Virgin Airlines Australia - Supply Chain Principle - Case Study Example

Virgin Аirlinеs Аustrаliа: Suррly Сhаin Рrinсiрlе Name: Virgin Аirlinеs Аustrаliа: Suррly Сhаin Рrinсiрlе Course: Tutor: Institution: Date: Table of Contents Table of Contents 2 1.0 Introduction 4 2.0 Current Situation 5 3.0 Issues Discussed 6 3.1 Management 6 3.2 Financing 6 3.3 Environment 6 3.4 Information Technology 7 4.0 Analysis of Current Situation 7 4.1 Strength 7 4.2 Weakness 8 4.3 Opportunities 9 4.4 Threats 10 5.0 GAP Analysis 11 5.1 Financial Spending 11 5.2 Cost Reduction Supply Chain Policy 12 5.3 Mission and Strategy Alignment 13 6.0 Recommendations 14 6.1 Budgetary Allocations 14 6.2 Clusters Establishment 15 6.3 Supply Chain Management Outsourcing 16 7.0 Conclusion 17 References 18 Appendices 21 Appendix 1: SWOT analysis 21 Appendix 2: GAP Analysis 22 Appendix3: Parking Fees Schedules 23 1.0 Introduction Traditionally, organisations perceived the supply chain function as an internal organizational affair with no direct relationship with overall market success. However, with increasing global competition levels it was imperative for organisations to develop alternative imperative marker edges of which supply chain management emerged as one among these sustainable edges. The purpose of this evaluation is to investigate the extent to which SCM efficiency and strategies influence and enhance overall organizational management as Cadden, Marshall, Cao (2013, p.87) argued in their study that establishes a direct relationship between SCM and organizational productivity. In this case, the report will evaluate the existing contribution of this organizational function as well the recommendations for future SCM improvements. The evaluation of these variables will include the evaluation of the Virgin Airlines Australia, the second largest by consumer and capital base in the nation. The organisation was initially Blue Virgin latter renamed to Virgin Australia Airlines in a bid to enhance its presence and brand dominance in the Australian market. In its formation, the organisation opened its doors in 2000 and it has since expanded its control in the Australian market to serve in the excess of 26 cities as of 2013. Moreover, the venture operates under the Virgin Group founded by Richard Branson and is the second largest by fleet under the Virgin group. The organization, under the Virgin group ventures is a major industry competitor recording high gross profit margins as well as steadily rising demand base. Therefore, the organization serves as a performance and success template in the Australian market (“Virgin Australia”, 2014). Thus its inclusion will serve as a benchmark for other Australian organization with respect to SCM strategies and structures. Moreover, the venture is an international organization. As such, it applies international policies and thus making the analysis not only applicable in the Australian but also the entire global market. 2.0 Current Situation The Virgin Australia airlines as already discussed is the second largest airline in Australia. In this case, the organization has in the last half a decade experienced growing capital gains and profitability especially after its rebranding form the Virgin Blue to Virgin Australia airlines, to exhibit its increased control and dominance in the Australian aviation industry. For instance, in 2012 the venture acquired a profit before tax of $ 61.0 million gains (“Virgin Australia Airlines”, 2012). This is a clear indication of its financial stability in the market. In order to achieve these gains, the organization applies a series of marketing strategies such as market concentration through the offering of the core services against diversifying its efforts to non-core services such as in flight meals In this regard, the organization operates under the SCM strategy on cost reduction, where it seeks to establish and innovate new operational supply chain management strategies and practices as a precursor for reducing overall operational costs. Therefore, its supply chain management system is guided by the principles of sustainability and cost reduction. Lai, Chen and Yang (2012, p.263) argued these principles as key among the strategic SCM future success. On one hand, the sustainability philosophy is based on the variables of utilizing renewable resources, while the cost reduction aspect is based on procuring and using supply resources that have maximum operational gains at the least costs possible. 3.0 Issues Discussed The current virgin Australia Airline analysis establishes a range of supply chain management issues. In this case, the established and discussed issues in the SCM evaluation rage form operational, medium, long-term and strategic issues. The issues can be categorized as follows 3.1 Management This involves an evaluation of the approaches, practices and systems put in place by the Virgin Australia airline in order t manage its SCM systems and stakeholders. Such stakeholders include the suppliers, distributors and industry partners. Management as Alvarenga (2014, p.18) stated plays a crucial role in SCM success and performance. 