How aerospace MROs can optimize purchase orders for better efficiency

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Outdated PO processes often lead to extended lead times, incorrect parts, costly stock mismatches, and ultimately, significant financial losses for MRO facilities.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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Avoiding inventory losses: How to manage expired and obsolete parts

Avoiding inventory losses: How to manage expired and obsolete parts

Managing shelf life and obsolescence represents a critical challenge for aerospace MRO (Maintenance, Repair, and Overhaul) providers, often leading to significant inventory loss. Without robust strategies in place, these organizations can experience significant financial drains due to expired or outdated stock. This article will delve into the component categories most susceptible to these problems, examine effective techniques to mitigate inventory loss, and offer practical advice for inventory management.

Avoiding inventory losses: Understanding the financial ramifications

Expired or obsolete components directly increase costs for aerospace MROs through disposal and replacement expenses. Additionally, running out of best-selling items can lead to lost sales opportunities and discourage customers from returning. For hazardous materials with shorter shelf life, disposal fees can be exceptionally high. Indirectly, MROs also suffer from lost sales due to unavailable parts, and added storage expenses for holding unsellable inventory. These financial burdens highlight the necessity of careful shelf life management. Furthermore, if outdated parts inadvertently reach clients, additional costs from returns or customer disposal efforts become a factor.

Component categories susceptible to shelf life issues

Many components in aerospace MROs can be considered perishable goods due to their susceptibility to degradation and obsolescence.

Batteries: Due to chemical degradation, batteries possess a limited shelf life. Improper storage, especially under extreme cold, can hasten this breakdown, causing premature expiration and potential leakage. This is particularly critical for aviation-specific battery types, such as lithium-ion aircraft batteries, which are increasingly common in modern aircraft. These batteries require strict adherence to regulatory handling requirements due to their potential for thermal runaway and the safety hazards associated with improper storage or disposal. Failing to adhere to these regulations can result in significant safety risks and compliance penalties.

Fluids (oils, coolants, hydraulic fluids): These fluids can degrade over time, especially when exposed to environmental factors. Maintaining their performance requires strict storage conditions. Temperature fluctuations can significantly speed up this degradation, directly impacting their usability by an MRO. It’s vital to adhere to OEM specifications for fluid type, storage conditions, and shelf life. Furthermore, frequent changes in formulations, often driven by environmental regulations, can exacerbate obsolescence issues. MROs must be diligent in monitoring formulation updates to avoid holding onto outdated or unusable fluids.

Rubber components (o-rings, seals, hoses): Rubber components can deteriorate and crack, even in storage. High humidity, temperature extremes, water exposure, and, notably, sunlight greatly reduce the shelf life of these products. These items often exhibit variable demand due to specific aircraft models and maintenance timelines.

Electronic components (sensors, avionics modules): The rapid pace of technology can cause electronic components to become obsolete quickly. They typically have shorter product lifecycles and pose higher obsolescence risks to aerospace MRO inventory. The rapid obsolescence in avionics can be particularly challenging and may require compliance with standards such as DO-254 (Design Assurance Guidance for Airborne Electronic Hardware). Furthermore, MROs must be aware of the implications of OEM parts availability, as limited or discontinued production from the original equipment manufacturer can force a shift towards costly or potentially unreliable alternative sources. Managing obsolescence in this category is crucial for efficient MRO operations.

Filters (air, oil, hydraulic): Filters are vulnerable to damage based on packaging integrity and environmental factors, especially humidity. Despite high turnover, they can still accumulate excess stock if not well-managed. Specifically, paper-based filters are prone to mold growth when exposed to moisture.

Strategies for inventory loss prevention

Establish lower service level goals: Effective inventory management is crucial for items with shelf life or obsolescence risk, and setting lower service level targets can help minimize excess stock. This proactive approach minimizes excess stock that could expire before use. MROs should regularly review and update these goals based on market demand and inventory trends.

Maintaining safety stock is essential to prevent stockouts and ensure a smooth operational flow. Regularly monitor and adjust safety stock levels based on historical sales data and dynamic market conditions to maintain essential levels of goods available for sale.

Employ First-In-First-Out (FIFO): Consistently prioritize picking the oldest inventory first. Effectively tracking inventory ensures that older stock is used before it expires. If inventory tracking isn’t in place, simple rules (like placing new stock behind existing stock) can effectively implement FIFO. Additionally, using radio frequency identification (RFID) technology can enhance inventory tracking and management efficiency.

Utilize dynamic pricing and promotions: Employ dynamic pricing strategies to move older inventory before it is rendered obsolete. This might include offering discounts for products nearing expiration to boost sales. Plan targeted promotions and discounts for at-risk items, clearing out old stock to make space for new parts. Inventory management software can track inventory levels and implement dynamic pricing strategies more effectively.

