The Importance of Maintenance Activities in the Aviation Industry - Research Paper Example

? Gulfstream G650 Maintenance: Control of Maintenance Expenses of the The importance of maintenance activities in the aviation industry cannot be denied. The significance is more because airline is one of the transportation mediums and thus the requirement of safety and security is very high. Studies have shown that nearly 10.1% of the overall operation of a company is related to the maintenance task. This clearly reflects the commitment of aviation companies in maintaining safety. However, the recent global credit crunch has resulted in failing demands and low profit margins. In such situation, aviation is left with the sole option of controlling the cost of maintenance. The other major costs such as fuel cost remains beyond the organization’s control. This report has attempted to shed light on the capabilities and strategies pursued by Gulfstream Aerospace to minimize their operation and maintenance cost and remains profitable in the marketplace. The key findings of the study are that the company uses shared leadership strategy so as to drive innovation in the organization. It has been also found that Gulfstream Aerospace has a mechanical organizational structure. However, to gain better control the company has been strongly recommended to pursue lateral organization structure. In addition, more emphasis on the e-commerce strategy will also help in serving the purpose. Table of Contents Table of Contents 3 Introduction 4 Aspects of Leadership 4 Organizational Design 5 Change and Innovations 8 Managerial Roles 9 Global Business Aspects 10 E-commerce and E-Business 11 References 14 Introduction Maintenance activities are considered to be one of the most predominant issues that administer the economics of production activities. Yet, the activity of maintenance is often relegated to the second rank and is even neglected by those who put more emphasis on the production and selling process (Singh, Motwani & Kumar, 2000). In the narrow sense, productivity has been measured since several years, but maintenance activities being multi-disciplinary in nature with large number of outputs and inputs, the maintenance activities are therefore considered and measured holistically with an integrated approach. Liyanage & Kumar (2003) articulate that with the increasing awareness of maintenance activities and discovering the fact that it adds value to the business process; organizations around the world are treating maintenance issues and activities to be an integral part of the business. For a number of industries, maintenance costs accounts for a significant portion of the overall operational cost. Reports have suggested that maintenance activities nearly 20-50% of the production cost. However, the percentage differs according to the nature and type of the business (Wireman, 2007). The author also enumerated that reduction of the maintenance cost is equivalent to increasing sales. Hence, the above facts and data make it evident that control of maintenance expenses is one of the vital tasks of the company. In order to address the issue of maintenance expenses, this study has considered Gulfstream Aerospace, a Georgia based Aviation Company. Gulfstream G650 is a product of the company and will be used to cover the subject of study. In doing so, the areas that will be covered are the different aspects of leadership style and how leadership style impacts in reducing the maintenance cost of a firm. Other areas such as organizational design, change and innovation, the managerial roles will be also covered. Lastly, the research paper will shed light on the global business aspect i.e. what strategy is being pursued by the global aviation industry to minimize and gain control over the maintenance cost. Aspects of Leadership In this section the researcher will describe how leadership aspects of Gulfstream has helped the company to control maintenance expenses and increase overall cost effectiveness of the value chain. Prior going to the main discussion, the researcher will shed light on theoretical concepts proposed by scholars to address relationship between cost control and leadership effectiveness. Vera & Crossan (2004, p. 227) argued that “the ideal leader might recognize his or her limitations and share the leadership of organizational learning with colleagues in the top management group” and such arguments pretty much relevant to modern business context. Ensley, Hmieleski & Pearce (2006) stated that organizational leadership aspects should emphasize on empowering other organizational members to develop own leadership efficacy to handle complex business situations such as cost cutting, deciding key performance indicators (KPI), supporting change management initiatives etc. Pearce & Conger (2003) and Pearce & Manz (2005) highlighted the fact that modern organizations should use shared leadership model when it comes to incorporate innovation, changes or increase operational efficiency. According to Pearce & Conger (2003), shared leadership is completely opposite to other leadership model where leadership role has been assigned to particular individual and in case of shared leadership; power is distributed among team members. However, Gulfstream is a large organization and it is not possible for such organization to follow shared leadership manner for every