Complexities in Airline Supply Chains

Introduction

In contemporary societies, supply chain is fragmented and complex entity given that in a given field hundreds of suppliers are involved in making a component meet required demand. For airline companies, increased competitiveness and heighten consumer demands for quality and efficiency coupled with technological advancement in various field have forced collaboration and partnering in making and suppling a product that satisfy the needs and demands of end user. Tracking the source of the components used in making such products a stabilizer or fuselage even ingredients need for on board catering services can be problematic to even for large organizations American, Delta, or Etihad airlines. Recently, researchers have proposed smart contracts aiming to make supply chain management simpler, efficient, and more transparent. According to Cong & He (2018) and Kolvart et al. (2016), the idea founding the smart contract is creation of a single source of information about products in a supply chain with a common accounting ledger shared with component having its own entry that can be tracked in real time. Ideally, in such a system, only authorised individuals can change or update the status of a component in an entry reflecting to the other shared users in real time. Theoretically, the suppliers and end-users can monitor the components overs a large supply chain system to the original sources of material with high accuracy and reliability. For instance, in food industry that comprises of farmers, farm suppliers, processors, storage, retailers, distributors, and consumer, pinpointing sources, status, and locating current position of a product in system is not easy task and a times near impossible.

Blockchain technology

Recent development of Blockchain supply chain system otherwise referred to as self-executing contracts or digital contracts, decentralises contracts between organizations aiding to exchange money, property, or data in a conflict-free environment while reducing long process and complexity. Norta (2015) and Cong & He (2018) described a smart contract as a computing protocol that facilitates verification and enforcement digitally of an agreement in form of a contract between two parties while eliminating the need for third (middle) party. According to Norta (2015), decentralization of Blockchain system existing only among permitted parties eliminates the intermediaries formally referred to as third parties (intermediaries) saving time, reducing conflict, and operation cost. Kosba et al. (2016) argued that being a cheaper, secure, and importantly faster system, most organizations and government entities have opted for the technology over the traditional systems. Although contractual terms and enforcement varies with parties involved, ability for parties to deposit assets into a shared accounting ledger then redistributed automatically based on the formula held without physical meeting eases formalization relationships with different assets, components, and people.

Inventory and Supply Chain Management

Carter and Rogers (2008) contended that although most perceive supply chain management as relative new, the concept itself is quite old business coiled from need from relationships and flows within a connected entity or various organizations. According to Melo et al. (2009) and Rushton et al. (2014), the ‘chain’ concept is rooted on relationships of supplied products or services interconnected in a network. For instance, a catering supply chain comprises of integrated system with flow of physical goods grouped in stages from supplier, production phase to food or services offered to consumers with each step intended to maximize the value-added. Broadly, organizations offering airline services need to be effective and precise in its ordering and cataloguing of items to the plains before take-off because they are not afforded another opportunity to resupply in air (Mallikarjun, 2015; Joo, and Fowler, 2014; Barbot et al., 2008). As such, a given airline such as British Airways, Air France, Etihad, or Emirates needs an elaborate system that ensures, without error, a complete listing of raw materials, tools, maintenance, luggage, and cargo handling system, accessories, the parts and spare parts they require, merchandise, and, to some extent, and catering services. In essence, inventory in airline’s perspective incorporates all the supplies that airlines need to handle in order to operate and give effective and satisfactory services to its users. Based on the definition given by business dictionary, inventory encompasses list of tangible goods or property or intangible qualities or attributes held by an organization for supporting production that include raw materials, assembling, or work in process, for consumer services or sale such as spare parts, finished goods, or merchandise, or offering support features like consumables, maintenance, or repair. Management of this detailed list otherwise referred to as itemized or record of all the goods and materials needed in flight necessitate updating a list of raw materials, work in progress, and finished goods regularly (Grzegorz, 2008; Michalski, 2009). Theoretically, managing inventory revolves around controlling and overseeing listed tangible and intangible goods and attributes in ordering, storing, or production for sale processes with workable, practicable, and strategic plan in mind. As illustrated by Muller (2019), inventory management is simply having all the listed items needed in the right quality, place, and time. According to Muckstadt (2010) and Singh (2008), having right amount and price, knowing reorder structure, and right place to sell or distribute the inventory is critical for any organization garnering to attain success and reputable services.

