maintenance cost management or value management schneijder... · welcome! maintenance cost...

Welcome!

Maintenance Cost Management or Value Management

10th Annual Managing Aircraft Maintenance Costs Conference

Lisbon, November 25th, 2009

Copyright © 2009 Paul Schneijder. All rights reserved.

Agenda

The relationship between a MRO provider and an airline

The nature of relation: Strategic or not

Responsibility, liaison and delegation of decision making

KPI’s

Data driven management

Summary

10th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009 2


Flight Operations

MRO Impact• On time• Functionality• Appearance• Safety• Reliability

Sales:• Connections• Comfort• Cleanliness• Safety• Reliability

Business Result:• Product delivery• Image• Reputation

MRO‘s are at the hart of an airline value chain



Successful Airline MRO relations center around 3 themes:

Ensure expectations are met• KPI’s• Data driven management

Right Type of Relationship:• Portfolio• Delegation• Agent Theory

Getting a fair deal• Price• Product• Value



Strategic relations are attractive but hard to get

Valu

e a

dded

Hig

hL

ow

Dependency

Performance relation

Short & Long term contracts

Content focus

Strategic relation

Enduring contract

Win-Win focus

Incidental relation

Short term contracts

Price focus

Political relation

Long term term contracts

Proces focus

Substitution threatP

rice p

ressure

High

High

Low

LowL

ow

Hig

h



In a buoyant market the risks for each relation type are relatively low…

Valu

e a

dded

Hig

hLow

Dependency



Content focus

Strategic relation

Enduring contract

Win-Win focus

Incidental relation


Price focus

Political relation

Long term contracts

Process focus

Substitution threat

Pric

e p

ressure

High

High

Low

Low

Lo

wH

igh



… but current market conditions change the risk spectrum dramatically

Valu

e a

dded

Hig

hLow

Dependency



Content focus

Strategic relation

Enduring contract

Win-Win focus

Incidental relation


Price focus

Political relation

Long term term contracts

Proces focus

Substitution threatP

rice p

ressure

High

High

Low

Low

Lo

wH

igh



Airline

The dilemma: Competence versus Impact based decision making


Economical Risk

Technical Expertise

Decision based upon cost or impact on operation:

is this the (technically) RIGHT decision?

Decision based upon competence:

who absorbs the (economical and operational) consequences?

MRO

Legal

Compliance

EASA

Part 145

Legal

Compliance

EASA

Part M

Most common delegation mix


Power for decision making

Availa

ble

know

ledge &

Com

pete

nce

Decision Rights

Frontier

HighLow

High

In decision making, competence meets decision power

Optimal trade-of

Knowledge

Trade-Offs


PowerTrade-Offs


Internal Competence

Need for

dele

gation o

f decis

ions

HighLow

High

Airlines & MRO’s should realize their strengths and weaknesses

Optimal trade-of

Competence

Trade-Offs


AutonomyTrade-Offs


Required In House decision making

EASA has limited the span of Operator and MRO discretion

Requir

ed in H

ouse C

om

pe

tence

Internal Competence

Need for

dele

gation o

f decis

ions

Decisions

Frontier

HighLow

High



The agent theory is about delegating decisions

Delegation of decision making

Decisions

reflect MRO

interest

Decisions

desired by

Operator



• Goal Congruence

• Aligned interest

• Mutual Benefits

• (Trust)

Profit

MRO Objectives

Airline Objectives

… and finding ways to transfer individual objectives into mutual goals



Airline

The right mix between cost, competence & benefit is essential

Economical Risk

Technical Expertise

MRO

Legal

Compliance

EASA

Part 145

Legal

Compliance

EASA

Part M

Most common

delegation mix

Desirable

delegation mix



A portfolio features all relation models for different purposes

Valu

e a

dded

Hig

hLow

Dependency



Content focus

Strategic relation

Enduring contract

Win-Win focus

Incidental relation


Price focus

Political relation

Long term contracts

Process focus

Substitution threat

Pric

e p

ressure

High

High

Low

Low

Lo

wH

igh




Size matters: ensure you have the right leverage to get the right price

Relative size of the

MRO

Your value for the MRO

More Leverage

Less effort

Better result


3

Best Solution

Customized product

Customer Intimacy

Best PriceStandard product

Operational excellence

Best PerformanceSuperior Product

Innovation

Result:

Dysfunctional

contracting

A relation should deal with value proposition expectations

Expect

Ask Buy




More production & less resources requires change of practices

System outputMinimum Maximum

Low

Medium

High

Safety space

Vio

latio

n s

pace

Exceptio

nal v

iola

tion S

pace

System’s

production

objectives

Incident

Accident

Source: ICAO Doc 9859, Safety Management Manual ed. 2

Ris

k


Absolute

Value

Cost is ONE aspect of a multidimensional framework

# flights€ xx million # charter contracts

Increasing Flat Fluctuating

€/FH OTP % %of total flights

Financial Operational Strategic

SAMPLE

Trend

Ratio



The leverage of TAT is underestimated

PredictableValue

PredictableTAT

Shorter rental

or LeaseLess

stock

Less

AOG

Risk

More

Shop

Flexibility

2210th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009



Profit is the balance between cost, risk and profit

Benefit Cost

Risk

Profit



Structured cost saving requires a systemic approach

Results = ??

Data driven decisions

Data analysis Trends & Correlations

Data collection

IT L

eve

rage

Consequentia

l Imp

act



Business Intelligence technology can provide extra leverage

Dataanalysiscapacity

BI technology

Managerial Information

More Leverage

Less effort

Better result

25


Competing on analytics influences cost and performance

What happened?

How many, how often, where?

Where exactly is the problem?

What actions are needed?

Why is this happening?

What if these trends continue?

What will happen next?

What’s the best that can happen?



Achieve TRUE Results:

Business Optimal Relations

Optimal decision making

Benchmark prices

Meaningful KPI’s

Define your expectations:

Contract relation type(s)

Level of internal competence

Level of delegation

Level of Risk & Reward

(Re-)Define Contract relations:

Review/(Re-)Assign Decision Rights

Define Risk & Opportunities

Link “good” Decisions to Rewards

Define Evaluation tools

Purchase on Value:

Link price to Value Proposition

Link Value Proposition to Business Model

Understand & Manage Risk

Leverage your data available

Steps to Results:

Use external

facilitation

where

necessary



Summary

Push for the extreme of the envelop: be really good in what you do

– Value proposition

– Delegation

– Contract mix

Chose the right partner

– Competence

– Size

Avoid the squeeze

– Obtain value for money

– Work smarter instead of pushing safety

Use your data

– Statistical modeling to simulate future

– Smart technology to detect trends, patterns & correlations

– Enhance speed of access and convert data into competitive advantage



The relation between MRO and Airline: a complex but beautiful thing

KPI & Benchmark

Data analysis

Contract relations

Decision Trade-of

Riskvs

Competency based

decisions

Value Proposition

Agent Theory




Discussion & follow-up is welcome

Paul Schneijder

Managing Director

Vrusschemigerweg 11

6417 PB Heerlen

The Netherlands

Mobile: +31-6-55530403

e-mail: [email protected]

www.airlineconsultant.eu

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