Inventory Management in Aircraft Parts Supply: Balancing Demand and Lead Times

Inventory management is arguably the most important aspect of production besides quality management and testing. Why? Although there are other aspects and departments in the production process, inventory management plays a huge role in determining your company’s overall costs.

With inventory management, although there can often be value on your balance sheet, in some ways the assets can be deadweight for companies when cash flow is required.

Generally speaking, overhead costs play a pivotal role in a company’s overall profitability and financial state.

Why Does Your Business Need Inventory Management? 

For all companies, over-leveraging and mismanagement of overheads is what ultimately runs them to the ground. While marketing and sales form the foundation of any successful company, inventory and cost management serve as the backbone that keeps it standing.

In the industry of aircraft manufacturing, the supply of parts is often determined by demand and lead times.

This article covers everything you need to know about inventory management in aircraft parts supply.

Six Ways to Balance Demand and Lead Times in Inventory Management

1. Forecast Demand Accurately 

Demand in aircraft can seem volatile, however, on the whole, based on historical information and orders that come in, you can get a fair idea of demand. Forecasting demand accurately can significantly impact your business and the way you do things. That said, in an industry manufacturing aircraft, demand can be dynamic or at times even cyclical.

Based on government spending, inflation, and annual sales records, forecasting can help you get a fair image of what to expect. This helps you get a minimal required demand for airline parts and have an estimate of the maximum potential demand for the upcoming quarter or year. 

For example, the demand for the C-12 U can decline in the coming years due to the US Army replacing it with a newer or more improved model.

2. Overcoming Bottlenecks and Constraints With Suppliers

When placing orders, it’s not uncommon for shipments to be delayed. Although the timeline for shipments is calculated with a margin of error, making sure that you have contingency plans and insurance for the same can be invaluable. For this, making sure you have a list of suppliers with different price quotations and lead times can help.

Typically in supply, the higher the lead time and order quantity, the cheaper the overall price of the parts. One thing worth anticipating is ordering a reasonable amount of parts to hedge against potential price changes and bottlenecks that arise.

For this, inventory and resource management has a significant part to play. While there are several other factors that require consideration, ensuring you have a diverse range of suppliers and an accurate list of their lead times and quotations can make things easier.

3. Ensure Regular and Multiple Follow-ups

For on-time delivery and clarification on potential delays, making sure that you follow up regularly with your suppliers is essential. These days, most logistics companies come with tracking codes, ensuring that your order is being handled on a priority and that order has been in progress can help get things ironed out.

In these cases, having more than one point of contact for each supplier helps ensure that you get quick and prompt replies. Ensuring that your inventory management team takes adequate steps to place orders in a timely manner is of utmost importance.

4. Establish Realistic KPIs for Inventory Managers

To ensure that your orders are shipped and received on time, making sure that you have standard operating procedures and infrastructure in place is the first step. For your delivery managers, operations officers, and manufacturing heads, having KPIs set in place that hold them accountable on multiple levels is how you reduce the margin of error.

For quality control, production cost and setting realistic timelines for manufacturing oversight and caution are replaceable. To do this, ensuring that the concerned stakeholders have visibility and KPIs set for their roles can help yield the most ideal results.

5. Create Minimum and Maximum Batch Orders

In production and in inventory management, having minimum and maximum qualities for orders can help significantly. Besides this, ensuring your orders are placed in batches can help overcome a lot of production bottlenecks and can help administrators manage and regulate the cost of production.

With minimum and maximum batch orders, you can place orders from different suppliers based on their lead time to manage costs and help reduce the overall risk of delay. In the automotive industry, companies like Toyota employ practices known as JIT (Just-in-Time) manufacturing.

In the aircraft manufacturing industry, this can be implemented to a certain degree for parts with lower lead times and minimal price fluctuations. To gain a clear understanding of order quantity and batches, employing cost management techniques like the economic order quantity can prove to be invaluable.

6. ABC Analysis and Optimization Replenishment Frequency

In ABC analysis products are classified into three categories based on their cost and how crucial they are to the manufacturing process. ABC analysis is a method that allows inventory managers and those in administration to understand the essential requirements for a business and manufacturing.

How does this work? Well put simply the products are classified into three categories in descending value. This means the high-priced items are A, the medium B, and the lowest-priced items are C. While A has 70% of the value it typically is stocked in lower numbers and therefore requires more maintenance. B requires a moderate amount of inventory while C occupies the most given its affordable price.

On the whole, when placing orders ABC analysis helps us understand what the minimum order quantity and maximum ordering quality should be for these separate parts. 

Final Thoughts 

Inventory management in aircraft supply is fairly similar to any type of inventory management. That said, the only difference can be the wide fluctuation of prices and the fact that lead times can be a good margin for deviance.

 

However, as covered in the article this can be managed with minimum and maximum levels in inventory and ABC analysis. Besides this, to forecast demand and get a better idea of what you can expect, historical data and market information is invaluable.

In general, monitoring your overall spending and establishing standard levels for all required parts can help prevent difficulties in the long run.