Implement structured stock rotation with vendors: Establish agreements with suppliers for systematic stock rotation. An example would be exchanging unsold inventory within the first 90 days for newer products, without incurring restocking charges. This practice ensures inventory remains current and lowers the risk of obsolescence. Regularly evaluate and update stock rotation policies based on market trends and inventory records. A cooperative relationship with suppliers can significantly ease the financial challenges posed by obsolete inventory in the MRO supply chain. Regular audits of stock data can further ensure that stock rotation policies are being followed and inventory remains current.

Conclusion

Inventory loss prevention is fundamental for aerospace MRO operations, and managing shelf life and obsolescence is a key aspect of this. By focusing on specific component categories susceptible to these issues and applying effective risk management tactics, MRO providers can prevent significant financial drains.

Lowering service level targets for at-risk parts, creating supplier stock rotation programs, using technology for enhanced inventory control, and conducting regular inventory audits are all vital steps. By consistently applying these practices, MROs can optimize inventory, boost customer satisfaction, and drive overall business success.

Contact us to learn more about how we can help optimize your MRO supply chain.

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Subscribe to our newsletter

Get updates on the latest news across all core inventory-related processes.

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Want to see how your inventory management stacks up?

We’re so confident in our results, we offer a free performance assessment to all prospective clients. This isn’t a canned sales deck – it’s a bespoke presentation that takes 10-20 hours of our time. Whether we work together or not, we promise you’ll walk away with useful insights that will improve your business.

The real impact of import tariffs—and how to respond

The real impact of import tariffs—and how to respond

As the prospect of new import tariffs emerges in 2025, organizations must proactively adopt strategies to mitigate potential risks and strengthen the efficiency of their global supply chains, which are vital for keeping aircraft operational.

Recommended strategies

Drawing on lessons from previous tariff periods and global disruptions impacting aerospace MRO (maintenance, repair, and overhaul) supply chains, we recommend the following strategic initiatives:

Preemptive procurement of components

Organizations should evaluate the strategic advantages of placing larger orders for critical aircraft components before potential tariffs take effect. This approach enables facilities to secure current pricing and minimize immediate cost increases for essential maintenance and repair parts.

While not a sustainable, long-term solution for the supply chain, these pre-tariff purchases can offer temporary relief, allowing organizations time to adapt their sourcing strategies for crucial components. However, it is critical for facilities to align these purchases with accurate demand forecasts for maintenance schedules and available storage capacity, avoiding overstocking of parts, cash flow constraints, and inefficiencies in inventory management. 

To successfully use this approach, MROs must have sufficient cash and storage capacity to balance financial risks — which may not be possible for smaller providers.

Strategic inventory buffering for operations

To bolster resilience against disruptions in the supply chain, aerospace MRO providers should consider increasing safety stock levels of critical aircraft parts and consumables by two to four weeks, especially for high-demand and essential maintenance items. This reserve can safeguard against delays in aircraft maintenance schedules caused by market-wide purchasing surges, which are likely if many facilities place advance orders to preempt tariffs.

Careful planning ensures that additional inventory aligns with budgetary constraints, warehouse capacity, and expected lead times for aircraft repairs, thereby preventing unforeseen inefficiencies in operations.

Diversifying the supply base

Diversifying the supply networks for components is crucial for reducing risks associated with reliance on tariff-impacted regions. Providers should investigate alternative suppliers of aircraft parts and materials in non-tariff areas and assess the practicality of dual-sourcing strategies to enhance the flexibility of their operations and minimize vulnerabilities in their supply chain.

However, this diversification must comply with regulatory protocols, including export controls and ITAR (International Traffic in Arms Regulations), which require meticulous adherence to avoid potential legal and operational disruptions.

When reassessing supplier relationships, organizations must ensure that new suppliers meet quality and reliability standards for aircraft components while considering potential trade-offs, such as extended lead times for parts, initial onboarding costs for new vendors, and the potential impact of tariffs cascading through the supply chain. Tariffs can amplify costs and lead times as they ripple through Tier 1, Tier 2, and Tier 3 suppliers, impacting the entire MRO ecosystem. This requires a comprehensive analysis of the full supply chain to identify and mitigate potential risks at each level. 

A well-diversified MRO supply network, managed with adherence to all regulatory requirements and a comprehensive understanding of cascading tariff effects, promotes resilience and enables MRO facilities to adapt quickly to evolving trade conditions, maintain their operational efficiency, and ensure long-term sustainability.

Implement advanced forecasting

To navigate the uncertainties posed by potential import tariffs on aircraft parts, aerospace MRO providers should implement advanced forecasting technologies to improve the precision of their demand planning. These technologies enable facilities to perform predictive analytics and scenario modeling, allowing them to simulate “what-if” situations related to aircraft maintenance schedules, proactively identify risks and opportunities, and adjust their inventory and logistics strategies in real-time.