3.2 Financing The evaluation reviews the organizational budgetary allocations and values and how each of these variables has an implication on SCM. In this case, it evaluates the actual organizational spending on SCM and how this spending habit has offered merits and challenges in the overall SCM functioning and operations. 3.3 Environment The review focuses on the environmental implications of the airline operations. In this case, issues such as airplanes manufactures raw materials and production models, use of non renewable fuel and the eventual nature and rate of carbon emissions by the airplanes are discussed (Williams, 2008, p.33). Moreover, an evaluation of the organizational strategies through its SCM function to reduce on these issues are discussed and enumerated. 3.4 Information Technology A study by Forman (2014, p.47) a case study of the automotive industry established that technology and IT application form the core future success criteria for SCM. The evaluation seeks to establish the nature and extent to which the organization has applied IT systems in its SCM. In this case, the merits of such IT application, challenges encountered and potential gains for increased future application of IT systems are evaluated as part of the report recommendations. 4.0 Analysis of Current Situation In order to critically evaluate the Virgin Australia Airline current SCM situation, it is imperative to evaluate its internal systems. Fine (2009, p.24) recommended the application of a strength, weakness, opportunities and threats (SWOT) analysis as a tool for evaluating the overall organizational internal structures. This method is regarded as a complete organizational systems audit approach through which analysis and evaluators can develop critical systems analysis. As such, this report develops a critical analysis of each of the model aspects as discussed below. 4.1 Strength A strength analysis involves the process through which organisations internal system merits are discussed and evaluated. Griffin (2007, p.67) argued that an organization’s strengths represent its key strategic aspects and issues that enhance its market competitiveness development and sustainability. In this light an evaluation of the Virgin Australia Airlines SCM system establishes that a key competitive edge is its supplier relationship programs. As already discussed, the organization operates under a cost reduction strategy, where expense on noncore venture operations is cut to the minimum. As such, their supply relationships systems are lean and as such less expensive. In this regard, the organization retains a lean supply base (Rogers, 2009, p.224). This implies that the organizational suppliers are reduced to the possible minimum. Consequently, the retention and establishment of a lean supplier base, the organizational direct relationships approach is successful. In this case, instead of developing agencies and suppliers portfolios through which to relate and interact with the suppliers like other global airlines such as the British Airways, the organizational procurement function directly interacts and relates with the suppliers throughout their mandate execution schedules. This has led to the ultimate development and establishment of suppliers’ loyalty and growth systems such as supplier appraisal systems. Through this appraisal system, the venture awards the top industry performers and as well offer technical support to the deserving suppliers in an effort to increase their performance efficiencies. 4.2 Weakness Despite the merit of Virgin Australia Airline SCM in suppliers’ management lean system as well as its appraisal system, the strategy has a major organizational weakness. In this case, the organization advances minimal funds in suppliers’ selection and relationships development. This is based on the perception of retaining already performing suppliers. This limits the functions ability and success rates for increasing the supply base and the subsequent possibility for the development and selection of innovative suppliers. Consequently, the organizational suppliers list contains of an almost fixed membership a major limitation to its innovativeness. In addition, the existing SCM system has a weakness in controlling environmental pollution. For instance, the organizational airplanes use the non renewable energy sources. This has implications on the organizational reputation and societal appeal. On one hand, it causes environmental pollution. The realization of this supply chain management challenge, the organization joined the Sustainable Aviation Fuel Users Group (SAFUG) in 2010 (“ICAO”, 2014). The organizational initiative is based on the need to establish the use of sustainable renewable energy. However, there is only an expectation of 5% renewable jet fuel use by the venture by 2020. Further, this is based on a series of successful stakeholders’ execution of their required tasked mandates. Therefore, in the current context, the challenge of sustainability and use of inappropriate environmental fuels persists as a Virgin Australia Airline weakness. Moreover a major weakness emerges in the airline parking fees that ranks at $40 and $45 for 1 and 2 hour parking respectively against Qantas rates that rank at $25 and $40 for 1 and 2 hours parking respectively. 