Introduction to the Aviation Industry

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A Report on Global Logistics amp Supply Chain

Management in International Aviation Industry

Submitted To

Dr A N Sarkar

Prepared By

Sweety E Das (2k81IB24)

Abhinav (2k81IB25)

Debashish (2k81IB26)

Dr Himani Singh (2k81IB27)

Mohd Ameed (2k81IB28)

Prashant Rampuria (2k81IB29)

Sonal (2k81IB30)

Vidisha Singh (2k81IB31)

September 05 2009

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Table of Contents

Table of Contents

INTRODUCTION TO THE AVIATION INDUSTRY 2

WHAT IS SUPPLY CHAIN MANAGEMENT 3

SUPPLY CHAIN MANAGEMENT PROBLEMS 3

SUPPLY CHAIN BUSINESS PROCESS INTEGRATION 4

COMPONENTS OF SUPPLY CHAIN MANAGEMENT INTEGRATION 5

GLOBAL SUPPLY CHAIN MANAGEMENT 6

REPORTING STRUCTURE amp SYSTEMS 6

CHANGING SCENARIO IN CROSS-BORDER TRADE 7

FIVE BASIC TRANSPORTATION MODE 7

COST STRUCTURE FOR THE AIR TRANSPORTATION MODE 8

AIRLINE INDUSTRY VALUE CHAIN 8

IMPACTS OF A WEAKENED AIRLINE INDUSTRY 9

ROLE OF IT 10

INSTALLATION OF RFID IN AIRCRAFT 10

RFID HOW IT WORKS 11

RFID SAVINGS FOR MROS 12

AIRBUS KEEPING TRACKS OF TOOLS 13

BOEING AND FEDEX EXPRESS TESTING RFID IN SERVICE 14

WHATrsquoS NEXT 15

GOEBBELS ON SAPS RFID STRATEGY 16

Bibliography 18

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INTRODUCTION TO THE AVIATION INDUSTRY

The 1884 La France the first fully controllable airship

Although many people think of human flight as beginning with the aircraft in the early 1900s

in fact people had been flying repeatedly for more than 100 years

Wright brothersrsquo first successful flight in Kitty Hawk in 1903

American Airlines in 1928 and United Airlines in 1931

Development of the mail system by the US Postal Service helped create the airline

industry

Increased RampD of aircraft after World War II World War II saw a drastic increase in

the pace of aircraft development and production All countries involved in the war

stepped up development and production of aircraft and flight based weapon delivery

systems

After World War II commercial aviation grew rapidly used mostly ex-military

aircraft to transport people and cargo This growth was accelerated by the glut of

heavy and super-heavy bomber airframes like the B-29 and Lancaster that could be

converted into commercial aircraft The DC-3 also made for easier and longer

commercial flights The first North American commercial jet airliner to fly was the

Avro C102 Jetliner in September 1949 shortly after the British Comet By 1952 the

British state airline BOAC had introduced the De Havilland Comet into scheduled

service

Deregulation in 1978 Deregulation ndash Entry and exit of routes and the pricing of fares

were deregulatedBenefits

1 The creation of new jobs and lower fares

2 More Americans were flying so airplane load factors were up

3 There was increased competition and a wider choice for passengers

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WHAT IS SUPPLY CHAIN MANAGEMENT

Supply chain management (SCM) is the management of a network of interconnected

businesses involved in the ultimate provision of product and service packages required by

end customers (Harland 1996) Supply Chain Management spans all movement and storage

of raw materials work-in-process inventory and finished goods from point of origin to point

of consumption (supply chain)

The definition put forward by a US professional association is that supply chain

management encompasses the planning and management of all activities involved in

sourcing procurement conversion and logistics management It also includes the crucial

components of coordination and collaboration with channel partners which can be suppliers

intermediaries third-party service providers and customers In essence supply chain

management integrates supply and demand management within and across companies More

recently the loosely coupled self-organizing network of businesses that cooperate to provide

product and service offerings has been called the Extended Enterprise

Supply chain management can also refer to supply chain management software which

includes tools or modules used to execute supply chain transactions manage supplier

relationships and control associated business processes

Supply chain event management (abbreviated as SCEM) is a consideration of all possible

events and factors that can disrupt a supply chain With SCEM possible scenarios can be