In order to provide highest possible services at a lower cost while maximizing financial performance, airlines companies need to maximize passenger scheduling system and importantly the spare parts, finished goods, consumables, maintenance, repair tools, or merchandise that collectively ensure convenience. In addition to accounting for costumers’ comfort and welfare, airlines have to consider rapid maintenance of failed items (Merkert, and Morrell, 2012; Belobaba et al., 2015). According to Jones (2012), the goals of inventory system in airlines is prevention of cancellation of flights and ensuring highest standards of quality of both tangible and intangible goods and attributes. This is achievable through adopting cost effective system that provide, allocate, and manage goods, products, materials, maintenance, services etc. Although not all inventory can cause flight cancellation or delay, poor management that include scheduling and allocation of No-Go items such as engine parts to critical flight parts. As argued by DeCroix (2013), in services industry such as airlines, consumers are very sensitive to delays as most base their activities on flight scheduling that include connecting flights. From the organization point of view, delays or cancellation of flights may prevent availability of point-to-point aircraft for schedule operations or resulting in cascading series of schedule havoc. Regardless whether aircraft is passenger or cargo carrier, delays or cancellation particularly because of inventory issues leave a bad reputation and loss in revenues (Wu, 2016; Clausen, et al., 2010). Typically, given competitiveness in airline services industry, the airlines companies need to maintain goal of few delays through high state of readiness.

Inventory services include effective and regular maintenance practices that make sure the aircraft is in proper functioning conditions as well as ensuring efficient utilization of human capital. Adversely, low fill rates affect operations and ultimately costumers’ experiences to the extent of hampering severely operations in the event when Minimum Equipment List (MEL) is not met or poorly managed (Herrera et al., 2009; Mancun et al., 2008). For example, passenger seats can be unoccupied (locked out) because damages part was not repaired in time resulting in fewer passengers or perception of airline compromising the safety of others due to inefficiency. Moreover, according to Hobbs (2008) and Midkiff et al. (2009) extended-range Twin-engine Operational Performance Standards (ETOPS) can be suspended due to Maintenance Carry Over hampering the services until its replacement. Maintenance in aircraft is not only limited to critical parts such as control systems or engine but also such components as passenger reading lights, availability of beverages of different brands and tastes, lavatory supplies, to those items that affects passengers experiences. Maintenance of airplanes, whether a big or small, is normally broken down into several categories that include general, avionics, engine, landing gear, hydraulics, electrical, fuselage, and control systems (Reason, and Hobbs, 2017; Papakostas et al., 2010). This huge maintenance checklist coupled with the fact that most large airlines companies such as British Airways and American have more 250 fleets while ensuring individual costumer’s need is catered for can be extremely challenging especially keeping an aircraft in optimal working conditions to ensure passengers convenience and experiences.

Inventory management by British Airlines

With fleet size of 276 aircrafts flying to 183 destinations domestically and internationally, British Airways offers wide range of services that include short haul subcategories into economy class and business class, mid-haul and long haul with passengers open to choose among first class, club world, world travellers plus, and world traveller categorises (Balmer et al., 2010; Airways, 2019; Tckhakaia et al., 2015). Additionally, the company offers cargo services operating to different destination across the global. In 2017, the airline handled 45.2 million passengers registering annual increase and transported 50,000 metric tons in 2017 down from 157,000 metric tons in 2007 (Statista, 2018a; Statista, 2018b). Furthermore, the airline has to account for the needs and supplies of its more than 3,900 pilots and 16,500 cabin crewmembers. In addition to factoring in such components as catering, maintenance, and spare parts, the airline has to consider passengers in different categories and services afforded for each class as well as setting prices of the seats to match that of competitors. Occasionally, British Airways adjust its seat fares to balance the market structure as well as sales of different classes. Meaning, it can adjust the fare of one classes such as economy classes because of demand or lower that first class prices to attract more passengers or decongest the other classes. For example, operating a flight from Switzerland-London-New York where a plane can fly from London with businesspersons who are willing to pay more for premium services and comfort before arriving in Zurich to conduct business but same aircraft from Zurich to New York may consist mainly of tourist and holidaymakers who are in budget. In case of this scenario, the airlines will be forced to adjust pricing regularly according passengers’ needs and numbers in order to bring in cash flow and hopefully generate profit. On the other hand, research highlight that due to exponentially increase in numbers of passengers handled and fleets in operation, the challenges faced in supply and allocating inventory like repair and spare parts or working on maintenance works increase significantly (Jones, 2012; McFadden, and Worrells, 2012).