4.3 Opportunities The Australian market is drastically developing and changing. In this case, the market experiences an increased government support that has led to the establishment of favourable market operational conditions. This presents the opportunities for the establishment of strategic organizational alliances under the clusters classification. Clusters are defined and classified as associations and organizational groups developed by organisations in similar industries or operating under similar business models. In this regard, the development of these clusters benefits the stakeholders through increased collective bargaining, sharing of information as well as establishing financial and capital stability. Therefore, based on this Australian market operational trend, it is expected that the organization will establish an airlines industry clusters. Through the establishment of these clusters the organization will acquire a wider perspective in the industry (Chiesa and Chiaroni, 2004, p.4). As such, through the establishment of these clusters the existing challenges in the supplier selection. Therefore, through this approach, the organisations will share information on suppliers’ management as well as procurement strategies information and consequently lead to reduced supplier relationship costs. On the other hand, the market is experiencing increased agencies establishment. In this case, external procurement agencies are increasingly taking up the procurement functions from organisations. In this case, instead of concentrating on the process of procurement and SCM activities, they will contract external third parties to execute these functions on their behalf. Therefore, this will subsequently enhance increased SCM efficiency. In addition increasing airports efficiencies have evidenced operational costs reduction through main airports reducing landing and take-off costs such as Melbourne that charges $36.27 for light planes, Brisbane with g at $33 f for planes up to 5000kgs and $15.34 for Adelaide. This evidences an opportunity for reduced operational costs into the future especially for their light planes. 4.4 Threats Despite the existing SCM opportunities in the market, there are strategic operational threats facing Virgin Australia Airlines. One of the challenges is a loss of contact with its suppliers through the use of external third parties. In this regard, such an approach will eliminate the existing relationships merits and instead lead to a distanced relationship. Consequently, the gains f its supplier appraisal system will be reduced and the effectiveness and efficiency of the operational services will rely not only on its competitiveness but also on the third part agency competitiveness. An additional future expected strength is the rise of environmental activist groups against the airlines fuel use. Therefore, the use of the proposed renewable jet fuel, due to its lack of enough pioneering may increase supplier sourcing, capacity building and eventual selection, as there lacks a historical performance record through which such suppliers operations, business ethics and quality could be a major problem. Therefore, this exposes the organization and the entire industry to the risk and expounded challenge of selecting new environmentally compliant suppliers (“University of Queensland”, 2014). The risk and challenge of increased government and international environmental regulations may increase challenges in managing and establishing policies and strategies for the organizational SCM. 5.0 GAP Analysis 5.1 Financial Spending Currently, as enumerated under the SWOT analysis establishes that the organizational SCM spending focuses on suppliers’ development as well as the establishment of increased IT improvement. In this case, the organizational SCM long-term goal is to establish a sustainable SCM through which the established systems are not only efficient but also supporting environmental systems. In this strategic goal is the need and initiation of the renewable Jet fuel (RJF) imitative through which the airlines would use fuels prepared under the bio systems. In this regard, the organization joined ASAFUG in 2010. This group was an initiative to increase SCM