created and solutions devised

SUPPLY CHAIN MANAGEMENT PROBLEMS

Supply chain management must address the following problems

Distribution Network Configuration number location and network missions of

suppliers production facilities distribution centers warehouses cross-docks and

customers

Distribution Strategy questions of operating control (centralized decentralized or

shared) delivery scheme eg direct shipment pool point shipping cross docking

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DSD (direct store delivery) closed loop shipping mode of transportation eg motor

carrier including truckload LTL parcel railroad intermodal transport including

TOFC (trailer on flatcar) and COFC (container on flatcar) ocean freight airfreight

replenishment strategy (eg pull push or hybrid) and transportation control (eg

owner-operated private carrier common carrier contract carrier or 3PL)

Trade-Offs in Logistical Activities The above activities must be well coordinated in

order to achieve the lowest total logistics cost Trade-offs may increase the total cost

if only one of the activities is optimized For example full truckload (FTL) rates are

more economical on a cost per pallet basis than less than truckload (LTL) shipments

If however a full truckload of a product is ordered to reduce transportation costs

there will be an increase in inventory holding costs which may increase total logistics

costs It is therefore imperative to take a systems approach when planning logistical

activities These trade-offs are key to developing the most efficient and effective

Logistics and SCM strategy

Information Integration of processes through the supply chain to share valuable

information including demand signals forecasts inventory transportation potential

collaboration etc

Inventory Management Quantity and location of inventory including raw

materials work-in-progress (WIP) and finished goods

Cash-Flow Arranging the payment terms and methodologies for exchanging funds

across entities within the supply chain The way the supply chain is designed has

significant implications on companies working capital and can have important

consequences especially for leveraged and distressed companies

Supply chain execution means managing and coordinating the movement of materials

information and funds across the supply chain The flow is bi-directional

SUPPLY CHAIN BUSINESS PROCESS INTEGRATION

Successful SCM requires a change from managing individual functions to integrating

activities into key supply chain processes An example scenario the purchasing department

places orders as requirements become known The marketing department responding to

customer demand communicates with several distributors and retailers as it attempts to

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determine ways to satisfy this demand Information shared between supply chain partners can

only be fully leveraged through process integration

Supply chain business process integration involves collaborative work between buyers and

suppliers joint product development common systems and shared information According to

Lambert and Cooper (2000) operating an integrated supply chain requires a continuous

information flow However in many companies management has reached the conclusion that

optimizing the product flows cannot be accomplished without implementing a process

approach to the business The key supply chain processes stated by Lambert (2004) [5]

are

Customer relationship management

Customer service management

Demand management

Order fulfillment

Manufacturing flow management

Supplier relationship management

Product development and commercialization

Returns management

COMPONENTS OF SUPPLY CHAIN MANAGEMENT INTEGRATION

The management components of SCM

The SCM components are the third element of the four-square circulation framework The

level of integration and management of a business process link is a function of the number

and level ranging from low to high of components added to the link (Ellram and Cooper

1990 Houlihan 1985) Consequently adding more management components or increasing

the level of each component can increase the level of integration of the business process link

The literature on business process re-engineering buyer-supplier relationshipsand SCM

suggests various possible components that must receive managerial attention when managing

supply relationships Lambert and Cooper (2000) identified the following components

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Planning and control

Work structure

Organization structure

Product flow facility structure

Information flow facility structure

Management methods

Power and leadership structure

Risk and reward structure

Culture and attitude

GLOBAL SUPPLY CHAIN MANAGEMENT

Corporate controlling for global value chain

Suppliers Sub-Assembly Final Assembly Distribution Centers Customers

As manufacturing becomes more efficient (or is outsourced) companies look for ways to

reduce costs

As we can recognize from the developing of supply chain management theory it is more and

more involved in globalization and multi-country supply chains This poses challenges not

only on the supply chain level (quantity oriented) but also on the value chain level (value

oriented) Supply and value chain trends are as following

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Globalization

Increased cross border sourcing

Collaboration for parts of value chain with low-cost providers

Shared service centers for logistical and administrative functions

Increasingly global operations whidch require increasingly global coordination and

planning to achieve global optimums

Complex problems involve also midsized companies to an increasing degree

CHANGING SCENARIO IN CROSS-BORDER TRADE

The aerospace industry is undergoing a fundamental transformation in its development