However, implementing new, sophisticated forecasting tools internally can be challenging, often requiring significant investment and time before realizing a return on investment. A practical alternative is to leverage third-party providers that already possess sophisticated tools and data analysis capabilities. These providers can quickly analyze MRO providers’ existing data without the need for implementing new systems, leading to a faster time-to-value and a more immediate understanding of tariff impacts.

By considering factors such as seasonality in aircraft maintenance, supplier lead times for MRO components, and potential cost escalations for repair parts, organizations can make more informed procurement and inventory decisions. Transitioning from traditional forecasting methods to dynamic, technology-driven solutions ensures greater agility and accuracy in planning, empowering businesses to dynamically modify pricing for services and maintain profitability.

For example, airlines and MRO providers have successfully used scenario planning to respond quickly to fluctuations in maintenance demand and parts availability, optimizing their strategies to stay competitive in volatile conditions. Incorporating such practices enables MRO facilities to make informed decisions and remain adaptable when facing external challenges that could impact aircraft availability and efficiency.

Establish clear communication protocols

Aerospace MRO organizations should establish explicit channels for sharing information among component suppliers, logistics providers specializing in aircraft parts, and internal teams to guarantee alignment and a swift response to evolving maintenance needs and supply chain changes.

Regular updates to communication protocols, based on current conditions of aircraft maintenance schedules and anticipated challenges with parts procurement, will aid in averting miscommunication and supporting synchronized efforts to resolve issues as they emerge in operations. Collaborative relationships across the supply network are critical for managing risks and maintaining the operational efficiency of aircraft maintenance.

Next steps

Aerospace MRO providers that act promptly to reinforce their inventory management and supply chain strategies will be better equipped to navigate the complexities of potential import tariffs on aircraft parts and components. It’s crucial to recognize that new tariffs might not broadly impact all aerospace components; instead, they could target specific parts, materials (e.g., aluminum, titanium), or even specific countries, making a granular analysis of risk essential. By implementing these proactive measures tailored to operations, facilities can not only mitigate immediate financial risks but also develop the resilience required to sustain efficient services in a dynamic global trade environment.

For further assistance in applying these strategies or customizing them to your unique operational needs, please contact us.

Contact us to explore how we can support your organization.

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Subscribe to our newsletter

Get updates on the latest news across all core inventory-related processes.

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Subscribe

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Want to see how your inventory management stacks up?

We’re so confident in our results, we offer a free performance assessment to all prospective clients. This isn’t a canned sales deck – it’s a bespoke presentation that takes 10-20 hours of our time. Whether we work together or not, we promise you’ll walk away with useful insights that will improve your business.

The true cost of stockouts—and how to prevent them

The true cost of stockouts—and how to prevent them

Overlooking the true cost of stockouts can severely hinder an organization. Even well-established MRO (maintenance, repair, and overhaul) organizations often neglect comprehensive tracking of these costs, particularly lost sales. This article delves into methods for quantifying these costs, translating data into strategic actions, and highlighting why this often-ignored metric is essential for success.

Key takeaways

  • Accurate stockout cost tracking is a critical, yet often neglected, metric, even for large operations.
  • Quantifiable methods exist to measure lost sales resulting from stockouts, outlined below.
  • Measuring stockout costs enables data-driven inventory decisions based on ROI.
  • Fill rates alone are insufficient for assessing inventory performance, as they disregard lost orders due to part unavailability.

The hidden costs of stockouts

The true cost of a stockout extends far beyond the immediate lost revenue from a single order. The implications are particularly acute, impacting operational efficiency, customer satisfaction, and ultimately, the bottom line.

  • Lost revenue: When critical aircraft parts are out of stock, companies lose immediate sales. For organizations without backorder systems, the demand loss is nearly 100%. Even with backordering, a “spillover effect” occurs, reducing demand. This also costs airlines since aircraft downtime can lead to contractual penalties and fleet disruptions, which are critical in this sector.
  • Order cancellations and returns: If a customer backorders an out-of-stock item, every day they wait increases the chance of cancellation. Most order cancellations occur while a customer waits for an out-of-stock item to ship. Furthermore, return rates are typically much higher than average even among backorders that eventually ship.
  • Increased customer service burden: Every stockout creates additional work for customer service teams, handling calls, emails, and follow-ups. This raises operational costs and diverts resources from proactive tasks like upselling or addressing other client needs. This added overhead directly impacts efficiency.
  • Elevated freight expenses: Stockouts frequently necessitate splitting orders into multiple shipments, particularly when items are unavailable from the same distribution center. This significantly increases freight costs, impacting profitability. If you need expedited shipping for aircarft-on-ground (AOG) scenarios, freight costs go up even more and are much higher than standard freight costs.
  • Damage to brand reputation: Each stockout erodes customer trust. Repeated out-of-stock experiences will cause customers to look elsewhere for their needs, leading to a decline in lifetime value and potentially damaging the organization’s reputation in the industry. This effect extends to airlines as well who lose customers due to grounded airlines and cancellations.

