Aviation Spare Parts Supply Chain Management Optimisation at Cathay Pacific

HKU820

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

2

Company interview on 25 July 2007.

For 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...