Strategies for Turning Around Supply Chain Management at Flysafe Airlines

Scope

The student is required to discuss the several strategies from global perspective in the context of  supply chain management. The report also affords express structured opinions/ views into SCOR Models along with investigating several financial and operational strategies, many of which are related to the supply chain’s global outlook.  The student is given a   case scenario at the start and will develop strategies and arguments with focus on this case.  However, at the end, the student will be asked to research an enterprise, in the same sector, discussing their experiences with the application of the SCOR & CFRP models while integrating into ERP platforms. This should help students develop relevant academic thinking & literary arguments surrounding Advance scheduling schemes and forecasting tools. All questions would require the student to present   some theoretical context, with reference to the case scenario.  Other questions may require a more integrated view of both theory & practice to share a combined reference on issues surrounding the chosen organisation.

Introduction

You have recently been assigned the position of Vice President of procurement of a reputable Middle Eastern airline called Flysafe. The organisation was established in 1973 where it operated only 5 aircrafts and two routes within the region. In those days, competition was limited and so, they were able to make significant profits despite some operational challenges. Looking forty plus years ahead, the organisation has grown significantly with over 2000 employees and an aircraft fleet size of 300 state of art of the aircrafts. The market has now changed with several non-middle eastern airlines running the route with low budget airfare options. Consumers are choosy & have exercised “price conscious” attitudes by seeking advantages of current market competitive scenarios. The reporting and data transfer lines are not linked between flying hours of rotating spares, supplier schedules and the supply chain shipping plans.  The organisation has also lost favor with many of their strategic suppliers, Super Turbines and North Star Aircraft limited, mainly for engine, landing gear and other power plant supplies. This has led to delays in major overhauls, coupled with limited supplier concessions. Flysafe has also recently diversified their business model, converting two of their older 777 aircrafts into freighters to support their Flysafe Global Caterers subsidiary. Just two years running, their Oman, and Saudi based airlines have complained that their Dubai location does not allow for the fastest delivery, although FGC thinks otherwise. Management now considers dissolving this new entity, but some board members believe   that the new Procurement VP can devise a distribution plan to save the subsidiary. These realities, unfortunately, have been compounded by some major procurement related   shortcomings that has weakened the entire company, soon to the point of closure.

Procurement Turnaround

Procurement Turnaround  

You have been given a three month mandate to turn around the organisation, reversing much of it losses, often caused by poor sourcing decisions, a lack of understanding of the market’s cultural dynamics to present to the board, a strategic course of action in the form of a comprehensive report and a failure to manage outsourcing contracts. A report done by an external auditing body, hired by the board, concluded, there were several weaknesses which contributed to significant operational & financial losses every year and if not addressed quickly,  is likely  to lead  to a collapse of the operations and an insolvency condition, just as the board forecasted. The board requires, that any further and future recommendations presented, shall be supported by validated academic research, which should present both financial and non-financial market data. Credible web sources (Forbes, Consulting Firms, Big 4 Accounting Firms, Industry Reports, Procurement indices) could also be considered to support your contributions. You are also encouraged to use examples of the successes and challenges of other organizations to support your critical examination of functional and competitive benchmarking. A summary of some key issues are as follows

• Cultural and ethical challenges in sourcing consumables from the Asian market.

• Outsourced IT and catering contracts that have contributed to check-in glitches and delayed arrival of food to the terminals.

• Unsuccessful future contracts, put in place in 2015 to manage fuel prices.
 
• Slow turnaround of rotating spares. 

• Operational challenges associated with defective OEM spares with a global sourcing partner.

• Uneconomic sea freighted transshipment routes from Europe to Middle East for bulk category C OEMS.

• Cases of expired and surplus spares, costing the operations 5 million USD per year.

• lack of vendor cooperation and support 

1st Case Scenario. 

Supply Chain Challenges and Operation.

As VP of Procurement, you are asked to demonstrate a critical but in-depth study of the current issues facing global supply chains, with in-depth assessment of the market environment. Relevance to the airline and aviation sector must be made. This must also involve an in-depth assessment of the market environment, considering cultural and ethical implications. You must present reputable and industry related researched data to the board of directors, needed for procurement and corporate decision making later on. The board is also seeking confirmation that you are truly the right person for the job. You must conduct an in-depth and critical insight   of cross functional drivers facing Flysafe, in the context of globalization trends which should also be explored since they are likely to influence the organization in becoming, once again, a regional market leader. At the end of this analysis you must ensure to present a critical analysis   of a   range of procurement and logistics theories and concepts that could impact the supply chain sourcing strategies in the context of the sector case. The student could also explore various business / supply chain models for the company such as leasing over buying, or refurbishing existing fleets to curtail spend, or exploring backward integration strategies. 

Supply Chain Challenges and Operation

The current outsourcing strategy must not ignore the outsourcing strategy issues. You must apply a critical analysis and evaluation of outsourcing strategies in the global context and develop original and creative responses to the issues surrounding outsourcing strategy at  FlySafe. A revamping plan of the strategy must be recommended, exploring contract management methods to address the problem. Any procurement strategies discussed, must be relevant to the industry with examples given, where other organizations have implemented them. In other words, they must be workable and tested within the industry. Based on the potential and current global issues known through  research discoveries and considering  the supply chain challenges listed above, you must then  recommend workable supply chain strategies that can help turn the organization around.  Summary of focus

• The current issues that face global supply chains

• Cultural and ethical considerations when sourcing globally

• A range of procurement strategies and concepts

• Alternative business models 

• Exploring  global trends

• Workable, case related solutions

• Outsourcing insight and outsourcing strategy improvement 

• Industry related data with in-depth research 

• Demonstrate an understanding in the specialism / subject area

Addressing the financial impact. 

Case Study

As the new VP you have been briefed about several financial and cost related issues that have plagued the enterprise. The Director Finance, Annie Windsor presented financial data (See figure 1.1 below), arguing that suppliers’ financial assessments are often mismanaged, contributing to the last two catering vendors going into receivership or defaults, while in continued operations within the firm. This had led to uncompromising delays and eroded supplier relationships, coupled with high switching costs, associated in acquiring a replacement caterer.  To add further, suppliers have not honored delivery contracts as originally agreed. There is the current challenge of deliveries slipping into lagged performance of 2 months, after their committed date.  The Director of   Finance has also shared that the current position of asset management acquisitions included in   purchasing a significant fleet of 777 aircrafts,  commissioned 10 years ago, ignored the concept of a total cost strategy (whole life costing analysis).   Each purchase resulted in the burdening of the company in the tune of an extra 5 billion USD, adding to the 2 billion USD purchase price. There is also working capital management issues of vendors not being paid on time and a case where one vendor has received advance payments without delivery of million dollar shipment. High inventories have also been plaguing the enterprise, increasing holding costs and with greater financial concern, depleting the financial liquidity of the organisation. This has also impacted the supply chain’s global reach with restricted budgets from finance. It was also noted by Annie, that many of the current ordering systems are outdated with disconnection from vendor’s schedules and no internal communication between the warehouse team, other users and the procurement team.  They are operating in ‘silos’ she claims. But the problem doesn’t end there. Many stock postings have now   been linked to human error.  This must be addressed with urgency. The management team now requires that the VP strategize to devise a workable policy to alleviate the problems mentioned and has been asked for a detailed report and short presentation to the board.