Fill rates: An inadequate metric

Many companies rely heavily on fill rates – the percentage of fulfilled orders from available stock. While relevant, fill rates offer an incomplete picture of inventory performance. They only account for orders actually placed, neglecting the potential orders lost when customers see an “out-of-stock” message and don’t even add the item to their cart. This is particularly relevant for specialized aircraft parts, where customers may quickly move on to alternative suppliers if a part isn’t readily available.

This is why accounting for stockout-related lost sales is so critical. A seemingly acceptable 95% fill rate can mask substantial revenue loss. For example, if sales are 80% lower on out-of-stock days (a spill rate of 80%), that 5% fill rate shortfall represents a much larger loss than initially apparent. For organizations, this translates to extended aircraft downtime, potential contractual penalties, and lost revenue.

While tracking fill rates is important, supplementing this metric with the in-stock rate—the percentage of anticipated demand covered by available inventory at the start of the day—provides a more comprehensive view of inventory performance.

Quantifying stockout costs

Accurately measuring stockout costs requires shifting the focus from fill rates to the spill rate—the percentage of potential sales lost due to part unavailability.

  1. Daily inventory tracking: Implement a system to capture daily snapshots of your inventory positions for every part. This data is crucial because it tells you whether an item was in stock at the beginning of each day. Real-time visibility helps you keep track of stock as it moves in and out. However, many ERPs don’t have such capabilities, and you may need to integrate third-party systems.
  2. Spill rate calculation: Choose a timeframe (e.g., quarterly data spanning approximately 90 days) to compare sales performance when items are in stock versus out of stock. Select items with at least one in-stock day and one out-of-stock day during the analysis period. Compare the average daily sales of these items when in stock versus out of stock. For example, if the average daily sales per item is $500 when in stock and $250 when out of stock, the spill rate is 50%, indicating a loss of half the potential revenue for each day the item is unavailable.
  3. Extrapolating spill rate: Extend this analysis across your entire product line to determine the overall impact of stockouts. Multiply the spill rate by the inverse of your overall, revenue-weighted in-stock rate. For instance, if your annual sales are $100 million, your in-stock rate is 92%, and your spill rate is 50%, you’re losing approximately 4 million in annual sales (100 million * 8% stockout rate * 50%).
  4. Incorporating additional costs: In addition to lost revenue, factor in:
    • Increased cancellation and return rates: Account for the higher likelihood of cancellations and returns on backorder items due to extended lead times.
    • Customer service overhead: Estimate the additional time and cost incurred by your customer service team in handling stockout-related inquiries.
    • Higher freight costs: Calculate the added expense of split shipments when parts are not available from the same location.

ROI-driven inventory management

A key benefit of tracking stockout costs is the shift from vague “inventory improvement” discussions to concrete, ROI-driven analysis. Instead of relying on intuition, organizations gain data-backed justification for inventory investments. For example, if analysis reveals that adding $500,000 in inventory will increase the in-stock rate from 92% to 94%, this could yield approximately $2 million in additional annual sales due to improved parts availability. Considering factors like gross margins and the cost of capital, leaders can make informed decisions about inventory investments, optimizing levels and strategically allocating resources.

Taking action: next steps to minimize stockout costs

Now that you understand the often hidden costs associated with stockouts and the critical importance of ROI-driven inventory management, it’s time to act. Implementing these strategies can transform your inventory from a source of frustration and lost revenue into a driver of profitability and growth.

  • Implement daily inventory tracking: Set up a system to capture daily inventory levels for each part (SKU). Boost your system by adding real-time visibility through a third-party integration, if your ERP doesn’t support it.
  • Track in-stock rate in addition to fill rate: Begin reporting on the in-stock rate of your inventory (the percentage of expected demand you have in stock) to supplement your fill rate data.
  • Determine current stockout costs: For items that regularly experience stockouts, compare sales on in-stock days versus out-of-stock days to calculate your spill rate.
  • Make ROI-based inventory decisions: Use quantifiable financial data and potential ROI calculations to inform inventory decisions, moving away from guesswork.

Optimize your inventory with Hydrian

Hydrian’s inventory optimization services provide aerospace MROs with the expertise and advanced technology necessary to gain control of their inventory and maximize profitability.

We offer a complimentary assessment to analyze your current stockout costs and pinpoint areas for improvement. Our flexible month-to-month service combines cutting-edge machine learning, AI-driven planning, and expert consultation to deliver a demonstrable ROI, typically 5-10 times our fees.

Contact Hydrian today to discover how we can help you transform your inventory into a strategic asset that fuels sustainable growth and operational efficiency.

