Air Transport World

The art of the deal: airline purchasing habits have changed significantly over the years, as management focuses on the business process; consortium buying is on the horizon.(includes related article on the Air Carrier Purchasing Conference)

Airline purchasing habits have changed significantly over the years, as management focuses on the business process; consortium buying is on the horizon

NEW ORLEANS--Airlines' understanding of the art of buying supplies and services has been evolving over the years from the rudimentary to the sophisticated. After numerous adventures taking the process to extremes, the use of a balance of tactics can be seen developing.

The industry has recognized the delicate balance needed to craft a deal that includes or excludes continuing support, that brings in elements of partnership programs, that recognizes appropriate levels of spares support, all wrapped up in a deal that utilizes the best of the airline's financial acumen and takes maximum advantage of concentrated volume buying power.

The discussion of purchasing overlaps the outsourcing debate. Do airlines have or need the "core competency" to manage the purchasing process? This question springs from the idea that airlines need to pare their business down to the basic tasks they do well enough to earn profits.

So far, airlines' decisions on this question span the.range from a North American carrier's wish to divest as many purchasing jobs as possible to a European carrier confident that it can handle all and any purchasing better than anyone else.

Glenn N. Chambers, managing director-procurement, Federal Express Corp., joined the airline business 15 years ago from an accounting background and has seen tremendous changes in the purchasing process.

"We used a lot of people without coordination. Stuff was ordered that had already been purchased by someone else. Automation was used just to print purchase orders. There was a lot of 'relationship buying.' There were no contractual relationships and some purchasing was based on availability." That is, you bought from people you knew had the product. Suppliers weren't cooperative, refusing to change procedures: "We just don't do business that way," was what Chambers heard. Discounts were largely unknown. "They didn't understand the value of having a steady customer with a large volume that merited a separate pricing situation.

"The supplier was lord, especially the original equipment manufacturer. They would treat you any way they wanted."

The big change has come about as a result of "business people running the companies, not mechanics. They know an airplane is a tool to do business.

"The buying side has become more professional," Chamber said. College degrees were rare in the purchasing department when Chambers joined the airline; now, most have undergraduate degrees and 30% have masters'. …

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