included: satisfactory previous shipping record; the appropriateness of licenses and insurances held by the logistics companies; transportation networks of the logistics companies; and extent of performance reviews. Reducing spare parts inventory level depended on reducing the lead time from suppliers and turn around time from repair shops. Through the just-in-time practices, 21 Cathay Pacific attempted to balance quality service with minimal inventory levels in order to generate the lowest inventory holding costs possible. Supply Chain Management Optimisation Proposal Although Cathay Pacific was known to be one of the most profitable airlines in the world and well positioned for future expansion, it was critical for Cathay Pacific to maintain its competitive position in the cutthroat airline industry by examining ways of reducing operating costs while improving customers’ flight experience. Cathay Pacific was challenged by the need to manage at least 380,000 spare parts and over 2,300 suppliers. Should the company devote more internal resources to the endeavour or collaborate to a greater extent with thirdparty logistics service providers? Was the solution to invest more heavily in both? . 21 Just-in-time systems organize materials to arrive just as they were needed. Just-in-time practices co-ordinated the supply and demand of materials. (Waters, D. (2003) Logistics – An Introduction to Supply Chain Management, Palgrave Macmillan: London, p.179.) This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Aviation Spare Parts Supply Chain Management 09/382C Optimisation at Cathay Pacific Airways Limited EXHIBIT 1:CATHAY PACIFIC TIMELINE,1946-2006 On 9 June 2006,Cathay Pacific underwent a shareholding realignment under which Purchased rival Hong Kong Expansion continued into the Dragonair became wholly Airways in 1959.carried its 1980s,when an industry-wide owned by Cathay Pacific one-millionth passenger in boom encouraged route growth 1964,recorded double-digit to many European and North 2006 is a record year for Cathay growth until 1967,acquired its American centres.In 1986, Pacific Airlines.Revenues first jet engine aircraft(Convair Cathay Pacific went public exceeded US$7.77 billion and 880)and began international profits surpassed US$523 routes to airports in Japan. million. 1946-1948 1959-1967 1970-1979 1980-1986 1990-1999 2000-2006 Cathay Pacific Airways was In the 1970s,Cathay Pacific In January 1990,Cathay Pacific founded in Hong Kong on 24 installed a computerised and its parent company,Swire September 1946 by American reservation system and flight Pacific,acquired a significant Roy Farrell and Australian simulators. shareholding in Dragonair and a Sydney de Kantzow. 60%stake in cargo airline Air In 1979.Cathay Pacific Hong Kong. In 1948.Butterfield Swire acquired its first Boeing 747 bought 45%of Cathay Pacific. and applied for traffic rights to In 1996.CITIC bought a 25% Company is officially registered begin flying to London. stake in Cathay Pacific while as Cathay Pacific Airlines. the Swire Group holding was reduced to 44%as two other Chinese companies,CNAC and CTS also bought substantial holdings. In September 1998,Cathay Pacific became a founding member of the oneworld Alliance. In 1999.they completed their new headquarters,named Cathay City,which was located at Hong Kong International Airport. Source:Cathay Pacific's website: http://www.cathaypacific.com/cpa/en INTL/aboutus/exbackground/history (accessed 14 May,2008) 9 This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Aviation Spare Parts Supply Chain Management 09/382C Optimisation at Cathay Pacific Airways Limited 9 EXHIBIT 1: CATHAY PACIFIC TIMELINE, 1946–2006 Source: Cathay Pacific’s website: http://www.cathaypacific.com/cpa/en_INTL/aboutus/cxbackground/history (accessed 14 May, 2008) In the 1970s, Cathay Pacific installed a computerised reservation system and flight simulators. In 1979, Cathay Pacific acquired its first Boeing 747 and applied for traffic rights to begin flying to London. In January 1990, Cathay Pacific and its parent company, Swire Pacific, acquired a significant shareholding in Dragonair and a 60% stake in cargo airline Air Hong Kong. In 1996, CITIC bought a 25% stake in Cathay Pacific while the Swire Group holding was reduced to 44% as two other Chinese companies, CNAC and CTS also bought substantial holdings. In September 1998, Cathay Pacific became a founding member of the oneworld Alliance. In 1999, they completed their new headquarters, named Cathay City, which was located at Hong Kong International Airport. Purchased rival Hong Kong Airways in 1959, carried its one-millionth passenger in 1964, recorded double-digit growth until 1967, acquired its first jet engine aircraft (Convair 880) and began international routes to airports in Japan. Expansion continued into the 1980s, when an industry-wide boom encouraged route growth to many European and North American centres. In 1986, Cathay Pacific went public. 1946–1948 1959–1967 1970–1979 1980–1986 1990–1999 2000–2006 On 9 June 2006, Cathay Pacific underwent a shareholding realignment under which Dragonair became wholly owned by Cathay Pacific. 2006 is a record year for Cathay Pacific Airlines. Revenues exceeded US$7.77 billion and profits surpassed US$523 million. Cathay Pacific Airways was founded in Hong Kong on 24 September 1946 by American Roy Farrell and Australian Sydney de Kantzow. In 1948, Butterfield & Swire bought 45% of Cathay Pacific. Company is officially registered as Cathay Pacific Airlines. This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Aviation Spare Parts Supply Chain Management 09/382C Optimisation at Cathay Pacific Airways Limited EXHIBIT 2:ORGANISATION STRUCTURE OF CATHAY PACIFIC'S ENGINEERING COMMERCIAL DIVISION Engineering Commercial (Elvis Ho) Inventory Operations Procurement Planning (Robert Taylor) (Paul Barwell) (Darryl Chan) 6 teams 0 6 teams 35 staff 65 staff 25 staff Scope of Scope of Scope of responsibility: responsibility: responsibility: Schedule Inventory Project maintenance management management 游 Engineering tasks Provisioning Contract (special negotiation provisioning, initial provisioning, normal replenishment) Repair management 水 Logistics management 10 This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Aviation Spare Parts Supply Chain Management 09/382C Optimisation at Cathay Pacific Airways Limited 10 EXHIBIT 2: ORGANISATION STRUCTURE OF CATHAY PACIFIC’S ENGINEERING COMMERCIAL DIVISION Engineering Commercial (Elvis Ho) Inventory Operations (Robert Taylor) • 6 teams • 65 staff • Scope of responsibility: Inventory management Provisioning (special provisioning, initial provisioning, normal replenishment) Repair management Logistics management Procurement (Paul Barwell) • 6 teams • 25 staff • Scope of responsibility: Project management Contract negotiation Planning (Darryl Chan) • 35 staff • Scope of responsibility: Schedule maintenance Engineering tasks This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012