manufacture and distribution of leading-edge commercial and military systems Discussing

ways to control costs improve quality accelerate time to market and transform operations

into a high-velocity enterprise is at the core if i2rsquos services and solutions for the aerospace

industry

FIVE BASIC TRANSPORTATION MODES

1 Pipeline

2 Water

3 Air

4 Rail

5 Highway

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COST STRUCTURE FOR THE AIR TRANSPORTATION MODE

As compared to other modes of transportation air as mode of transportation has many

advantages-

bull Low fixed costs (aircraft and freight handling equipment)

bull Highest variable costs (eg labor fuel maintenance)

bull Very fast used for transporting high value andor high perishability product over

short to medium distances

Traditional supply chains in the aerospace and defense industry are evolving at an accelerated

pace Variability is becoming a critical business driver across all of its market segments In

addition due to the push for increased cost effectiveness industry players are globalizing

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their supply chains and working with partners from all over the world Todayrsquos AampD supply

chains are characterized by the need to manufacture increasingly complex equipment and

systems ongoing pressure to reduce costs extended product life cycles requirements for

optimized asset utilization turn-key support services and ongoing requirements from

regulatory and safety agencies

To meet the many challenges that emerged as a result of these new industry dynamics

aerospace and defense companies have increasingly relied on automation and technology

enhancements - designed to work on removing business ldquosilosrdquo improving collaboration and

fueling gains in productivity In addition companies have embarked on initiatives focused on

reducing costs through improving procurement processes

While the technology advances of the past 10 years have enabled aerospace and defense

companies to overcome some of its challenges the industry is ready for the next major leap

in productivity This major leap in productivity will come from improvements in cross-

functional processes that leverage a common set of services and data standards wherever

possible

IMPACTS OF A WEAKENED AIRLINE INDUSTRY

The weakened airline industry impacts following

1 Suppliers like- Aircraft Engines Electronics Computers Chemicals

It results in lower sales

2 Services like- Insurance Financing Distribution Telecom Maintenance Fuel

It results in lower sales

3 Passengers like- Business Travelers Leisure Travelers

It results in decreased productivity and weaker relationships

4 Travel amp Tourism like- Travel Agents Tourist Attractions Conferences and

Conventions Hotels Restaurants Retailers

It results in low revenues

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THE ROLE OF IT

IT creates applications that provide strategic advantages to companies

IT is a competitive weapon

IT supports strategic change eg re-engineering

IT networks with business partners

IT provides cost reduction

IT provides competitive business intelligence

INSTALLATION OF RFID IN AIRCRAFT

The Future of MRO Supply Chain Management

In the not-too-distant future radio frequency identification technology may bring radical

changes to the way maintenance parts and even tools are tracked

Imagine an MRO world where components carry their individual cradle-to-grave histories

with them To read these histories you would simply scan these components with RF (radio

frequency) readers As soon as the radio waves hit their antennas these parts would

automatically transmit back their vital statistics date of manufacture part number hours in

service repairs and modifications and anything else you needed to know In addition not

only could this information be automatically logged in your companys own database but any

new data could be written back to these components for access by the next MRO technician

In such a world it would be much harder for parts to go missing or be stolen The records

associated with such parts would also be highly accurate because the number of people

inputting them during the MRO cycle would be vastly reduced On the corporate side such

parts would be easy to track invoice against and replace a welcome change that would cut

paperwork human hours and parts inventories Meanwhile government entities such as the

FAA and NTSB would be happy because these parts would be easy to trace in the event of

accidents no more guessing who did what after the fact

Sound too good to be true Well it isnt in fact this is the future of MRO supply chain

management thanks to a technology called RFID Short for radio frequency identification

RFID is the same technology used by retailers for theft prevention If someone tries to steal a

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shirt with an uncleared RFID tag a reader at the door triggers an alarm as the RFID tag

passes by

Obviously retail-sized RFID tags would be too big and cumbersome for installation inside

aircraft However advances in RFID technology--spearheaded by the unlikely partnership of

Airbus and Boeing--have resulted in practical RFID labels that have already been tested by

FedEx Express Granted these tests have yet to include the engine area and other parts of the

aircraft exposed to extreme conditions However the progress made to date including a

successful 90-day flying trial by FedEx Express indicates that the future deployment of