sustainability and environmental control systems. Based on this group and the support of the Australian government it is expected that the RJF will be rolled out by 2020. Subsequently, in order to make this process a success, the organisations distributed mandates and responsibilities to various stakeholders such as research and quality assurance among others. However, an evaluation of the organizational strategic plan establishes that it intends to use up to 5% of RJF by 2020. This analysis establishes the organizational commitment to this strategic fuelling approach in that it has advanced minimal funds (“Department of Sustainability, Environment, Water, Population and Communities”, 2014). These reduced funds allocation create a gap between the organizational strategic commitment and operational processes. In this regard, there exists a gap between organizational goals in sustainable SCM and the actual steps and funding towards developing environmental sustainability and management efficiency for Virgin Australia Airlines. 5.2 Cost Reduction Supply Chain Policy The current organizational supply chain policy seeks to increase operational efficiency at reduced operational costs. As such, the SCM strategy approach is focused on creating efficiency that would in turn reduce the overall costs. Therefore, the expected operational model should be executed on two folds namely efficiency then cost reduction approaches. Through this approach, the acquired benefits of increased supplier relationship management efficiency would lead to reduced operational challenges that the venture would rely on to strategically reduce its SCM costs. However, a critical evaluation of the current system establishes a disparity and diversion from this strategic need and objective. Currently, the organization focuses on creasing cost reductions in suppliers’ management through lean suppliers’ list management. As such, the reduced costs of managing the few suppliers are interpreted as the subsequent overall SCM costs reduction. However, a critical systems audit establishes that this is not the case. In this regard, a weakness analysis establishes that the rigid suppliers list locks out potential innovative suppliers. Therefore, this leads to the foregoing of viable cost reduction opportunities. Further, this represents only a single component of the SCM. As such, reducing costs in this component without regulating other costs such as procurement and distribution aspects costs does not deliver on the expected industry. Thus, based on this critical cost reduction strategy evaluation, this report concludes that there is a major rift and gap between the intended strategic gains and the currently executed operational strategies. Therefore, in order to mitigate this challenge gap, it is imperative that the organizational executive and SCM function managements should develop alternative proactive corrective system operational measures. 5.3 Mission and Strategy Alignment A critical evaluation of the current organizational supply chain policies establishes a variance between it and the overall organizational mission strategic goals. On one hand, the supply chain management principle is based on reducing operational costs. A general perception of this strategy seems to align with the organizational desire to provide affordable air travel services. However, the implementation strategy deviates from this objective (“Australian Business Traveller”, 2014). On its part, the overall organizational mission is not only affordability but also superior consumer quality services. This objective is pegged on the organisations vision and value for improving efficiency through innovation. In this case, the adopted organizational lean suppliers’ management system limits the number of suppliers as well as creating supplier rigidity. In this case, the organization retains its suppliers and hardly changes them unless they under perform. Therefore, this reduced flexibility serves as an innovation barrier, which is a key driving factor for the airline. As such, this analysis establishes the existence of a gap and disconnect between the Virgin Australia Airlines SCM and its core operational values. 6.0 Recommendations Based on the established Virgin Australia Airlines SWOT analysis as well as the subsequent Gap analysis, this report establishes that there is the need to establish and execute appropriate strategic recommendations to increase market success and SCM efficiency. In this regard, the report develops a series of recommendations such as budgetary allocations change, clusters development as well as Outsourcing services. This report section develops analysis and action plans for each of these strategic SCM recommendations. 