The aviation industry is the fastest growing sector worldwide that has enhanced the travelling experience of passengers across the globe. With breakthrough inventions happening in the aviation industry, the business environment has become tough and competitive for the airlines operating in present times (Shieh, 1740). Recently, the emergence of low-cost airlines has severely impacted the businesses of those airlines that have been leading the aviation industry for decades. However, these new entrants still lag behind in the development of an effective Supply Chain Management (SCM) system.
In the last few years, the organization structures of many airline companies have undergone drastic transformations to incorporate the challenges encountered during the tough economic time that have been prevailing since 2008. Since the aviation industry has become dynamic and competitive, every player in the market has to ensure that it meets the demands of its target market effectively (Bolstorff and Robert, 40). In the airline industry, only those companies can survive that have a competitive edge in their SCM process which will ensure that they are providing premium quality services at competitive rates to their customers.
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Emirates Airline is among those companies that entered the market with the aim of becoming the leader in the aviation industry worldwide. It is among the top-ranked airlines available in the market which has been providing excellent range of services to its customers ranging from leisure to business travelling packages. Emirates Airline was the pioneer in introducing the concept of online booking and e-check-in system in United Arab Emirates (UAE). In order to exceed the expectations of its customers, the management team has developed a separate division 'Emirates Engineering' for developing an effective SCM framework (About Emirates Engineering, 3).
Presently, Emirates Airline has a well-designed and strategically developed SCM system but there are some areas that need to be addressed by the Procurement and Operations department of the organization to effectively manage the prospective challenges in the aviation industry.
Background of Emirates Airline
Emirates Airline also known as Emirates is the top-ranked airline that is based at Dubai International Airport in Dubai, UAE. It is considered to be the largest airline in the Middle Eastern region that has been operating about 2,500 flights on weekly basis from Terminal 3 which is its central hub. Emirates is offering its services in 122 cities that are spread in 74 countries; it is the chief subsidiary of the Emirates Group and employs more than fifty thousand employees. The airline is owned by the Government of Dubai and its cargo activities are performed by the Emirates SkyCargo division of the Emirates Group (The Emirates Story, 4).
The primary aim of this airline since its inception is to provide high quality services to the customers; quantity is never an important factor for performance evaluation of the airline. From regional travel destinations, Emirates Airline has evolved into an international airline that carries millions of passengers to various destinations on yearly basis. Emirates has divided its airline businesses into three broad categories i.e. international cargo division, airline IT developer and full-fledged travel and tourism destination management division (The Emirates Story, 23).
Emirates has an exclusive range of wide-bodied aircraft fleet that comprises of three main aircraft families i.e. Boeing 777, Airbus A380, and Airbus A330/A340. It has set a policy that it will always keep a young fleet which stands as 6.7 years on average and it ensures that the fleet is renewed frequently (About Emirates Engineering, 30). In order to have effective operational facilities for its aircrafts, Emirates has developed an entire new division 'Emirates Engineering' where all the matters related to quality assurance, maintenance and repair of the fleet is performed. Currently, it has passenger aircraft fleet of 175 and nineteen aircraft are still on order (Engineering Procurement Aircraft, 34).
SCM structure of Emirates Airline
SCM has evolved to become an integral part of all organizations and it is the pre-requisite of every airline that wants to maintain a competitive position in the market. Initially, Emirates had a Procurement and Operations department that had the responsibility of managing the information and materials data and its main focus was on developing a strong internal value chain. The primary focal point of the department was to be a supplier's supplier to the customer's customer. When Emirates faced problems in the functioning of its aircraft in 2004, the management team decided to restructure the complete procurement, operations and logistics aspects of the business (Storey, Caroline, Janet and Alan, 756).
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The Procurement and Operations department was divested from the other functions and Emirates Engineering was established as a separate group. Under this new section, SCM was defined as "combining the impacts of all companies that are involved in the production, distribution and sales of the airline goods and services i.e. from suppliers to the manufacturers to the distributors to the final consumers." According to this new approach, every stakeholder involved in the production and operation network is part of the supply chain (Kannan and Keih, 153).
Emirates Engineering is viewed as the best and highly technologically advanced facility for aircraft repair, maintenance and servicing. In order to provide adequate engineering support to the entire fleet of Emirates, the department has outsourced the maintenance contracts to third parties. In order to meet the industry benchmarks, all aspects of Engineering, Quality, Planning, Logistics and Maintenance are effectively managed and implemented by highly skilled and well-experienced professionals who have ample knowledge about the particularities of SCM process (Engineering Materials Management, 35).
There is a Procurement section in the Emirates Engineering division that provides support to the airline operations by undertaking all contracting and outsourcing contracts of every commodity of aircraft that comprise of fleet, equipment, spares, power plants, catering services and many more. There are four broad categories in the procurement department classified as power plans, airframe systems, cabin and avionics. The entire team is implementing a precise process approach by working as a cross-functional team; in such teams, the experts of all divisions are included to ensure that the supply chain requirements of the business are met at optimum level (Bhardawaj and Mitra, 60; Huan, Sunil and Ge, 24).