RFID tags throughout the entire aircraft is not a matter of if but rather when

RFID HOW IT WORKS

To understand the basics of RFID technology consider a credit card It contains a magnetic

strip upon which data is written and read using an appropriate scanning device An RFID

storage chip which can contain up to 10 kilobits of information works in the same way The

difference is that the data is transferred by radio waves from the RFID tag to the scanner

rather than by passing the magnetic storage medium directly against a scanning device

There are two kinds of RFID recording devices active and passive An active RFID chip has

access to a power source--either through an onboard battery or a connection to an external

supply--and actively transmits its data A passive RFID silicon chip doesnt have a power

source instead it uses RF energy received from a nearby scanner to generate a transmission

signal This is why the antenna on a passive RFID is so important it captures the RF energy

that triggers the transmission and ensures that the RFIDs data signal gets into the airwaves

To date the aviation industry has put its efforts into passive RFIDs all built to meet the

SPEC 2000 automated identification and data capture guidelines published by the Air

Transport Association Its easy to understand why passive RFIDs are the industrys preferred

choice the last thing any pilot wants is to fly an aircraft full of RF-emitting devices all of

which could interfere with the aircrafts avionics Beyond this the advantage of passive

RFIDs is that their electronics can be squeezed into thin label-sized wafers Based on

Electronic Product Code (EPC) protocols developed by EPCglobal (wwwepcglobalinccom)

these RFIDs can either be incorporated into standard bar code labels as is being done by

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Boeing They can also be embedded directly into the metal skin of a component an approach

that is being tested by Airbus

At present the RFID tags being tested by Airbus and Boeing operate in the 1356 MHz range

The advantage is that this high frequency doesnt cause interference problems with other RF

users The reason 1356 MHz doesnt cause problems is because such RFID signals only

travel 25 centimetersone foot at best which is also a disadvantage when you come to think

about it To read such signals it is necessary to pass a handheld scanner directly over the

RFID tag This is why future RFID trials will be conducted at 915 MHz said Ken Porad

program leader for Boeing Commercial Airplanes and one of the industrys top RFID experts

Using 915 MHz in the UHF band passive RFID signals can be received up to 25 to 30 feet

away he explained For airlines and MROs checking on the condition of RFID-tagged

parts this would allow their technicians to just walk past the aircraft with handheld scanners

to collect the data they need

RFID SAVINGS FOR MROS

At the outset of this article we alluded to the money RFIDs could save in MRO supply chain

management Now its time to look at the details

According to Boeings Porad (and verified by Airbuss Steffen) the number to take note of is

$45 billion This is the value of the inventory sitting on MRO shelves today as airlines and

aftermarket providers try to ensure that they have the parts needed to keep their planes

flying he explained If we knew the life cycle and service history of the components

currently in service on an ongoing basis we could better predict when theyd need replacing

We could then stock our warehouses on a leaner just-in-time basis which could reduce our

inventory overhead by billions of dollars

One area where RFID could save the airlines $100 million a year is in rogue part Porad

added These are parts that fail in service yet whose faults cant be detected when put on the

test bench he explained `Rogue parts also refer to those that are counterfeit unapproved

or carrying bogus certification With each component carrying its own RFID history it would

be easy to detect and deal with such money-wasters It would also make it much harder for

people to pass off counterfeits and for stolen parts to make their way into the system

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Other savings include faster troubleshooting and repair said Airbus vice president Pierre

Steffen With an RFID-tagged component the manuals needed by the technician are stored

right on the chip he said The data can even tell them what tests to run and what parts to

reorder should partial replacements be necessary No longer will time be lost by scanning

through paper manuals No longer will the wrong parts be ordered delivered and then

replaced with the right order which also wastes time and mon

Finally all of this data can be entered directly into an MROs Enterprise Resource Planning

(ERP) management software In fact SAP has already modified its Aerospace and Defense

(AampD) ERP module to incorporate this data as read through EPCglobal-compatible

scanners

We have created a little piece of software called Auto-ID which enables two-way

communication between RFID-tagged components and SAPs supply chain management

software said Martin Elsner field service director for SAPs AampD business unit With this

link SAP users can monitor and manage their supply chains down to the level of individual

components on an end-to-end real-time basis

Such is the power of RFID that Airbus and Boeing have teamed up to adopt and promote this

technology based on the ATAs SPEC 2000 standards In fact the two have jointly presented