Through utilization of Automated Storage Retrieval System (ASRS), British Airways Avionics Engineering (BAAE) a subsidiary of British Airways responsible for the airline’s repairs, modification, overhaul, and maintenance controls over the inventories while garnering to improving costumers’ experiences in addition to human productivity in storing and retrieving materials (Byard et al., 2010). As such, in addition to ensuring availability of supplies in correct quantity and timely manner, the airline need to monitor all the cargo are delivered to intended consumer within stipulated schedule. Monitoring the variables in which most are constantly changing subject to passengers, destination, classes, and seasons require an elaborate inventory management system that balances number of seats in every class to determine the supplies and type of services needed as well as seasons and policies affecting travelling in order to set seat prices. According to Krajewski et al. (2013) and Gopalakrishnan et al. (2012), having a good understanding of fare structure that include differentiating classes on specific route and flight helps competitiveness of the airlines dictating the seat allocation per classes and supporting inventory. Currently, most companies in the industry including British Airways have integration such approaches as benchmarking and planning incorporating forecasting passengers capacity and requirements, analysing the demand patterns, capacity management, and working on key bottlenecks like maintenance, logistics, and hangar space. Other methods include managing Material Request Cycle reviewing such variables as all requests, priorities levels, warehouse statistics, order fulfilled, and delays by managing the complete lifecycle (Van Weele, 2009; Zhang et al., 2009; Wittmer et al., 2011). In addition to scheduling and keeping records of maintenance operations, the airline analyse regularly the inventory checking the stock, item quantity and its values doing manually or SCM tools. Another approach integrated is adopting the vendor and contract management where local and international suppliers are managed transparently driven putting inventory components, materials, and structures in a single pool for easy monitoring and operational efficiency (Holloway, 2017). Although such approaches as key performance indicators are used in planning while outlining consumption history, drawing the expenses in maintaining, and scheduling maintenance period used in operational planning, invoicing and stock management of such huge inventory particularly suppliers from different nations with accuracy and timely is quite cumbersome for the company.

Supply Chain Management system is considerably useful in optimising inventory, improving operations, and lean automated replenishment easing procurement process in most airlines including British Airlines but in the contemporary business environment where efficiency, consumer demands, and competitiveness are major driving forces in the airline services the system is perceived to cause redundancies especially in large airlines. The challenges brought by globalised procurement network have lead most airlines to search for the suppliers fostering quality and reliability. In attempt to curb inefficiency and quality issues from suppliers, British Airways introduced ‘supplier watch’ in 2009 with planned increase in number of suppliers from initial 20 to 200 while monitoring closely assessing and predicting risk. According to McKenzie-Minifie (2009), managing and mitigating supplier risk and ensuring performance measured by efficiency and quality of services is the biggest worry for the firm. In 2018, the airline partnered with Skylogistix, a jointed venture between Kuehne+Negel and Spiriant, to implement a ‘Global Supply Chain Control Tower’ service managing BA’s inflight supply chain. The deal that runs for 5years will be used for forecasting, planning, and managing inventory of all tangibles and intangibles attributes by ensuring the products and services providers are in the right place and at right time. According to Morton (2018), the essence of the integration was to achieve 100% service levels while minimizing operational management of all freight-forwarding suppliers and on-board suppliers and products collectively driven by saving cost.

