Covid-19: New approach to procurement could aid aviation

Airline executives should rethink their supply chains’ strategy to shift from a cost-cutting focus to value creation, with people, the planet, and profit as priorities, argues procurement professional, Nikrouz Neshat.

Nikrouz Neshat

The world we once knew, including our private and professional lives, has changed. Countries have closed their borders to protect their populations, and as a consequence, thousands of airplanes have been grounded.

Airlines need to look to external sources as well as internally reviewing their own operational practices

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We’ve been encouraged to work from home, when possible. And for those that have taken pay cuts, or lost their jobs, or for companies or even industries hard-hit by the crisis, governments have offered unprecedented financial assistance.

In Switzerland, there is an effective and efficient support system to avoid unemployment in times of crises known as short-time work. This has helped many people including those in the aviation industry like myself.

Walking past the Café Odeon - a historic café/bar in the heart of Zurich where Albert Einstein is said to have enjoyed discussions with his students from the Swiss Federal Institute of Technology - I recalled the great scientist’s quote that “in the middle of difficulty lies opportunity”. I asked myself what could we, procurement professionals (responsible for the purchase of goods and/or services), do to help soften the blow to the swiss aviation industry?

In the past few weeks, there was a reduction close to 90% of European air traffic, according to statistics from EUROCONTROL. While the grounding of many of the world’s fleets was deemed necessary in response to the huge limitations placed on travel, it has dealt a severe financial blow to both legacy and low-cost airlines and auxiliary businesses. In Switzerland, the government stepped in at the end of April and announced that it would provide financial assistance of nearly CHF 2 billion ($2.05 billion) to the Swiss aviation sector.

But considering the recovery phase ahead of aviation, a question comes to mind: Is this the only solution?

Regardless of the cause and nature of a crisis, the solution can either be an existing one, or a new approach. Take the pharmaceutical industry as an example. In order to find a cure for Covid-19, efforts are being made to find new therapies, or, existing drugs are tested for their efficacy in treating patients. The testing of new drugs is a very time-consuming process. The same principle can be applied to the aviation industry: When there is an urgent need it’s best to turn to existing solutions, such as asking shareholders, banks or governments for financial assistance.

However, due to the depth of the current crisis, it would seem this approach doesn’t go far enough. Airlines need to look to external sources as well as internally reviewing their own operational practices. In previous crises, in line with the trend of globalization, outsourcing, and off-shoring techniques helped bring down costs. However, the Covid-19 crisis has exposed the risks of such strategies.

Role of procurement managers

So how could senior executives respond differently? Companies, including those in aviation, rely on their supply chain partners to create and deliver value, meaning most of the value is procured. Procurement, above all, is driven by the aim to reduce costs. Therefore, it would be advisable for company executives to work more closely with their procurement managers during this unprecedented downturn to seek their expertise in finding additional solutions.

But that can work only if procurement managers win the endorsement of the CEO and are even granted a dedicated seat at the highest level because procurement can be a significant contributor to enterprise value and a driver of competitive advantage in the coming years. Secondly, procurement must be harmonized within the company (rather than decentralized), and thirdly, procurement should be managed so its focus shifts from pure cost-cutting and control to value creation, with people, the planet, and profit as priorities.

New technologies such as automation and digitalization would simplify procurement processes and make them more reliable. Paperless communication, better known as Electronic Data Interchange (EDI), with key suppliers could save efforts and cost, while video conferences with suppliers could facilitate strategic procurement talks to consider options even to eliminate costs involved in external processes.

Aviation procurement professionals in Switzerland are in a unique position to bring about positive change. We have access to some of the world’s best universities and research centres. A strong procurement think tank coupled with networking opportunities at a time when international travel has largely come to a halt provides us with a chance to define the future of procurement in a post Covid-19 world. This would be of interest to aviation companies active in Switzerland (including those in Swiss Aerospace Cluster - SAC) and other industries as well.

Nikrouz Neshat

Dr. Nikrouz Neshat holds a master’s degree in Management from l'università della Svizzera italiana (USI) in Lugano and a doctoral degree in supply chain risk management from Swiss Federal Institute of Technology (ETHZ). He has worked in various management roles including Procurement and Logistics during the past seven years at SR Technics, a world-leading MRO (Maintenance, Repair, and Operations) service provider for aircraft, engines, and components along with engineering services and training.

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