Inventory KPI in the aviation industry
To ensure strategic and operational success in the aviation industry, there should be proper inventory management and good measurement of inventory KPI.
Inventory KPI is important in any customer-oriented organization, from suppliers down to the end users. In the aviation industry, for instance, the end users may be the pilot, the flight crew or the passengers. With the field of aviation changing its business paradigm into something new, so does its inventory KPI as well.
Newer business models are currently being used in the aerospace industry. The focus may be on the use of narrow jets, wide bodied jets, low-cost carriers and many others. Inventory KPI is important in the supply of service facilities at global locations that are strategically dispersed to enable proper aircraft servicing. Many airline companies see just how important it is to be able to provide full service to ensure competitive edge. Moreover, in a military environment, tracking of inventory KPI is of even crucial importance as well, especially with the escalating use of net centric warfare and rapid reaction.
Also, new players with a varied geographical spread are entering the commercial aviation business. Especially in the aerospace industryís globally interdependent environment, effective and efficient management in logistics can spell a huge difference between profit and loss.
Good inventory management and measurement of inventory KPI can boost airline operations, resulting to an increase in sales and more economic benefits for locations where these airlines operate. Traditional inventory KPIs for handling stock control include ABC classification for parts based on frequency of use and value; measurement of stock turns and service level responsiveness and recording the rate of daily receipts.
These measures show that airline companies can boost its competitive edge when there is proper cash management for acquired goods and services. In fact, this particularly holds true when interest rates and inflation rise. Cost of holding stock increases subsequently and can even go up to about 20 to 30% of the itemís cost, to store it for a year. Proper inventory management can reduce operating costs by minimizing the space needed for operations, thus making it easier to gain higher profit margins and market share.
Many leaner operations and sophisticated supply networks in the aviation industry operate under the new business paradigm. Inefficiency can lead to financial repercussions in terms of aircraft on the ground (AOG) situation. This is why it is important to enhance and get maximum leverage in managing the inventory control system to incorporate the end-to-end supply chain.
While various departments also come with their own objectives, the key here is to effectively communicate both externally and internally within the organization in order to arrive at a level that is strategic to the businessís operational execution.
Organizational inventory KPI must be associated to its supplier base, in order for the supply chain to be working well towards the same objectives. This is especially important in key supply chain activities which include management of the supply chainís risk vulnerability and ensuring the supplyís security.
Apart from the importance of logistics and warehousing to strategic and operational success in the aviation business, inventory KPI should be dynamic and must go with the organizationís strategy. For instance, inventory KPI should show that lean operations are in line with the activities in the supply chain.
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