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How aerospace MROs can optimize purchase orders for better efficiency

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The real impact of import tariffs—and how to respond

As the prospect of new import tariffs emerges in 2025, organizations must proactively adopt strategies to mitigate potential risks and strengthen the efficiency of their global supply chains, which are vital for keeping aircraft operational. Recommended strategies Drawing on lessons

Subscribe to our newsletter

Get updates on the latest news across all core inventory-related processes.

Subscribe now!

Subscribe

Your email is safe with us, we dont spam.

Want to see how your inventory management stacks up?

We’re so confident in our results, we offer a free performance assessment to all prospective clients. This isn’t a canned sales deck – it’s a bespoke presentation that takes 10-20 hours of our time. Whether we work together or not, we promise you’ll walk away with useful insights that will improve your business.

SKU rationalization for MROs: When to stock, dropship, or discontinue parts

SKU rationalization for MROs: When to stock, dropship, or discontinue parts

Maintaining a broad and diverse inventory is a significant asset for MRO (Maintenance, Repair, and Overhaul) operations in the aerospace industry. A comprehensive stock of repairable and expendable components, readily available for a specific aircraft type, provides a clear competitive edge. It ensures that airlines and other MRO providers can quickly source everything they need, minimizing downtime and maximizing operational efficiency.

However, the financial burden and logistical complexities of managing such an extensive inventory can become overwhelming. The MRO industry operates within a highly regulated environment, where every decision must align with stringent compliance requirements. This regulatory framework ensures safety and reliability, but it also adds complexity to inventory management.

Implementing a “SKU Diet”—a strategic approach to inventory rationalization—can significantly alleviate these challenges. This involves making informed decisions about which parts to stock, which to dropship, which to order on a just-in-time basis, and which to discontinue altogether. By carefully balancing these factors, MROs can optimize their inventory, reduce costs, and enhance customer satisfaction.

This article will explore a practical framework for implementing such a strategy. As we explore different approaches to inventory rationalization, it is crucial to consider compliance imperatives, ensuring that strategies adhere to industry standards.

Strategic stocking within the MRO Facility

Maintaining an on-site inventory of parts at your MRO facility often delivers the best customer experience. It minimizes lead times, provides maximum control over packaging and handling of sensitive components, and enables single-shipment deliveries when all required items are in stock. However, this approach carries the highest inventory risk.

Characteristics of parts suitable for stocking:

  • High demand: Parts with consistent, high-volume demand, such as frequently used consumables or fast-moving components, are ideal candidates for stocking.
  • Essential components: Parts frequently ordered together should be prioritized for stocking. This reduces the number of shipments and prevents order delays due to out-of-stock items, which is crucial for minimizing aircraft downtime.
    Feasibility: Expensive or bulky items are less suitable for stocking due to the associated costs and logistical challenges.
  • Sole sourcing or limited alternatives: When alternative sourcing options are limited or lead times from other suppliers are long, stocking becomes more strategically advantageous, especially for critical aircraft components.

Optimizing procurement through third-party platforms

One way to procure stock strategically is to use dedicated third-party platforms, such as ILSMart, to source products from a large network of suppliers. These platforms improve sourcing efficiency by providing features like inventory transparency, which allows distributors to identify available stock and reduce lead times, ensuring timely procurement of critical components. Additionally, they offer cost advantages through competitive pricing and streamlined purchasing processes, making them a valuable resource for MRO operations.

Moreover, third-party platforms often integrate advanced analytics and reporting tools that help distributors forecast demand and plan inventory levels more accurately. These tools can flag potential shortages or overstock issues in real time, enabling proactive adjustments to inventory strategies. The collaborative nature of these platforms also fosters stronger relationships with suppliers, as they provide shared access to crucial market data, improving trust and coordination across the supply chain.

By leveraging their efficiencies, MRO operations can better meet regulatory requirements while optimizing inventory management practices.

Utilizing just-in-time shipping

Just-in-time shipping, also known as ordering “as needed,” allows MROs to procure parts only when demand arises, eliminating the expense and risk associated with holding inventory. This method effectively cross-docks components from the supplier to the customer via your MRO facility’s receiving dock. It’s a viable option for parts that need to be in the catalog but carry disproportionate risks or costs when stocking.

Comparing just-in-time and dropshipping:

  • Availability: Just-in-time provides greater flexibility than dropshipping. Assuming backorders are permitted, MROs can consistently offer parts, even if they aren’t physically in stock.
  • Lead times: Just-in-time generally has longer lead times compared to dropshipping, as parts must first arrive at your facility before being shipped to the customer. Both options, however, are slower than having parts readily available in stock. Imported items, with their inherent lead time challenges, are often unsuitable for just-in-time fulfillment, especially considering the critical nature of aircraft turnaround times.
  • Cost implications: Just-in-time increases labor costs at your MRO facility due to the added receiving process for each sale. Similar to dropshipping, freight costs are higher due to both inbound and outbound shipping.

