Combating Exchange-of-Information Costs across Aviation MRO

Let’s face it; COVID-19 has changed the aviation industry forever. With reports of 90%+ grounding rates in many areas of the world, not only is the airline industry being hit hard but so are Maintenance, Repair, and Overhaul (MRO) and component repair organizations everywhere. As companies seek to cut costs and preserve cash reacting to this temporary retraction, many rash measures have been taken, including the unfortunate layoffs of thousands of employees in the MRO chain. For example, last week GE Aviation announced further layoffs, equaling ~25% of its workforce. Indeed, it is a tough time to be in the aviation industry.

As demand has significantly decreased, many MRO and component repair organizations have focused rightfully on keeping the wheels from falling off completely, However, this may be a unique opportunity to remake operations and processes, particularly concerning information costs. With many early retirements on the horizon as airlines look to shed older models of aircraft, the MRO market will not be down too much longer hopefully. Becoming competitive by reducing costs of performing MRO and component repair operations will be critical to winning and retaining business.

To counteract the growing impact on the aviation industry, many organizations will need to increase productivity by cutting costs in various areas, as well as leaning out their processes. While these are worthwhile endeavors, a specific area that is often overlooked by organizations is information costs. Ignoring the relationship between data flow with organizational complexity and performance can exacerbate information costs further. Combating these information costs will be critical proceeding into the post-COVID-19 reality.

Consider the following divisions of costs as it pertains to the value of information:

• Transactional Information Costs (TIC):

These costs are associated with performing value-added activities, such as purchase orders, commercial operation planning, material planning, manufacturing instructions, inventory management, and shipping/receiving processes.

• Exchange-of-Information Costs (EOIC):

These costs are separate from TIC and are within the infrastructure that supports the value-added activities such as indirect engineering processes, product definition configuration control, Sales & Operations Planning (S&OP) processes, Key Performance Indicator (KPI) processes (“metrics”), and product lifecycle documentation recollection.

While these cost types are separated above, they are very much inter-related to each other. TIC has been preferred as a major focal point for many lean business exercises due to its visibility to customer impact. Ignoring the relationship between these costs can lead to not only a negative impact on customers but greater harm to a business than benefit.

Unfortunately, many organizations often neglect the underlying issues behind EOIC. As these organizations grow larger, EOIC will rise exponentially due to the complexity inherent in the organization’s structure. Some symptoms of higher EOIC may including the misalignment of metrics, long information gathering times, and even stalls in processes related to TIC. In larger organizations, this may also manifest as variation between different internal shops, such as different methods/equipment causing, scrap rates on parts, or even gridlock between the main MRO shop and the component repair shops that feed serviceable/repaired parts.

With organizations that have multiple sites performing the same activities, it is surprising to see how different execution can be, leading to drastically different outcomes and yield rates. Without a standard process or work instruction, variability can increase the cost of the process whether it is expressed in longer cycle times or lower quality & yield results.

Addressing these costs during the downtime will be a major advantage for an organization. Strategically, MRO and component repair organizations can make strides in reducing EOIC in the following ways:

• Align on metrics across the whole business at a systemic level, not just a single department or shop.

How different key metrics are defined and measured across different departments can become a major factor for EOIC. This is manifested even further with an internal network of MRO and component repair shops. Generalized, Engine MROs, for example, induct and turn an engine through the shop on a workscope, while component repair shops are typically profit & loss (P&L) centers. When the component repair shops feed the MRO shops, problems can arise as MRO and component repair shops can have vastly different metrics and goals in mind. Motivations can be much different depending on the contract a shop has with its customers, or even where in the marketplace an organization operates; a great example is OEMs that want to capture MRO revenue, but also value new-make spare parts sales. These dynamics need to be understood when defining metrics, with communication down to the floor and management accountability.

• Unify and share best practices across the business.

When installing new operations & capabilities, it can be surprising when noticing the lack of communication between internal shops. In the aviation industry’s horizontal supply chain, aircraft engine shops can be hundreds if not thousands of miles apart. In the case of the same parts at different shops, best practices are largely “ignored” despite the other shop’s engineers being an in-network phone call away. While cultural differences can play a part, these EOIC can manifest itself into variation of TIC and yield rates, leading to confusion and misalignment of other resources in the business.

• Take advantage of IT resources but avoid overcomplexity.

The underlying enterprise architecture embedded in organizations has revolutionized TIC. However, a bloated backend architecture lacking adequate information & data controls can prolong cost avoidance and cost out activities, such as engineering changes and hiring decisions, which lead to higher EOIC. This is further aggravated when individual shops across the enterprise with similar customer deliverables have different legacy IT systems, a common theme among older organizations. While IT and digital technologies can increase productivity, if not implemented properly and with all stakeholders at the table, it can quickly become a chaotic mess of IT systems that can’t exchange information effectively without expensive human configuration & management. Digital technologies can be an asset to strengthen decision making; however, if not standardized, this can force many managers and employees to waste time data gathering for hours to find the right, relevant data. Hung Cao discusses this further, citing research from Cottrill Research.

While not an exhaustive list, taking advantage of the downtime to revamp how an organization views metrics, synthesizing best practices, and reexamine underlying IT infrastructure can create a competitive position coming out of COVID-19. Examine all departments to reduce EOIC enterprise-wide for better agility and practices, not just the usual focus of the floor for TIC.

Sooner or later, MRO and component repair organizations will have a competitive reckoning, will they be ready to deliver value at the right price?