department because presence of multiple hierarchy within same department would create confusion among team members if shared leadership concept is being implemented. Currently, there are seven business areas within the organization such as Administration and Legal, Product Support, Finance, Marketing & Sales, Programs and Engineering, Government Programs, Operations and seven different individuals perform the leadership role in their respective departments (Gulfstream, 2013a). The seven member team serves under Larry Flynn who is president of the company and also serves as vice president of General Dynamics (Gulfstream, 2013a). Leadership team in the Gulfstream is the example of shared leadership model where the power has not been concentrated only on the hand of president rather the decision making power has been distributed to seven vertical leaders handling charge of seven different operational divisions. Taking example of Gulfstream G650, the aircraft receives more or less 2,000 visits annually and servicing of the aircraft is being done internally (Gulfstream, 2013b). All the four department leaders of Product Support team, Programs and Engineering team, Operations team and Finance team work together to ensure cost control of maintenance function (Gulfstream, 2013b). For example, team members of operation department works together with engineering department in order to reduce aircraft down time (Gulfstream, 2013b). On the other hand, Programs and Engineering department takes help of the Product Support team in order to decide pre- arrival planning for Gulfstream G650. In some cases, planning department communicates with engineering department to decide optimal resource requirement for maintenance but in all cases of maintenance, approval of finance department is needed regarding funding. For maintenance of Gulfstream G650, Gulfstream IV® (ASC 190) criterion has been used for all kind of modification programs regarding alteration of wing, landing gear and tail (Gulfstream, 2013b). Interesting fact is that although the airline giant uses Service Team Manager (STM) as the single point contact for handling customer queries regarding maintenance but at the back end, Service Team Manager (STM) is directly or indirectly linked with Service Center Coordinator (SCC), engineering division and support team (Gulfstream, 2013b). To reduce the Gulfstream G650 maintenance cost and control maintenance expenses, Gulfstream has revised the service intervals from 12 months to 24 months through the implementation of MSG-3 service programs. Due to integration of technology and service efficiency, maintenance cost has been reduced by 30% for Gulfstream (Gulfstream, 2013b). For example, the company has introduced Comscan inspections in place of manual inspection, extended GV 96 Month Inspection, installation of CMP OPS package etc to reduce overall cost of maintenance (Gulfstream, 2013b). Such level of cost controlling might not be achieved by the aircraft giant without integration of seven divisions driven shared leadership approach (Gulfstream, 2013a). It is evident from the above examples that all the seven business divisions and their respective leaders of Legal, Product Support, Finance, Marketing & Sales, Programs and Engineering, Government Programs, Operations perform direct or indirect role in the maintenance functions and without implementation of their leadership skills, it would be impossible for the Aircraft Company to control maintenance cost. Organizational Design Consideration of the examples cited in the above section and the innovation program in Gulfstream G650 reveals the fact the Gulfstream Aerospace Corp has undergone series of change management initiatives to reach its present stages. In such context, pertinent question may arise whether Gulfstream has undergone organizational structure change in order to incorporate innovation or not? Lampela (2009) and Law & Ngai (2008) argued that incorporating innovation needs tweaking of the existing organizational structure in order to provide sufficient scope for the new system to achieve it functional objectives. Fischer (2006) stated that rigid organizational structure needs to be converted into flexible one in order to achieve innovation and gave evidences regarding the role of organizational structure in facilitating performance in the organization. Although the study has already depicted the existing seven department innovation team in the organization but a more detailed organizational structure of Gulfstream can be depicted in the following manner. Figure 1: Current Organizational Design of Gulfstream (Source: The Official Board, 2013) There is no doubt in the fact that existing organizational structure of Gulfstream is pretty much flexible to incorporate innovation and ensure knowledge sharing between each departmental vertical. As a whole, there are 14 tier-1 departments in the organization and 4 additional department works separately in order to provide support to business operation. Larry Flynn is the president of the company but there 7 vertical heads who have the authority to report to the president. During aeronautical projects, each of the department works with other 13 departments in order to ensure smooth business operation and these departments communicate with each other during project time. The study has found that Gulfstream believe that incorporating