This department bears the responsibility of managing cordial relations with suppliers for ensuring 100% satisfaction with the delivery and performance of the goods and services provided by them. In the airlines, quality of the aircraft is the utmost priority (Harrison and Remko, 140; Gunasekaran and E., 585) and Emirates Engineering section ensures that this area is never overlooked by the experts of the division.
There is a distinctive management team for warranty and product support that is responsible for carrying out an array of activities such as contracts management, compliance with digital recording of documents, ensuring presence of a safe and secured storage area for every contractual documentation and appropriate administration of warranty and guarantees (Engineering Materials Management, 50).
Â SCM Network of Emirates Airline
The present Supply Chain network of Emirates Airline (Refer to Appendix I) can be divided primarily into three main chains that are inter-linked:
Emirates Engineering that is providing top quality aircraft and facilities within the fleet to the Emirates Group so that it can meet the requirements of its customers who are the passengers.
Product Support Agreements (PSAs) are signed between the Procurement Department and supplier of the division who ensure that the airline is provided aircrafts in accordance with the specifications.
The suppliers then have agreements with their suppliers named as 'direct suppliers' who ensure that the finest raw materials are provided for manufacturing the fleet with precision.
Value Chain Analysis of Emirates Airline
In order to have effective management of procurement, operations and logistics department, it is vital for every organization to conducts its value chain analysis on an ongoing basis (Sisco and Joyce, 60). With the proper utilization of value chain analysis of entire SCM process, Emirates' management team ensures that it properly allocates its resources for efficient management of inventory while adhering to the high quality standards required in the aviation industry (About Emirates Engineering, 34). The value chain analysis of Emirates Airline is explained below to briefly describe its activities as highlighted in Appendix II:
The product development section of marketing department conducts market research on frequent basis to generate ideas for new products and services and work on its feasibility policy to decide about the cost requirements in accordance with the service standards of the industry.
The material management team, component management team and procurement team work with the suppliers to ensure there is effective co-ordination among the teams and ensuring that right suppliers are included in the PSAs and proper measures are taken in developing healthy relationships with them.
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The flight and ground operations department of component management teams ensure that the inputs are effectively transformed into products of high quality that will add value to the airline's operational activities.
Customer Relations department which is an integral part of the after-sales service ensures that the passengers having any problem with their flights or baggage are properly handled. The personnel are trained in providing the superb service to the passengers both in-flight and on ground so that they have an excellent travelling experience.
Human Resource department ensures that all employees are provided detailed information about the company's policies, strategies and rules so that they ensure compliance with the work standards. The employees are given sufficient training so that they can exceed the expectations of the customers.
IT department has the main responsibility of ensuring that a well-developed SCM system is implemented and managed to allow efficient flow of information that will ease decision making processes for various departments of the airline.
Finance department is responsible for controlling the costs of managing the operations along with ensuring maintenance of effective auditing procedures so that everything is conducted within the legal boundaries.
Product Life Cycle Management at Emirates
As the business environment is becoming competitive and challenging for the organizations, it has become vital for them to continuously upgrade and introduce new and innovative their product and service offerings to proficiently fulfill the changing demands of the customers (Handfield, Robert and Steven, 6; Subhramain et al., 5). In airlines, product life cycle management is become a pre-requisite for maintaining the competitive edge in the market. Similarly, Emirates has created a separate division 'Engineering Projects' that assists the airline in employing the expertise of the professionals working in this department for evaluation, specification and negotiation of unique and new products and services.
The entire process of product life cycle management is effectively monitored and the team guarantees that each and every step from generation of idea to the final delivery and acceptance are evaluated; any problems identified are addressed instantly to avoid any issues after complete development of the product. Within the department, there are two teams that are working on the development of its service offerings; one is Inflight Entertainment (IFE) team and other is Cabin Interior team (Engineering Projects, 3).
The project team of IFE comprises of the specialists of products and professionals of IFE systems engineering. All team members are carefully selected to ensure that they have in-depth knowledge about IFE so that they can properly define, create and install an array of highly advanced and sophisticated inflight entertainment systems. A general product development process followed by IFE team is as follows:
First of all, the experts work closely with the Original Equipment Manufacturers (OEMs) like Boeing and Airbus, product marketing and inflight services departments to develop a detailed list of the IFE system requirements. After the preparation of the list, the product vision is established so that everyone has an idea about the product that they perceive to be ideal for the end consumers.
In the design and testing process, development milestones are set and they are coordinated and monitored in a group form by seeking opinion from the seat manufactures, third party suppliers, IFE suppliers and OEMs so that the process is carried out properly.
The Buyer Furnished Equipment (BFE) list definition is referred for close monitoring of the IFE product specifications so that IFE system can support the new product installation process.
The team provides follow up and support in the installation and integration activities of IFE system.
IFE product development specifications are verified to ensure compliance with the requirements of the system.