6.1 Budgetary Allocations Nugus (2009, p.198) argued on the role of financial planning to an organizational success. In this case, the analysis establishes that increased financial system increases working capital availability enhancing increased availability of funds for the execution of the required and necessary products. In particular, this report recommends a review of the organizational SCM financing. Currently, a majority of the allocated organizational funds are inclined to supplier relationships and IT development. Although these strategies and allocations are justified, their increased funding has raised their efficiency. Therefore, there should be a funding restructuring process through which other SCM areas should be financed. Among the recommended areas of focus by the airline include environmental sustainability development as well as supply base diversification. On one hand, the sustainability processes should include investment in research and development to evaluate better and ideal operational models to reduce on environmental pollution. This includes alternative resources such as the proposed RJF applicability and acquisition need s and procedures. On the other hand, a suppliers diversification programs should include the establishment of a new suppliers list (“Virgin Australia”, 2014). In this case, the organization should recruit new suppliers in a bid to reduce on its current rigidity and as a result enhance increased innovation and supplier selection flexibility. These financing trend changes will enhance the bridging the gap between the organizational innovation value and the SCM operational rigidity challenge. 6.2 Clusters Establishment As already discussed under the report opportunities evaluation in the SWOT analysis, it I evident that industry clusters establishment are bound to be on the rise. Sehic and Rahimic (2006, p.1408) argued on the merits of using industry clusters in SCM. In this case, the study pointed on the financial merits of these clusters. In this case, it argued that through increased financial stability, procuring entities acquired an increased bargaining edge against dominant industry suppliers. As such, through the establishment of this approach, the organisations procure resources and required material at relatively low. Moreover, such clusters enhance the pooling together of technical and human skills. In this case, such clusters have the potential to draw the best procurement and supply management staff with better skills and qualification than the respective organisations. As such, the acquisition of these skills increases the system management efficiency. In this regard, this report recommends that the Virgin Australia Airline should consider joining these clusters into the future. Its enjoining in these ventures will relieve it off the burden of managing the suppliers and thus eliminate the need to retain a small number of suppliers. Therefore, the process will increase its overall supplier’s flexibility a virtue in congruence with its innovation and SCM costs reduction strategic goals. However, as already noted under the SWOT opportunities analysis section, there is the risk of losing suppliers relationship and risk of delayed deliveries. Therefore, in order to mitigate this challenge as Birkinshaw and Hood (2000, p.143) argued, the organization should limited SCM roles to the cluster. As such, the retention of control on the core supply areas will ensure retained relations and the subsequent supplier relationships gains such as quality and performance efficiency through appraisal systems. 6.3 Supply Chain Management Outsourcing Outsourcing is a growing management practice, not only in Australia but across the globe. In this case, organisations in the global market are increasingly adopting the outsourcing approach all the way form their transportation, human resource recruitment and the latest supply chain management. Therefore, through this approach, the organisations entrust their SCM operations and activities to the external expert organisations. Windrum, Reinstaller and Bull (2009, p.199) conducted a study on the implications on organizational operations outsourcing. In this regard, the study established that due to the expert and skills of the outsourced firms, there was increased market performance efficiency. As such, the study concluded that outsourcing increased performance efficiency as well as reduced operational costs. Therefore, this report recommends this approach application in Virgin Australia airlines SCM activities. An evaluation of the organisations strategic SCM goal is to increase efficiency and reduce on costs to create organizational sustainability. As such, outsourcing services such as procurements, expediting and supplier management among others would enhance their handling by the more qualified SCM staff thus promoting their efficiency. In addition, this would reduce organizational investments in SCM such as high staff numbers and operational costs thus achieving the organizational strategic mission of