Leveraging dropshipping for MROs

Dropshipping, where a supplier directly fulfills orders to your MRO customers, eliminates the need for you to hold inventory. This model reduces carrying costs and mitigates the risk of excess stock, but it’s not without its drawbacks. Dropshipping is not common in the MRO industry, and several factors must be considered before integrating dropshipping into their operations.

Key considerations for dropshipping:

  • Supplier capabilities: Does the supplier have the infrastructure to ship directly to your MRO customers? Many international suppliers do not offer dropshipping, and even when they do, the logistics can be impractical, especially given the time-sensitive nature of MRO operations. Further, since the MRO emphasizes stringent quality control, regulatory compliance, and traceability, suppliers need to be carefully vetted.
  • Delivery performance: How does the supplier’s delivery speed compare to shipping from your MRO facility? Extended processing times or subpar packaging for sensitive aerospace components can negate the benefits of dropshipping.
  • Cost analysis: Dropshipping can lead to multiple shipments for a single order, increasing freight costs and potentially delaying delivery. Factor in any dropshipping fees charged by the supplier to assess the true cost.
    Component characteristics: High-value or bulky aircraft components may be well-suited for dropshipping, as storing them incurs significant costs. MROs can also consider non-critical components for dropshipping.
  • Demand fluctuations: Low-demand items often benefit from dropshipping. Stocking these items can lead to poor inventory turnover, lower service levels, and an increased risk of obsolescence.

Discontinuation: Removing parts from your offering

Sometimes, despite seemingly healthy profit margins, carrying a specific part becomes unsustainable for an MRO. The fully loaded costs, including handling, storage, and potential obsolescence, can outweigh the perceived benefits. In such cases, discontinuation becomes the most economically sound decision.

Identifying candidates for discontinuation:

  • Functional equivalents: If your MRO offers alternative parts that serve the same purpose within a specific aircraft system, continuing to offer a redundant item becomes less justifiable.
  • Declining demand: Parts with minimal sales history or a downward demand trend, especially if demand is sporadic (increasing the risk of overstocking), should be considered for discontinuation.
  • Low margins: Low-margin items are difficult to sell profitably, particularly when coupled with other factors on this list. The costs associated with carrying these items can quickly erode any potential profit.
  • High holding costs: Expensive, bulky, or hazardous aviation items are costly to manage and store, making them strong candidates for discontinuation.
  • Extended lead times: Long lead times amplify the impact of forecasting errors, as purchasing decisions must account for extended periods. Given the unsuitability of dropshipping and just-in-time for such items, discontinuation often becomes the most viable option.
  • High MOQs: Items with high minimum order quantities or buying multiples carry the risk of obsolescence and increased stocking costs. If you’re required to purchase many months, maybe even years, of demand at a time and the vendor won’t reduce these requirements, those are good candidates to discard due to excess risk.

Case study: Streamlining SKU management

Hydrian partnered with a $150 million aftermarket and OEM parts distributor in 2022, implementing a comprehensive SKU rationalization program (a “SKU Diet”) specifically tailored to their business. By collaboratively establishing clear parameters for classifying their existing catalog, the following results were achieved within a year:

  • Reduced stocking SKUs: Active stocking SKUs were reduced from 14,500 to 8,250, freeing up valuable warehouse space and capital.
  • Stable dropshipping program: The number of dropshipped products remained consistent at around 9,000, with approximately 2,000 items removed and 2,000 new items added, reflecting dynamic market demands.
  • Increased just-in-time inventory: Just-in-time products increased from 4,500 to 5,500, demonstrating a strategic shift towards demand-driven procurement.
  • Discontinued products: Over 4,000 products were discontinued, eliminating the burden of managing slow-moving and obsolete inventory.
  • Improved fill rates: Fill rates increased significantly from 86% to 94%, enhancing customer satisfaction.
  • Increased inventory turns: Inventory turnover improved from 3.3 to 5.5, indicating greater efficiency in inventory management.
  • Enhanced profitability: Gross profit increased from 34% to 36%, directly impacting the bottom line.
  • Revenue growth: Overall revenue increased by 8%, demonstrating the positive impact of optimized inventory management on business performance.

Conclusion

Effective inventory management is paramount for MRO businesses seeking to enhance efficiency and profitability. By strategically determining which items to stock, dropship, order just-in-time, or discontinue, MRO operations can significantly reduce costs, streamline processes, and improve customer satisfaction.

Given the global nature of the aerospace industry, it is subject to geopolitical disruptions that can significantly impact supply chain stability. These challenges necessitate robust contingency planning and diversification of supplier networks to mitigate risks. Additionally, the industry’s focus on environmental impact has brought sustainability to the forefront, emphasizing the importance of reducing waste and adopting greener practices in inventory management and operations.