technological brilliance can help them to reduce maintenance cost for G650 but the fact is that extent of knowledge sharing is pretty less within the organization. Such mechanistic organizational environment of the company not only creating problem for them to realize full potential of shared leadership but decreasing their efficiency to control the maintenance cost for G650 to further extent. Despite creating seven member teams of innovation but each team leader of Gulfstream is more concerned about their department’s work rather knowledge sharing with other departments (Gulfstream, 2013b). In such context, the study will propose following lattice management structure for Gulfstream that can not only encourage innovation but also help the company to control expenses of G650. Figure 2- Possible New Design (Source: Solesvik & Encheva, 2010, pp. 701 – 717) According to Solesvik & Encheva (2010) lattice management structure should be defined as the extension of mechanistic organizational structure by introduction of unique infimum and supremum. In case of Gulfstream, using lattice structure will help them to flatten the organizational structure and each of the department such as Administration and Legal, Product Support, Finance, Marketing & Sales, Programs and Engineering, Government Programs, Operations etc can work with each other in interloped manner. Let’s use the following model to demonstrate the organizational cultural influence of lattice mode. Figure 3- Micro Lattice Structure (Source: Solesvik &Encheva, 2010, pp. 701 – 717) Suppose, employee of Programs and Engineering department g1 have the knowledge and skill for repairing aircraft designing problem (m3) but they lack the financial or accounting skill to calculate optimal cost for maintenance (m2); while employee g2 is very good at complex mathematical calculations (m2) but poor in drawing process designs (m3); while employee of operations department g3 are good in providing aircraft maintenance service (m1) but lacks in the skill set of m3 and m2. Joining these employees through a unique knowledge pool will encourage knowledge sharing between them and help them to put conjoint effort to reduce maintenance cost for G650. Such flexible and knowledge sharing culture would not only help Gulfstream to control maintenances cost for G650 but also would help them to increase overall value chain performance efficiency. Change and Innovations Lampela (2009) and Law & Ngai (2008) found positive correlation between increase in organizational performance and achieving innovation. These scholars also highlighted the fact that organizations often change its existing structure in order to achieve innovation. Although, apart from some minor functional tweaking the organizational structure of the company has not changed much in recent times. Rather, the incorporation of innovation team has expanded the organizational structure of Gulfstream. Gulfstream announced to launch G650 during 2008 and introduction of G650 can be considered as innovation breakthrough for the company (Gulfstream, 2013c). Launch of G650 can be considered as innovation achievement due to following reasons; G650 is capable to cover 7,000 nautical miles at a speed of 0.85 Mach and the aircraft is also capable of covering shorter distances at a speed of Mach 0.925. Due to such capabilities, the aircraft can be considered as the fastest civilian aircraft flying in specified air traffic. G650 is equipped with advanced cockpit in the Gulfstream and the aircraft is able to climb more than 50,000 feet which can help it to address problems like adverse weather and airline-traffic congestion (Gulfstream, 2013c). The company incorporated its financial and technological resources to launch G650 and finally launched the aircraft in 2009. However, Savannah manufacturing facility handled the responsibility of manufacturing of the aircraft but Gulfstream took the manufacturing facility under its own wing (Gulfstream, 2013c). In the initial stage, the airline giant has limited the technological innovation to its Savannah manufacturing facility but in the last 4 years, Gulfstream integrated production, engineering, service and operation sections to control the operation and maintenance of G650. For example, Gulfstream expanded operation of Savannah facilities through implementation of seven-year plan worth $500-million (Gulfstream, 2013c). Change management is taking place in terms of expansion of service centers, workforce, airline base etc. For example, Gulfstream opened service centre Barnes Regional Airport in Westfield during 2011 (Gulfstream, 2013c). The airline giant is providing training to its service employees regarding maintenance of aircraft and handling of additional fleet load after the company has decided to double its service centre base within the next 7 years. Hence, it can be said that launch of G650 was not a mere example of technological innovation but also example of capacity building through change management. Managerial Roles The managerial roles are indispensable to the success of an organization. The role of a manager is not constrained with only supervision and allocation of work, but control and maintenance are other vital areas of management. Nowadays, managers are stressed more to increase the operational effectiveness and simultaneously reduce and gain control over different kinds of costs. Reduction of