Cathay Pacific-Case Study

By Group 8 Section C
1.What are the supply chain management issues for spare parts operations that
Robert and Paul need to consider in their recommendation proposal?

Compliance with Maintenance of

High level of inventory required statutory adequate inventory level
and its total value regulations (FAA to minimize inventory
US$350 (US),EASA (EU) and CAD holding cost by keeping
(HK)) right, active stock

Reduction of shortage of
High level of demand
spare parts in order to
variability
enhance service level
 2a:What is
– For critical parts
Cathay Pacific • Limited purchasing power due to very few
purchasing choices of suppliers, high switching cost, sole
OEM for some critical parts and lack of joint
power in purchase
aviation spare – For non-critical parts
• Greater purchasing power due to more choices
parts of suppliers
procurement?
 2b: What are – For critical parts
• Reinforce cooperation with suppliers by information
the possible
sharing, e.g., forecast, inventory
alternatives • Implement VMI
for – For non-critical parts
improvements • Form JV with selected key suppliers
in the • Maximize the PMA program
procurement • Conduct supplier assessment using well-defined KPIs
process? • Launch tenders by product categories
3. How does Cathay Pacific handle Shortage
Management? What are the problems in each
option?
Methods Issues
Aircraft-on-ground High transportation cost, Long lead time
Borrowing from another Uncertain stock availability
airline High premium cost
Pool Loan Agreement Timely to source
Unequal benefits
Lack of trust
Problematic cost allocation
Borrowing from its other Unavailable aircraft
aircraft Unavailable parts
Disruptive operations
4. Which type of Parts with criticality codes 3, 4 and Consumable parts are
aviation spare suitable for procurement outsourcing because:
part(s) is (are) • These parts do not affect the normal operation and
suitable for service of aircraft.
procurement • They are relatively easy to manage.
outsourcing?
Why? What are
the criteria for
spare parts
outsourcing?

5a. What are the advantages
and disadvantages for
Cathay Pacific to use third
party logistics (3PL) partners
for her repair management
and logistics management?
– Advantages:
• Focus on core strengths, like hubs & destinations
development, air fleet development, passenger services
• Greater Leverage on 3pl partners’ expertise, network and
technology
• Cost savings on infrastructure resources
• Efficiency improvement, like service level and ground
arrangement
– Disadvantages:
• Loss of control over 3pl partners, like QA control, priority
issues
• Loss of core competency
5b. What are the criteria for Cathay Pacific to
choose her 3PL partners for repair management
and logistics management?

Price Competitiveness

Satisfactory Past Record

Appropriateness of Licence
And insurance
Extensive logistics network
State of Art technological
System
Extent of Performance
Reviews

3 PL Criteria
 • Comply with different statutory regulations
• Manage the right inventory level
• Minimize inventory holding costs
• Enhance quality level and component
Summary Of performance
• Develop strong partnership with critical and
issues non-critical
suppliers, repair shops and outsourced 3PLs
• Cope with the large amount of repair orders
• Deliver spare parts to designated more cost
effectively
 • Tackle high demand variability
– Alignment of maintenance plan and forecast
• High inventory and slow stock turnover
– Negotiation of return to supplier and form tender
requirement
– Clearance on dead stock to other airlines or maintenance
companies
– No stock keeping for slow moving and non-critical items
Recommendations • Cut down the number of suppliers by tendering and open
bidding
• Build up long term cooperation relationship with suppliers
– PMA and consignment
– Vendor-managed inventory (VMI)
– Shared system for information flow with suppliers
• Form a maintenance company to support more airlines to
achieve economies of scale and better forecast