reducing on all operational costs to the minimum as a baseline for enhancing airline services affordability in the long run. 7.0 Conclusion In summary, this report develops a review of the Virgin Australia Airlines supply chain system. On one hand, the analysis evaluates and investigates specific SCM issue such as management, environmental conservation, IT application and sustainability. In this regard, the organizational supply chain management SWOT analysis. On one hand, a strength analysis establishes that the organizational SCM has its merit on lean suppliers’ management success. Moreover, the system has a major weakness in its current new supplier’s recruitment rigidity. Moreover, an opportunities analysis establishes the likelihood of the emergence of industry clusters as well as outsourcing their party agents. Finally, the analysis establishes the risk of increased supplier management challenges due to changing management dynamics as well as regulatory measures especially on environmental sustainability. Therefore, the report critically examines the analysis and concludes that the organizational SCM has gaps in its financial allocations, supply chain policy inconsistency as well as organizational mission and SCM strategies disconnect. Therefore, the report developed a series of recommendations for improving the Virgin Australia Airline SCM. In this case, the report develops recommendations on financial redistribution in SCM, clusters development as well as outsourcing the services as a measure to increase efficiency and reduce on costs. References Alvarenga, C.A. 2014, "The Operations-Centered CFO: Reinventing the Role of Finance in Supply Chain Management", Corporate Finance Review, vol. 18, no. 4, pp. 16-23. Australian Business Traveler, 2014, Virgin Australia warns flyers of email scam, [Online] Available at [Accessed September 26, 2104]. Birkinshaw, J. & Hood, N. 2000, "Characteristics of foreign subsidiaries in industry clusters", Journal of International Business Studies, vol. 31, no. 1, pp. 141-154. Cadden, T., Marshall, D. & Cao, G. 2013, "Opposites attract: organisational culture and supply chain performance", Supply Chain Management, vol. 18, no. 1, pp. 86-103. Chiesa, V., & Chiaroni, D., 2004, Industrial Clusters In Biotechnology: Driving Forces, Development Processes And Management Practices, World Scientific, Singapore. Department of Sustainability, Environment, Water, Population and Communities, 2014, Virgin Australia Airlines, [Online] Available at [Accessed September 26, 2104]. Fine, L. G., 2009, The SWOT analysis: Using your strength to overcome weaknesses, using opportunities to overcome threats, Kick It, S.l. Forman, H. 2014, "Buying Centers and the Role Of Supply Chain Orientation On New Information Technology Satisfaction In The Automotive Industry", Journal of Marketing Theory and Practice, vol. 22, no. 1, pp. 41-52. Griffin, R. W, 2007, Fundamentals of management: Core concepts and applications, Houghton Mifflin, Boston, Mass. International Civil Aviation Organization, 2014, Sustainable Aviation Fuel Users Group, [Online] Available at [Accessed September 26, 2104]. Lai, C., Chen, C. & Yang, C. 2012, "The Involvement of Supply Chain Partners In New Product Development: The Role of A Third Party", International Journal of Electronic Business Management, vol. 10, no. 4, pp. 261-273. Nugus, S. 2009, Financial planning using Excel: Forecasting planning and budgeting techniques, CIMA, Amsterdam. Rogers, S. C. 2009, The supply-based advantage: How to link suppliers to your organization's corporate strategy, AMACOM, New York. Sehic, D. & Rahimic, Z. 2006, "Improving Competitive Advantages of B&H Economy Through Clusters", University of Zagreb, Faculty of Economics and Business, Zagreb, Jun, pp. 1408. University of Queensland”, 2014, Virgin Airlines, [Online] Available at [Accessed September 26, 2104]. Virgin Australia Airline, 2012, Annual Reports, [Online] Available at . [Accessed September 26, 2104]. Virgin Australia Airline, 2014, planning, [Online] Available at < http://www.virginaustralia.com/au/en/>. [Accessed September 26, 2104]. Virgin Australia, 2014, E-procurement, [Online] Available at [Accessed September 26, 2104]. Williams, B. 2008, Transport technology, Evans, London. Windrum, P., Reinstaller, A. & Bull, C. 2009, "The outsourcing productivity paradox: total outsourcing, organizational innovation, and long run productivity growth", Journal of Evolutionary Economics, vol. 19, no. 2, pp. 197-229. Appendices Appendix 1: SWOT analysis Appendix 2: GAP Analysis Appendix3: Parking Fees Schedules Virgin Airlines Parking Fees Parking Period Rate 0 - 1 Hour $40.00 1 - 2 Hours $45.00 2 - 3 Hours $52.00 3+ hours to midnight $77.00 Each Additional Day ( or part thereof) $57.00 Qantas Valet Parking Rates Duration Rate 1 Calendar day $77 1 hour rate $25 2 hour rate $40 3 hour rate $45 3+ hours Daily Rate Read More