Implementing a “SKU Diet” ensures that your inventory aligns with market demand and business objectives. Consider partnering with a specialized firm like Hydrian for expert guidance. We help MRO distributors optimize their inventory and achieve substantial returns on investment. Contact us today to explore how we can assist your MRO operations.

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Increasing inventory turns without sacrificing fill rates

Increasing inventory turns without sacrificing fill rates

A constant challenge in aerospace MRO (Maintenance, Repair, and Overhaul) inventory management is balancing the desire for increased inventory turns with the crucial need for maintaining high fill rates (a business’s ability to fulfill customer orders from its inventory). Reducing inventory can lead to cost savings, but it also risks impacting fill rates and disrupting aircraft maintenance schedules. However, this doesn’t have to be an either/or scenario. Several strategic approaches can help MROs minimize inventory levels without compromising the availability of essential parts.

The primary culprits behind excess MRO inventory are:

  • Inflated safety stock levels
  • Inefficient purchasing strategies
  • Inconsistent stock management and rotation practices

Addressing these core issues can liberate valuable capital, streamline operations, and ultimately enhance the financial performance of MRO businesses. This article offers practical, actionable strategies to tackle these challenges head-on. However, it’s important to acknowledge that implementing these strategies is not always straightforward and requires careful consideration of various factors, including system limitations, supplier relationships, and regulatory compliance.

We’ll delve into methods for refining safety stock (extra inventory a company keeps on hand to mitigate the risk of stockouts caused by uncertainties in supply and demand) settings, optimizing purchasing procedures, and implementing effective stock management techniques specifically designed for the nuances of the MRO sector. Prepare to discover how to achieve both high inventory turnover and optimal fill rates simultaneously. We’ll also discuss the importance of conducting a thorough cost-benefit analysis and addressing the specific regulatory considerations relevant to aerospace MRO.

Fine-tuning safety stock in MRO operations

Safety stock serves as a critical buffer against unpredictable fluctuations in both demand and lead times. While essential, excessive safety stock ties up capital unnecessarily. Let’s examine three key strategies to minimize safety stock without jeopardizing fill rates.

Enhancing demand forecasting accuracy

Inaccurate system data on supplier lead times can contribute to inflated inventory levels. Outdated lead time assumptions often lead to unnecessary purchases driven by overly cautious safety stock buffers. Regularly reviewing and updating supplier lead times within your system is paramount to preventing overstocking. However, renegotiating existing supplier agreements and MOQs can be challenging and may not always align with the supplier’s business objectives.

Lead time variability is equally important. While some vendors consistently deliver on time, others are less predictable. For reliable vendors with minimal lead time variability, safety stock can be reduced. Conversely, for less consistent vendors, maintaining higher safety stock levels may be necessary. This data can also inform productive discussions with suppliers to improve their on-time delivery performance, which is essential in the time-sensitive MRO industry.

Actionable steps for optimizing safety stock:

  • Strengthen internal communication between maintenance planning and supply chain teams, particularly for major maintenance events.
  • Implement a monthly review process to identify and address the root causes of significant forecast errors within the MRO context.
  • Explore AI-driven forecasting tools to enhance the precision of demand predictions for MRO operations. Conduct a thorough assessment of system compatibility and factor in training costs before implementing new technologies.
  • Conduct quarterly reviews of actual supplier lead times, updating system settings with real-world data.
  • Identify vendors with consistent lead times and adjust safety stock accordingly, continuously monitoring fill rates to ensure optimal performance.

Refining purchasing strategies

Even with precise forecasting and optimized safety stock, outdated purchasing practices can lead to unnecessary inventory accumulation in MRO operations. Adjusting purchasing policies can enable more frequent, smaller orders, reducing average inventory levels without impacting fill rates. However, it’s important to weigh the potential benefits against the increased administrative and logistical costs associated with higher order frequency.

Increasing order frequency

Narrowing the gap between the reorder point (minimum stock level) and the order-up-to level (maximum stock level) facilitates more frequent orders of smaller quantities. For instance, shifting from monthly to bi-weekly orders can lower overall inventory without affecting the availability of parts.

However, increased order frequency can also elevate labor and operational costs due to the added burden of processing more receipts. Carefully weigh these costs against the benefits of reduced inventory holding expenses

Managing minimum order quantities (MOQs)

Supplier-imposed MOQs often contribute to excess inventory. First, determine whether an MOQ is a strict requirement or simply the quantity needed to secure the best pricing. If ordering the MOQ leads to significant overstock, the price advantage might not justify the carrying costs. Consider adjusting the selling price to reflect the higher unit cost of smaller purchases or, preferably, negotiate lower MOQs with suppliers for low-volume items. Keep in mind that renegotiating MOQs requires a strong relationship with suppliers and a clear understanding of their operational constraints.