Inspection of the acceptance process of IFE system is done to ensure that support is provided for the existing IFE process.
Before gaining entrance into the service, the spare parts list is prepared for the spares procurement department so that the recommendation of the experts can be taken.
In-house training along with IFE service readiness activities are organized so that adequate support can be provided for the new system.
After developing the personnel, the product development team works with the Supplemental Type Certificate (STC) certification houses, airline base maintenance and installation teams so that retrofit processes can be effectively coordinated.
After the complete development of new IFE service, a maintenance and troubleshooting manual is developed along with software; all of these elements are designed, developed and delivered directly from the suppliers before the aircraft completely introduces the new service.
The cabin interiors team undertakes various activities to ensure that the passengers have exceptional travelling experience by exceeding their expectations. This team has responsibility of performing a diverse range of activities which are as follows:
Introducing unique and innovative features and amenities to enhance the comfort level of passengers.
Developing the specifications for latest BFE products.
Evaluation and selection of the best suppliers for BFE products.
Coordinating the technology and managing the program required for management of the items of BFE.
Providing support to other department for facilitating smooth introduction of contemporary aircrafts that have been added to its fleet.
Role of Information Technology (IT) in SCM
An effective SCM is one which has a strong IT system that will provide support to the organization in managing its operations effectively and productively (Blanchard, 80; Gaudenzi and Antonio, 116). With the help of an efficient IT system, the inventory and warehousing costs are reduced to a great extent; efficiency of the production process is enhanced; and inflight services are upgraded on constant basis to ensure that passengers are provided an extraordinary appealing and thrilling travelling experience.
In order to have a highly productive SCM system, Emirates has installed an Electronic Data Interchange (EDI) system that is operated primarily by the Engineering Materials Management section; the experts are responsible for developing the policies, processes and procedures for optimization of the inventory and earning high Return on Investment (ROI). The system is responsible for material provisioning, forecasting the demand of customers, planning of procurement, reviewing the stock level, storing and usage of materials, repairing and replacement of parts and disposal of materials (Christopher, 250).
The team responsible for material provisioning has to perform four major functions i.e. establishment of optimum levels for re-ordering and safety maintenance, increase the number of requests required for timely purchases to ensure that items are available on time, data is accurately stored and high standards of safety and quality policies are followed that are set by the agencies of the aviation industry. Similarly, the component management team deals with the high value and rotable assets of aircraft components so that initial provisioning and re-provisioning can be easily done. By ensuring the best SCM best practices, Emirates is maintaining the top quality standards of service levels in a cost-effective manner.
Key issues and challenges of SCM
After analysis and assessment of the SCM process implemented at Emirates, it can be concluded that it has an efficient and well-designed system that ensures that it has adequate stock of supplies and product development process is effective for managing the product life cycle of its product and service offerings (Deveshwar and Rupa, 194). The key challenges and issues that can be faced in SCM of Emirates are as follows:
Globalization - With the advent of globalization, the IT infrastructure needs to be compatible with the requirements of the corporations that will ensure that all variations encountered are effectively handled. Since Emirates is a global airline, it has to ensure that it has effective SCM system on all of its destinations so that there is proper management of its fleet; the repair and maintenance services should be constant everywhere so that top quality of services is provided to every customer.
Supply Chain disruption - As SCM systems are based on IT infrastructure, there are chances that the system can get disrupted by any of unforeseen events such as interruption of IT system, improper functioning of the system, trouble in the airline systems that can affect the customer database and flight scheduling can be severely impacted and many more. If Emirates does not have a contingency plan for dealing with severe problem in SCM system, then it can effectively impact the
Mitigation of damage - When SCM system is implemented in the organization, it is vital for the professionals to keep some manual records and avail the insurance policy option so that damage can be mitigated. Emirates has bought insurance policies to minimize any loss that can be encountered when supplies are either damaged or are not compatible with the quality standards of the aviation industry.
Conclusion and Recommendations
For every organization, it is important to have a well-integrated SCM system that will ensure that its supply chain strategy is complementing the business strategy. With the help of an effective SCM system, Emirates Airline and its consumers and partners can have quicker and on-time orders, production planning and inventory management is effectively done, high rate of order fulfillment rate is observed, forecasting is efficiently completed and performance of the company can be easily monitored.
An organization strives to be the leader in its industry by following a well-designed strategy that incorporates the company's mission, vision, values, goals and objectives so that it can attain its long-term competitive position in the market. Emirates has ensured that its SCM strategy is properly aligned with the business strategy. Every strategy in the SCM comprises of the plan that the company will implement for achieving its goal of capturing the target market and enhancing the satisfaction level of end consumers.
The SCM strategy ensures that the logistics of the company are planned out in advance so that there is an adequate supply of raw materials, minimum level of inventory is maintained and the supply chain operations' cost is reduced; all of these measures ensure that Emirates Airline is able to generate an appropriate amount of profit and maintain its strong position in the industry.