Integration of Blockchain technology by British Airlines

The company has increasingly focused optimizing the services offered while reducing the maintenance cost through ensuring critical equipment and spare parts in stock are necessary and reducing idle and keeping accuracy in inventory. In addition to being capital intensive, the airline industry involves huge number of tangible and intangible variables, and constantly in rotation, which is usually, creates challenges in tracking accurately. In a field characterised by huge inventories spanning from maintenance tools and materials to on-board raw materials and services, the airline will benefit with real time, intermediaries-free, and accurate information from different suppliers. In addition to monitoring risk associated with quality and efficiency, the technology ensures quality at manufacturers end before importation of the products avoiding fault components and products. The company can track delivery status of products and components where every contracted party in the delivery chain feed data directly to the network upon receivership and shipment of the product or completion of the services. Furthermore, the company can pay for products as its being tested by manufacturer rather waiting for it to being invoiced reducing the huge pay-outs. Lastly, it assists in shipping and logistics ensuring the firm have a complete picture of their products at every stage without physically being there to check and monitor. Giacomazzzo argued that ‘flight data problem’ is the biggest challenge facing airline industry currently. Nevertheless, the problem with this is that reliable source of flight data available to only one airline does not exist. Blockchain technology dubbed a transformational concept is regarded as a solution to the solution to the problem. Following research experiment on management of flight information using the Blockchain technology conducted with British Airways, Miami International Airport, Geneva Airport, Heathrow Airport, and International Airlines Group, Yerman (2018) revealed that FlightChain has capability of providing reliable real-time data about flight information. According to the findings, the smart contract employed by Blockchain technology captures information fed on each node of private-permissioned network allowed undisputed true information that no one accessing the Blockchain network can alter. Specifically, the experiment took FlightChain data usually it tend to be challenging sharing data across multiple networks while maintaining integrity of shared data. While highlighting the potential held by the technology, Peters the CTO of SITA argued that although numerous data sharing technologies and platforms exist, Blockchain making use of smart contracts offers ‘shared control’ coupled with improved trustworthiness of shared information. For instance, a supplier contracted by British airways can share the details of the product by feeding directly without involving a third party to the node on the shared Blockchain network that in return captured by the airline in real time.

Downside of the Blockchain technology

The technology allows decentralization operations such as confirmation of availability, quality, and quantity of inventory can be done by supplier with high degree of trustworthiness on the data and information provided. However, this does not guarantee self-management. Therefore, most operations conducted through the network require operational oversight to allow or revoke access to it, deployment of smart contracts, managing software, updating the software. Legality of the smart contracts has been put into question in recent time. According to Sun et al. (2016) and Pilkington (2016), traditionally, companies have relied on the third party to negotiate business partnership terms that include the supply products, the quality, and scheduling while safeguarding the transactions and records as well as enforcing the terms and resolving arising issues between partnered business entities. Blockchain technology does not have a clear enforcement structures due to jurisdiction issues but agreement is applicable as long as it satisfy both parties through trusting each member will uphold its agreed terms. Moreover, on trustworthiness, the system is not flawless, as it needs to propagate across all the nodes.

Implementation of the system by British Airways may unearth governmental, regulatory, and compliance issues that need to be addressed prior. Given that the airline operates not only domestically but also internationally with destination across the global, different government priorities and structure may dictate or impose restriction on smart contracts limiting suppliers or the airline on feeding products and inventory to the network. Moreover, the airline operates in the most regulated and restricted industry globally characterised with numerous regulatory bodies and collaboration among other airlines such as sharing routes, maintenance team, baggage tracking systems etc. For example, partnership between British Airways and Cathay Pacific, Hong Kong-based airline aimed at improving customer satisfaction, reducing operation cost, and better use of resources (fleet maintenance and human capital) will demand industry-wide integration for both airlines and airports. Although industry-wide integration of the system may seem good idea and may be support due to potential efficiency and reduction in operation cost, implementation including setting standards, governance, and shared trustworthiness might pose a major challenge.

Conclusion

Evidently, implementation of Blockchain technology by British airways will ultimately improve its inventory management that include cargo handling system, baggage tracking systems, fleet maintenance, checking and monitoring on-board products and services, and seat management (allocation and pricing). Given that the airline is one of the largest globally measured by passengers handle yearly and number of fleets, keeping track of its inventory ranging from maintenance, baggage handling, tracking cargo, spare parts, tools, on-board products and raw materials, merchandise, to catering services can be challenging. Although currently the airline and industry utilises extensive the Supply Chain Management (SCM) system in monitoring and controlling its supplies, the problems is that it requires checking different inventory independently coupled with many third parties (intermediaries) distorting the data as well as efficiency and quality of services and products. Coupled with long inventory checklist in maintenance works, on-board materials and tools, and baggage and cargo monitoring, using SCM involves direct coordination and monitoring the process and product deliver by suppliers. By making use of smart contracts between involved parties, in this case, airlines and supplier, the technology fosters an environment where a supplier can feed its products and services into a shared network independently at a given node with trust that given data and information is accurate. Blockchain technology would allow suppliers and the airline to share data about contracted products and services with the both being able to provide accurate update in real time and avoiding intermediaries.

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