How does your business grow?

[More Images]

Business may not be in full bloom but consulting firm AT Kearney says optimisation can still be achieved.

With passenger numbers in decline and external financing drying up, there is no doubt the industry is facing challenging times.

Banks are extremely cautious to lend money to businesses, so how does your company grow at a time when cash is hard to come by?

According to analysts the odds are now in favour of the buyer instead of the seller, meaning the supplier is interested in establishing long-term relationships. Quite simply, companies are becoming more flexible and in turn airlines and aviation-related companies need to refocus their financial strategies. But because procurement departments are still quite young in Middle East markets they are not ready for the financial crisis. However, AT Kearney managing director Middle East Dirk Buchta says that even if your aircraft is grounded, financial optimisation can still be achieved.

“It is all about efficiency,” Buchta explains. “If you spot supplier alliances then use this to your advantage, as you will most likely gain a higher level of efficiency from them. You can then use existing funds more effectively,” he adds.

Buchta’s advice is to negotiate every aspect of your airline’s operations through a measure called strategic sourcing. “Airlines can see savings of 10-20% of procurement volume from strategic sourcing,” he explains.

AT Kearney derived this process from the automotive industry some 30 years ago. But what is it exactly? “It is the process to review and reduce the total cost of externally purchased materials, goods and services whilst maintaining or improving the levels of quality and service received,” Buchta explains. But don’t worry – it isn’t as complicated as it sounds.

“Strategic sourcing is easy to implement because your company does not have to alter its structure,”Buchta says. “The company can stay relatively stable, so long as you assess each category you are sourcing on its own merits and according to its complexity.

“Take maintenance services for example – you have to get this right first time, else your aircraft will be grounded – it is a high impact service you are buying, but by strategically sourcing MRO services you can save 5-10% every year,” Buchta says.

Story continues below

Advertisement

FEATURED COMMENT Please click here to comment on this article

Outsourcing and offshoring are another two highly advanced tools to use.Outsourcing is the handover of assets to outside companies, particularly prevalent in IT, but it can be applied to almost any business, including airlines.

When it comes to an airline’s IT department, Buchta says it is important to keep a small demand function in-house, but by outsourcing other elements you can put existing resources to good use.

“You can refocus your staff on providing an excellent service and attracting passengers and routes, and on the whole salaries tend to be a lot lower through outsourcing,” Buchta adds.

Buchta admits this is an area that may mean making structural changes to your business, but there are convincing savings to be made. “If you take the telecoms department for example, by outsourcing your call centre you could save up to 20% every year off your costs.”

In addition, Buchta stresses that the changing economy has meant that airlines are becoming more open to using the global labour market, although the Middle East’s often vacuous approach to business has not necessarily been a restriction on airlines looking for far-flung opportunities.

“You have to look at the supply market. When it comes to airline suppliers, most are international, so it doesn’t matter that there are not many suppliers in the Middle East.

“Looking at the bigger picture, it is important to optimise spend in every category; renegotiate existing contracts and reassess demand,” Buchta concludes.