Welcome!
Maintenance Cost Management or Value Management
10th Annual Managing Aircraft Maintenance Costs Conference
Lisbon, November 25th, 2009
Copyright © 2009 Paul Schneijder. All rights reserved.
Agenda
The relationship between a MRO provider and an airline
The nature of relation: Strategic or not
Responsibility, liaison and delegation of decision making
KPI’s
Data driven management
Summary
10th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009 2
Copyright © 2009 Paul Schneijder. All rights reserved.
Flight Operations
MRO Impact• On time• Functionality• Appearance• Safety• Reliability
Sales:• Connections• Comfort• Cleanliness• Safety• Reliability
Business Result:• Product delivery• Image• Reputation
MRO‘s are at the hart of an airline value chain
10th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009 3
Copyright © 2009 Paul Schneijder. All rights reserved.
Successful Airline MRO relations center around 3 themes:
Ensure expectations are met• KPI’s• Data driven management
Right Type of Relationship:• Portfolio• Delegation• Agent Theory
Getting a fair deal• Price• Product• Value
10th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009 4
Copyright © 2009 Paul Schneijder. All rights reserved.
Strategic relations are attractive but hard to get
Valu
e a
dded
Hig
hL
ow
Dependency
Performance relation
Short & Long term contracts
Content focus
Strategic relation
Enduring contract
Win-Win focus
Incidental relation
Short term contracts
Price focus
Political relation
Long term term contracts
Proces focus
Substitution threatP
rice p
ressure
High
High
Low
LowL
ow
Hig
h
10th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009 5
Copyright © 2009 Paul Schneijder. All rights reserved.
In a buoyant market the risks for each relation type are relatively low…
Valu
e a
dded
Hig
hLow
Dependency
Performance relation
Short & Long term contracts
Content focus
Strategic relation
Enduring contract
Win-Win focus
Incidental relation
Short term contracts
Price focus
Political relation
Long term contracts
Process focus
Substitution threat
Pric
e p
ressure
High
High
Low
Low
Lo
wH
igh
10th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009 6
Copyright © 2009 Paul Schneijder. All rights reserved.
… but current market conditions change the risk spectrum dramatically
Valu
e a
dded
Hig
hLow
Dependency
Performance relation
Short & Long term contracts
Content focus
Strategic relation
Enduring contract
Win-Win focus
Incidental relation
Short term contracts
Price focus
Political relation
Long term term contracts
Proces focus
Substitution threatP
rice p
ressure
High
High
Low
Low
Lo
wH
igh
10th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009 7
Copyright © 2009 Paul Schneijder. All rights reserved.
Airline
The dilemma: Competence versus Impact based decision making
10th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009 8
Economical Risk
Technical Expertise
Decision based upon cost or impact on operation:
is this the (technically) RIGHT decision?
Decision based upon competence:
who absorbs the (economical and operational) consequences?
MRO
Legal
Compliance
EASA
Part 145
Legal
Compliance
EASA
Part M
Most common delegation mix
Copyright © 2009 Paul Schneijder. All rights reserved.
Power for decision making
Availa
ble
know
ledge &
Com
pete
nce
Decision Rights
Frontier
HighLow
High
In decision making, competence meets decision power
Optimal trade-of
Knowledge
Trade-Offs
10th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009 9
PowerTrade-Offs
Copyright © 2009 Paul Schneijder. All rights reserved.
Internal Competence
Need for
dele
gation o
f decis
ions
HighLow
High
Airlines & MRO’s should realize their strengths and weaknesses
Optimal trade-of
Competence
Trade-Offs
10th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009 10
AutonomyTrade-Offs
Copyright © 2009 Paul Schneijder. All rights reserved.
Required In House decision making
EASA has limited the span of Operator and MRO discretion
Requir
ed in H
ouse C
om
pe
tence
Internal Competence
Need for
dele
gation o
f decis
ions
Decisions
Frontier
HighLow
High
10th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009 11
Copyright © 2009 Paul Schneijder. All rights reserved.
The agent theory is about delegating decisions
Delegation of decision making
Decisions
reflect MRO
interest
Decisions
desired by
Operator
10th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009 12
Copyright © 2009 Paul Schneijder. All rights reserved.
• Goal Congruence
• Aligned interest
• Mutual Benefits
• (Trust)
Profit
MRO Objectives
Airline Objectives
… and finding ways to transfer individual objectives into mutual goals
10th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009 13
Copyright © 2009 Paul Schneijder. All rights reserved.
Airline
The right mix between cost, competence & benefit is essential
Economical Risk
Technical Expertise
MRO
Legal
Compliance
EASA
Part 145
Legal
Compliance
EASA
Part M
Most common
delegation mix
Desirable
delegation mix
10th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009 14
Copyright © 2009 Paul Schneijder. All rights reserved.
A portfolio features all relation models for different purposes
Valu
e a
dded
Hig
hLow
Dependency
Performance relation
Short & Long term contracts
Content focus
Strategic relation
Enduring contract
Win-Win focus
Incidental relation
Short term contracts
Price focus
Political relation
Long term contracts
Process focus
Substitution threat
Pric
e p
ressure
High
High
Low
Low
Lo
wH
igh
10th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009 15
Copyright © 2009 Paul Schneijder. All rights reserved.
Successful Airline MRO relations center around 3 themes:
Ensure expectations are met• KPI’s• Data driven management
Right Type of Relationship:• Portfolio• Delegation• Agent Theory
Getting a fair deal• Price• Product• Value
10th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009 16
Copyright © 2009 Paul Schneijder. All rights reserved.
10th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009 17
Size matters: ensure you have the right leverage to get the right price
Relative size of the
MRO
Your value for the MRO
More Leverage
Less effort
Better result
Copyright © 2009 Paul Schneijder. All rights reserved.
3
Best Solution
Customized product
Customer Intimacy
Best PriceStandard product
Operational excellence
Best PerformanceSuperior Product
Innovation
Result:
Dysfunctional
contracting
A relation should deal with value proposition expectations
Expect
Ask Buy
10th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009 18
Copyright © 2009 Paul Schneijder. All rights reserved.
10th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009 19
More production & less resources requires change of practices
System outputMinimum Maximum
Low
Medium
High
Safety space
Vio
latio
n s
pace
Exceptio
nal v
iola
tion S
pace
System’s
production
objectives
Incident
Accident
Source: ICAO Doc 9859, Safety Management Manual ed. 2
Ris
k
Copyright © 2009 Paul Schneijder. All rights reserved.
Successful Airline MRO relations center around 3 themes:
Ensure expectations are met• KPI’s• Data driven management
Right Type of Relationship:• Portfolio• Delegation• Agent Theory
Getting a fair deal• Price• Product• Value
10th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009 20
Copyright © 2009 Paul Schneijder. All rights reserved.
Absolute
Value
Cost is ONE aspect of a multidimensional framework
# flights€ xx million # charter contracts
Increasing Flat Fluctuating
€/FH OTP % %of total flights
Financial Operational Strategic
SAMPLE
Trend
Ratio
10th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009 21
Copyright © 2009 Paul Schneijder. All rights reserved.
The leverage of TAT is underestimated
PredictableValue
PredictableTAT
Shorter rental
or LeaseLess
stock
Less
AOG
Risk
More
Shop
Flexibility
2210th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009
Copyright © 2009 Paul Schneijder. All rights reserved.
10th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009 23
Profit is the balance between cost, risk and profit
Benefit Cost
Risk
Profit
Copyright © 2009 Paul Schneijder. All rights reserved.
10th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009 24
Structured cost saving requires a systemic approach
Results = ??
Data driven decisions
Data analysis Trends & Correlations
Data collection
IT L
eve
rage
Consequentia
l Imp
act
Copyright © 2009 Paul Schneijder. All rights reserved.
10th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009
Business Intelligence technology can provide extra leverage
Dataanalysiscapacity
BI technology
Managerial Information
More Leverage
Less effort
Better result
25
Copyright © 2009 Paul Schneijder. All rights reserved.
Competing on analytics influences cost and performance
What happened?
How many, how often, where?
Where exactly is the problem?
What actions are needed?
Why is this happening?
What if these trends continue?
What will happen next?
What’s the best that can happen?
2610th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009
Copyright © 2009 Paul Schneijder. All rights reserved.
Achieve TRUE Results:
Business Optimal Relations
Optimal decision making
Benchmark prices
Meaningful KPI’s
Define your expectations:
Contract relation type(s)
Level of internal competence
Level of delegation
Level of Risk & Reward
(Re-)Define Contract relations:
Review/(Re-)Assign Decision Rights
Define Risk & Opportunities
Link “good” Decisions to Rewards
Define Evaluation tools
Purchase on Value:
Link price to Value Proposition
Link Value Proposition to Business Model
Understand & Manage Risk
Leverage your data available
Steps to Results:
Use external
facilitation
where
necessary
10th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009 27
Copyright © 2009 Paul Schneijder. All rights reserved.
Summary
Push for the extreme of the envelop: be really good in what you do
– Value proposition
– Delegation
– Contract mix
Chose the right partner
– Competence
– Size
Avoid the squeeze
– Obtain value for money
– Work smarter instead of pushing safety
Use your data
– Statistical modeling to simulate future
– Smart technology to detect trends, patterns & correlations
– Enhance speed of access and convert data into competitive advantage
10th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009 28
Copyright © 2009 Paul Schneijder. All rights reserved.
The relation between MRO and Airline: a complex but beautiful thing
KPI & Benchmark
Data analysis
Contract relations
Decision Trade-of
Riskvs
Competency based
decisions
Value Proposition
Agent Theory
10th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009 29
Copyright © 2009 Paul Schneijder. All rights reserved.
10th Annual Managing Aircraft Maintenance Costs Conference, Lisbon, Nov. 25th, 2009
Discussion & follow-up is welcome
Paul Schneijder
Managing Director
Vrusschemigerweg 11
6417 PB Heerlen
The Netherlands
Mobile: +31-6-55530403
e-mail: [email protected]
www.airlineconsultant.eu
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