maintenance cost is one such major area. Several instances reveal that improper management pertaining to maintenance has led to the failure of companies are forced the company to experience accidents, disasters and extensive losses. Some of the evident examples are the space shuttle Columbia case, Bhopal gas tragedy and power outages in the city of New York. Although, this example reveals the case of improper maintenance but alongside this role of managers were significant. Therefore, one thing becomes apparent that a company must not compromise its quality for the sake of minimizing the expenses of maintenance. The necessary must be invested in getting the desired result and offer superior experience to the customers. Furthermore, studies have also shown that proper maintenance strategy may even prevent the company from financial losses (Bream, 2006). On the contrary, it may lead to severe financial losses. For instance, BP refinery in the US had to pay a sum of $21m as a penalty and spent additional US $1b to repair the machineries that caused the explosion in Texas City refinery. Regarding this context, if the company would have invested some more money and properly maintained the machineries, the incident could have been averted. As mentioned above the role of managers in gaining control over the maintenance cost is crucial, companies thus heavily rely on the managers to cut the maintenance cost. Cost reduction is one of the important tasks of the companies. The same is also true for the maintenance managers who are responsible for controlling the maintenance cost imposed by the senior management. Although it seems complicated to have a grip over the spending on maintained, but still steps can be taken to minimize the cost. One of the most evident activities that are generally adopted by the managers is the focus on change. Majority of the managers focuses more on the operational aspect of maintenance that encompasses ordering spare parts, creation of the trouble tickets and scheduling of resources. Paradoxically, maintenance managers ignore strategic maintenance management, which can play indispensable roles in minimizing the maintenance cost. Periodic maintenance is another key activity that helps in controlling the maintenance cost. In this context, managers play a crucial role in regularly supervising the maintenance activities. Since, Gulfstream G650 belongs to aviation industry; the requirement of maintenance is high as it is composed of a number of mechanical parts. Some of the regular activities carried out by the maintenance managers are regular check up the equipments, periodic painting works to prevent rust, periodic replacement of outdated spares with technologically updated ones and generating regular reports to ensure proper functionality. Furthermore, in order to maintain a balance between the expenses of maintenance and better functionality, it is important to frame in a comprehensive maintenance planning. Again managers in this situation have utmost importance. The key role of the managers in this context includes setting clear procedures, inspection, prioritizing and preventive programs. Accomplishing these tasks properly will obviously lead to better workability. Moreover, regular maintenance of the engine of Gulfstream G650 will ensure low maintenance cost. Therefore, the evidences above and the function required for maintenance clearly shows that managers will be crucial in managing and controlling the cost of maintenance. The similar concept is also applicable to the companies belonging to the aviation industry. Therefore it is strongly recommended that Gulfstream G650 must authorize its managers of production department to oversee the maintenance issues and formulate strategies by which maintenance cost can be minimized. Global Business Aspects Since 2009, the global aviation industry is facing with the worst decline of all time. The global economies have shrunken due to the global crisis and as a consequence the demand for aviation has greatly plunged. Both passenger carrier and cargo industry were the victims of this global recession. To add to this downfall, researchers and industry experts have discovered that financial consequences on the aviation industry are a ‘permanent loss’ which takes the industry behind. In such situation, reformation is the only way out for the companies to survive in the marketplace. Industry restructuring is also another viable option by which the industry can improve its position in the market place. Expansion, Concentration and consolidation are the three most common techniques. As per the trends of the global aviation industry, the current situation has reached a state of rethinking. The global credit crunch and the slowing demand are the major reasons that led the global aviation industry witness slowing growth. (Source: Wensveen, 2010) Moreover, the cost of operation is also rising at a rapid pace. The three major determinants of the industry are the cost of fuel, labor cost and the maintenance cost. Thus, maintenance is a determining factor for the success of aviation business. Companies should therefore frame in effective strategies to minimize the cost of maintenance. Although, the aforementioned three areas are not the only cost associated with the operation of aviation, but these three areas accounts the most. Some of the other areas are passenger servicing