3 Risks of Outsourcing Your Airline's Parts Inventory Management

Airlines are in the business of flying. Every other process that enables them to do so is just a cost, whether that process be maintenance, repair and overhaul, warehousing, or spare parts inventory management.

It’s no surprise, then, that many airlines choose to outsource these and other processes to third-parties. One would assume that a company specializing in inventory management would do a better job planning for spare parts demand than airlines. 

Initially, this may make a lot of sense. However, there are also some risks associated with outsourcing parts inventory management that every company should understand and consider. Here are three of the most common:

1. Inventory management contracts may have a few ‘gotchas’

When you negotiate an inventory management contract, you need to structure the agreement based on your fleet availability needs. Most contractors understand – and are well prepared – for such agreements.

If your SLA stipulates that the contractor must maintain a fleet availability rate of 95%, but doesn’t include any language regarding AOG, you run the risk of a grounded aircraft waiting on the tarmac for hours. The contractor may point out that it achieved the availability rate specified in the contract, and charge you for an expedite order to get that part to the aircraft. It’s critical to stipulate numerous “metrics” that best support the full measurement of what your company considers success.

2. The contractor buys your spare parts inventory

Unless you build language into the SLA that says otherwise, a contractor has little incentive to minimize inventory investment. In the fine print, your contractor may agree to minimize your AOG to 25 minutes, but cover the costs of such a demand by purchasing “just-in-case” stock.

Your maintenance organization (whether it be an internal department or another third party) may never use those spares. However, the contractor will likely transfer the costs of purchasing those parts to you through your agreement. You may achieve your AOG goal, but not in the most cost-effective manner.  

I'd advise using your own spare parts management (SPM) tool to check the contractor's spares forecasts and purchase orders. That way, you're not totally “beholden” to the contractor for determining your stocking levels. You may say, “well that’s their job and I just pay for a service.” You are right … you will pay, and you will pay big time. Keeping an eye on the contractor's planning activities through your own SPM system is your best defense against excess sparing and cost overruns. 

3. Contractors could introduce cybersecurity issues

Wi-Fi has enabled maintenance and service parts personnel to gather some powerful data from IoT-connected aircraft. They can show parts planners the condition of each part, how that condition impacts every component’s lifecycle, how many flight cycles an aircraft has completed, and the amount of time each part has on its legal life-limit.

The question is, do you want to provide that data to a third party? If so, you need to consider that third party as a potential risk to your business. Suppose a hacker infiltrates whatever system the inventory planning contractor is using to manage your parts. Assuming that system has a direct connection to an internal database of aircraft IoT data, that hacker will have a gateway into your infrastructure.

Just as there are risks in outsourcing inventory management, there are a few benefits. On March 20, my colleague and I, Wes Malcolm, will discuss the opportunities, risks, and trade-offs associated with outsourcing various logistical functions. Register below to save your spot: