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How aerospace MROs can optimize purchase orders for better efficiency
Introduction
In the aerospace MRO sector, operational efficiency is paramount. Downtime is costly, and delays in maintenance or repair can have significant ripple effects. Further, the aerospace industry requires stricter quality control and compliance with government regulations. For example, aerospace MROs may need to ensure that parts come with documentation like airworthiness certificates, which can delay order fulfillment. Therefore, MROS need to take a strategic approach to purchase orders (POs).
However, PO optimization goes beyond simply placing orders; it’s a holistic approach that focuses on streamlining how these orders are created, processed, and managed. It is a crucial process for ensuring the correct parts and materials are available when needed to minimize downtime and keep aircraft in operation. The benefits of optimized purchase orders can be achieved without disrupting existing workflows, thereby enhancing collaboration and fostering positive relationships in the supply chain. Additionally, predictive optimization and inventory management techniques lead to significant cost savings for companies.
Outdated PO processes often lead to extended lead times, incorrect parts, costly stock mismatches, and ultimately, significant financial losses for MRO facilities. Therefore, the goal is to move away from reactive, error-prone purchasing towards a more strategic and optimized approach.
Through PO optimization, MRO facilities can reduce operational costs, minimize aircraft downtime, enhance overall efficiency, and strengthen supplier relationships. This guide explores key principles and practices to transform purchase order management and help you establish and maintain a competitive advantage within the aerospace MRO sector.
What is PO optimization?
In the aerospace MRO industry, PO optimization is a strategic approach to procurement, streamlining the entire order lifecycle to ensure that the right parts and materials are available, when needed, to keep aircraft in service.
Companies can achieve significant savings and optimize their operations through PO process optimization. This optimization can lead to substantial cost saving opportunities by improving procurement strategies. This involves focusing not just on what and how much to buy, but critically, on how to place those orders efficiently. The how is especially important in the highly regulated MRO environment where precise components, correct quantities, and on-time delivery are essential.
Fundamentally, PO optimization in aerospace MRO seeks to achieve several key objectives:
- Reduced inventory costs: Minimizing excess stock while ensuring critical parts are readily available, reducing storage costs, and the risk of obsolescence. This is essential in aerospace, where parts can have high costs and specific storage needs.
- Minimized lead times: Streamlining the order and delivery process to ensure parts arrive reliably and quickly. The goal is to reduce delays that can lead to aircraft downtime.
- Improved service levels: Ensuring MRO facilities have the correct parts, at the right time and in the right quantities. This directly supports efficient aircraft maintenance and reduces operational disruptions.
- Reduced labor costs: Implementing efficient processes to minimize time and effort for receiving, checking, and storing incoming orders. This includes streamlining the number of receipts and optimizing the handling of delivered items.
- Enhanced supplier relationships: Creating stronger partnerships with suppliers through improved communication and data sharing, resulting in reliable order fulfillment.
Optimizing POs can drastically reduce the time it takes to close a purchase order. In typical scenarios, aerospace MRO facilities can experience an average of 100 days to close a single purchase order due to multiple partial deliveries. However, through PO optimization, this timeline can be significantly reduced, leading to a more efficient and predictable supply chain.
PO optimization is about creating a proactive, data-driven system that ensures the right parts are ordered, received, and used most efficiently.
The strategic importance of purchase order management
In aerospace MRO, PO management is about recognizing the profound impact that the ‘how’ of PO placement has on operational efficiency, cost reduction, and the overall flow of materials within a facility. The idea is to focus on ‘how’ those orders are created and fulfilled, while also addressing the potential risks such as errors, delays, and discrepancies that can arise from manual management.
The way POs are placed directly impacts the amount of waste in time and motion. Inefficient PO practices create a ripple effect of inefficiencies that can have significant consequences:
- Reducing time waste: When POs are not optimized, it leads to a situation where large purchase orders are fulfilled with multiple partial deliveries. These fragmented deliveries cause time waste in many ways: receiving and processing each delivery separately, updating inventory records, and reconciling discrepancies. This directly affects the time it takes for personnel to manage the flow of materials into and out of the MRO facility.
- Reducing motion waste: Inefficient PO management also results in motion waste. For example, staff may need to physically move through the warehouse to locate parts from multiple deliveries, increasing the chance of picking errors. Staff also waste motion by having to make multiple trips to and from the receiving area when orders are delivered in numerous partial shipments.
Large purchase orders can sometimes take around 10 unique receipts and up to 100 days to close. This happens when the focus is only on the ‘what’ and not on the ‘how’ of the PO. By optimizing the ‘how’ of PO placement, MRO facilities can eliminate many of these issues. By consolidating deliveries, matching POs with available inventory, and optimizing unit of measure, MRO facilities can streamline the flow of materials, reducing both time and motion waste.
Optimizing through vendor collaboration
In the aerospace MRO industry, optimizing POs requires a collaborative approach with vendors. Building strong, transparent partnerships and leveraging data sharing are critical for effective PO creation. These partnerships enable MRO facilities to move beyond transactional relationships toward a more strategic collaboration.
The significance of vendor collaboration lies in the ability to create a more responsive and reliable supply chain. This involves working closely with vendors to ensure:
- Real-time visibility: Real-time data on vendor inventory levels allows MRO facilities to place orders that are aligned with what vendors have immediately available, reducing backorders and delays.
- Accurate demand forecasting: Sharing demand forecasts with vendors helps them plan production and stock levels more effectively, ensuring that critical parts are available when needed, thus supporting efficient MRO operations.
- Streamlined communication: Establishing clear and consistent communication channels with vendors enables quick resolution of issues and efficient handling of exceptions. This reduces errors and helps streamline the entire order process.
A critical aspect of vendor collaboration is creating purchase orders that align with a vendor’s actual stock and fulfillment capabilities. This alignment leads to significant improvements in logistics and order fulfillment processes. However, there is often no information about how the vendor is fulfilling.
By matching POs with actual vendor stock and capabilities, MRO facilities experience tangible improvements that include streamlined receiving, decreased labor costs, and reduced delays due to split shipments.
These strong partnerships enable a smoother flow of parts and materials, which is essential for maintaining aircraft and ensuring smooth MRO operations.
Leveraging data for smarter ordering
Moving beyond intuition and relying on data-driven decision-making can dramatically refine the PO process, especially when it comes to matching order quantities with vendor inventory. This strategic approach ensures that orders placed are not only accurate but also optimized for efficient fulfillment, achieving significant cost savings and operational efficiencies.
Accurate and timely data empowers MRO facilities to:
- Align orders with actual stock: Real-time inventory data from vendors allows MRO facilities to align their orders with what is immediately available. This minimizes backorders and reduces the need for partial shipments.
- Optimize unit of measure: By understanding how vendors fulfill orders (e.g., by case, tier, or pallet), MRO facilities can optimize the unit of measure they use in their POs. This means ordering in quantities that the vendor can fulfill efficiently, leading to faster and more complete deliveries.
- Reduce receiving errors: With precise order quantities and optimized units of measure, the receiving process becomes more accurate. This reduces discrepancies, minimizes the time needed for checking in and putting away materials, and lowers the possibility of errors.
An aerospace MRO facility may believe they are ordering full pallet quantities, but, in reality, the vendor may not always have full pallets in stock. Without accurate data, the facility would continue to place POs for full pallets, resulting in mixed pallet deliveries that have to be broken down upon arrival.
However, with data on actual vendor stock and how they fulfill orders, the MRO can adjust their POs to order specific tiers or layers within the pallet, aligning directly with available inventory. This eliminates wasted labor breaking down pallets and optimizes the receiving process leading to labor savings and greater efficiency.
By leveraging data, aerospace MRO facilities can transform their PO process from a reactive, error-prone activity into a strategic advantage that directly impacts the bottom line and operational efficiency.
Conclusion
Purchase Order optimization represents a transformative approach for aerospace MRO facilities seeking to enhance operational efficiency and reduce costs. By focusing on the strategic ‘how’ of PO placement, facilities can move away from reactive, error-prone processes to a streamlined, data-driven supply chain, achieving significant improvements in query performance and storage cost reduction.
The transition to an optimized PO process requires a commitment to data-driven decision-making and collaboration with suppliers. It’s time for aerospace MRO leaders to assess their current PO processes and consider the strategic advantages of implementing these modern practices. Moving beyond the traditional, transactional purchasing methods to a more strategic approach is crucial for long-term growth.
Are you ready to discover how PO optimization can revolutionize your MRO facility? Take the first step towards transforming your supply chain and contact us to get a free inventory assessment today.
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