If the MOQ is non-negotiable, evaluate whether stocking the item is truly necessary. Items with high MOQs and unpredictable demand are often better suited for discontinuation or dropshipping.

Actionable steps for optimizing purchasing policies:

  • Re-evaluate reorder points and order-up-to levels to determine if increased order frequency can reduce inventory without compromising fill rates. Analyze the associated costs and benefits before implementing changes.
  • Conduct quarterly reviews of MOQs and, whenever feasible, negotiate lower minimums with suppliers. Be prepared to offer incentives or explore alternative arrangements to achieve mutually beneficial outcomes.
  • Consider adjusting selling prices to account for potentially higher unit costs if smaller, more frequent purchases are necessary.
  • Identify and address SKUs consistently resulting in excess inventory due to MOQs. Renegotiate with suppliers or explore alternatives like dropshipping or discontinuation.

Elevating stock management and rotation practices

Even with optimized purchasing and safety stock levels, inefficient stock management can still result in excess inventory and lost revenue. Overlooking opportunities for stock rebalancing between MRO facilities and neglecting vendor stock rotation agreements are common pitfalls. Addressing these areas can significantly improve inventory turnover and mitigate the risk of obsolete stock.

Optimizing inter-facility transfers

For MRO operations with multiple distribution centers, excess stock at one location can often fulfill shortages at another. Implementing a quarterly review process to identify inter-facility transfer opportunities can effectively rebalance inventory, reduce overall stock levels, and accelerate the liquidation of excess items. However, the logistical complexities and costs involved should be carefully evaluated.

Leveraging vendor stock rotation programs

Many suppliers offer stock rotation or return agreements, allowing MROs to return or exchange slow-moving or excess inventory within a defined timeframe, often with minimal or no cost. Actively utilizing these programs helps prevent dead stock and minimizes non-productive inventory. Regularly executing stock rotation, — ideally, every month — ensures excess stock is returned before it becomes obsolete.

Proactive management of slow-moving inventory

Early identification of slow-moving inventory is crucial for preventing obsolescence. The sooner a part is flagged as slow-moving, the more options are available for its cost-effective management, including returns, redistribution to other facilities, or discounted sales.

Actionable steps for enhanced stock management:

  • Establish a quarterly review process to identify and execute inter-facility transfers, optimizing inventory balance across all locations.
  • Implement monthly vendor stock rotation procedures, ensuring timely return or exchange of excess inventory within the agreed-upon window.
  • Develop a system for regularly flagging and addressing slow-moving inventory before it becomes obsolete. Consider strategies like liquidation or vendor returns to minimize losses.

Conclusion: A holistic approach to inventory optimization in aerospace MRO

Successfully managing inventory in the aerospace MRO sector requires a comprehensive strategy that encompasses all aspects, from forecasting accuracy and lead time management to purchasing policies and stock rotation practices. By addressing the three key areas outlined in this article — excessive safety stock, inefficient purchasing, and suboptimal stock management — MROs can break free from the traditional trade-off between inventory turns and fill rates.

However, MROs must also consider the practical challenges of implementation, including system limitations, supplier relationships, and the specific regulatory environment of the aerospace industry. A thorough cost-benefit analysis should be conducted before implementing any new strategies, taking into account both the potential savings and the costs associated with new technologies, process changes, or increased logistical complexities.

Furthermore, it’s crucial to acknowledge the impact of regulatory compliance on inventory management decisions in aerospace MRO. Aviation authorities, such as the FAA and EASA, impose stringent requirements on the handling and stocking of certain parts, particularly those deemed safety-critical. These regulations may necessitate higher stocking levels than typical optimization strategies would suggest, regardless of demand or cost considerations. MROs must ensure their inventory policies align with all relevant regulatory mandates to maintain compliance and uphold safety standards.

Implementing these strategies enables the development of a more agile and responsive inventory management system, resulting in increased inventory turnover, improved fill rates, and ultimately, a healthier bottom line.
Remember that inventory optimization is not a one-time fix but rather a continuous improvement process. Regularly assess and refine your inventory management practices to adapt to the dynamic nature of your industry.

However, it is complex and time-consuming to implement such systems and practices. Partnering with a specialized firm like Hydrian can help you achieve inventory optimization in a cost-effective and efficient manner. We possess extensive experience in helping MRO distributors optimize their inventory and achieve significant ROI. Contact us today to learn how we can assist your MRO operations in achieving peak performance.

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Subscribe to our newsletter

Get updates on the latest news across all core inventory-related processes.

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Want to see how your inventory management stacks up?

We’re so confident in our results, we offer a free performance assessment to all prospective clients. This isn’t a canned sales deck – it’s a bespoke presentation that takes 10-20 hours of our time. Whether we work together or not, we promise you’ll walk away with useful insights that will improve your business.