charges, promotional charges and general administrative charges among others. (Source: Wensveen, 2010) Again the figure shows that maintenance and overhaul accounts for 10.1 % of the overall cost of operation. Thus, control over the maintenance expenses will make a significant contribution to the overall profitability of the company. From the global perspective, airlines companies have tried their level best to eliminate unnecessary cost since the last downturn. The global aviation industry is increasingly becoming more frugal due to high oil prices and failing demand. In such scenarios, reducing the maintenance cost is the only viable option. Some of the most techniques used by the global aviation industry to reduce cost are increasing outsourcing activities to the third party vendors, reduction of various types of input cost, more dependent on technology so as to eradicate excess staff members and migration of the maintenance division to areas with low labor cost. Reports have suggested that the application of the aforementioned strategies has really helped aviation companies to gain better control over the operation and maintenance cost (Reals, 2008). E-commerce and E-Business With the colossal development of technology, companies around the world are switching to more cost effective ways of doing business. The latest buzz from the field of technology is the development of e-commerce. According Liyanage & Kumar (2003), e-commerce has actually changed the way business is being done. Interestingly, the impact of e-commerce on the businesses has been identified, irrespective of the nature and type of business. One of the major causes of the uprising of e-commerce is the quantity of benefits provided by this technology. Hence, e-commerce has not only offered benefits to the companies but has also offered benefits to the customer. Nowadays, many companies are switching or extending their business line to the virtual world in which they offer platforms for online transaction. As a result of that, users get the opportunity and enjoy the convenience of shopping online. This not only reduces their time and effort, but alongside this gets greater choice. For example, users can shop whenever they want to shop, without any limitation of time and geographical boundaries. In the context of aviation industry, companies generally use the technology of e-commerce for the purpose of selling online tickets. In addition, e-commerce is also used as a promotional tool. Now when it comes to the issue of maintenance and operation, studies have shown that e-commerce can actually act as one of the best technologies for minimizing the cost. Although, the reduction in operation cost becomes more noticeable, it does play vital roles in minimizing the overall cost of maintenance. In case of aviation industry or specifically for Gulfstream G650 jet, e-commerce can provide bulk of information required for the maintenance purposes. In addition, with the implementation of e-commerce the company will be able to communicate the maintenance issues at a fast pace. Quickly addressing the issues will obviously minimize the intensity of the problem and can reduce the cost required. There is another aspect of the topic, e-commerce in reducing and controlling the maintenance expenses. This concept is related with the transformation of the venture to electronic business. In this context, the company can fully expunge the concept of physical store maintenance. The maintenance of physical store involves a number of factors and requires huge amount of resources and time. On the contrary, a business involved in online business hardly has to incur any cost pertaining to maintenance. The maintenance of the e-commerce platform requires minimal effort and time. Usually, majority of the companies outsources their maintenance activities to a third party vendor and maintains a cordial relationship with them. One of the biggest advantages of switching to online business for the purpose reducing maintenance cost is the real time scanning and maintenance. This greatly reduces the chances of failure and the company is able to provide better services to the customers. For example, companies such as eBay and Amazon have been able to control their maintenance budget to a great extent and this in turn has allowed these companies to achieve and maintain greater profit margin. (Source: Chaffey, 2013) Therefore, instances as well as information above clearly accentuate the scope of e-commerce and how it can be effective in controlling the expenses pertaining to maintenance. The similar strategy is also applicable for Gulfstream G650, which can easily implement e-commerce solution to lessen operational as well as maintenance cost. References Bream, R. (2006) More fuel for anti-BP sentiment, Financial Times, London: DOE-HDBK-1148–2002. Chaffey, D. (2013). A case study focusing on eBay strategy. Retrieved from http://www.smartinsights.com/ecommerce/ecommerce-strategy/ebay-case-study-2/. Ensley, M. D., Hmieleski, K. M., & Pearce, C. L. (2006). The importance of vertical and shared leadership within new venture top management teams: Implications for the performance of startups. Leadership Quarterly, 17(3), 217-31. Fischer, M. M. (2006). Innovation, networks, and knowledge spillovers. Berlin: Springer. Gulfstream. (2013a). Business Areas. 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