Global Aviation RFID Forums (wwwglobalaviationrfidforumcom) in Atlanta and Hong

Kong to educate the aviation industry about RFID and have a third forum planned for

October 19-202004 in Munich Germany When a technology as important as RFID is being

developed the big players in the market must play together said Airbuss Steffen

RFIDs ultimate objectives are improved safety and operational efficiency said Boeings

Porad This is so important that we all must work together for the common good

AIRBUS KEEPING TRACK OF TOOLS AND MORE

As futuristic as RFID sounds Airbus has actually been using it for the past three years

However the companys embedded RFID tags are not found inside its aircraft but rather the

very expensive servicing tools--and the shipping cases in which they travel--that Airbus

leases to its MRO partners Having the tools history recorded on an RFID makes it easy for

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us to track who has it and what condition they receive it in said Pierre Steffen When the

tool has been returned and is being recalibrated the specifications recorded on the RFID can

be easily compared with those being measured on the test bench and the appropriate changes

made

All told the efficiencies made possible by RFID have already allowed Airbus to improve the

refurbishment of returned tools by up to 27 percent said SAPs Elsner It used to take them

typically from 19 to 25 days to prepare such tools for future leases he said With RFIDs

help this timeline has been cut to 16 to 19 days on average

Besides proving the value of RFID through its tool leasing business Airbus has installed

RFID-tagged components on 12 Airbus A320s being flown by a major German charter

airline said Pierre Steffen To date these components have collectively logged 200000

flight hours For all chips on all planes in all cycles we have experienced 100 data reading

accuracy There hasnt been a single instance of RFID tag failure Airbus is also testing

RFID-equipped components in flight on the companys own A319 corporate aircraft

BOEING AND FEDEX EXPRESS TESTING RFID IN SERVICE

With Boeings help FedEx Express has been flying RFID technology for more than a year

The experiment grew out of interest in barcodes and direct part marking explained Butch

Ford manager of FedEx Expresss aircraft engineering support section In the first half of

2003 we were modifying a DC-10 [specifically N370FE built in 1972 and flown by United

from that year to 1994] to an MD-10 We thought it would be an excellent opportunity to test

RFID technology so we installed 40 1356 MHz RFID-tagged components in six areas For

example we tagged the onboard maintenance power displays on the flight deck the first aid

kits and the oxygen bottles in the cabin and the air data inertial reference unit in the avionics

bay We also put RFID tags in the cargo compartment and wheel wells the only areas we did

not do were the engines because these tags arent yet ready to deal with that kind of heat

For the record the RFID tags used by FedEx Express were Zebra Technologies

(wwwzebracom) z-Ultimate labels fitted with Infineon Technologies (wwwinfineoncom)

10 kB RFID inlays (combined memory chips and antennae)

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After being equipped with RFID tags--and completing its conversion to an MD-10 freighter--

FedEx Express N370FE returned to normal service on November 13 2003 Over the next 90

days the RFID tags on the aircraft were put through six different readwrite tests using

handheld scanners We wanted to see that the tags were retaining their data integrity werent

being affected by RF fields generated by the aircraft and that the stickers remained properly

adhered to the components Ford said After 90 days of flight time we couldnt find a single

problem in any of these areas The RFID tags still worked fine

With this success under its belt the next goal of FedEx Express is to test 915 MHz RFID-

tagged components in service As with the 1356 MHz tests the RFID tags will be located on

an in-service aircraft The advantage is that this aircraft will readable using a scanner up to

25 to 30 feet away said Butch Ford Imagine it well be able to check the status of these

parts without even seeing them by just walking through the aircraft with a UHF scanner

WHATS NEXT

The FedEx Express RFID tests are due to be mirrored by Delta Air Lines said the RFID

Journal (wwwrfidjournalcom) It wrote that Boeing and Delta will be installing and testing

both 1356 MHz and 915 MHz RFID tags on eight Delta twin engine jets on the companys

Atlanta-Jacksonville route For each airplane 30 RFID tags will be tested on noncore rotating

engine components in one of its two Pratt and Whitney 2037 engines FedEx Express has

proven there are no interference issues Delta general manager of material services Marty

Kangiser is quoted as saying in a June 14 2004 RFID Journal report Wed like to do the

same thing for engine parts

Does this mean that RFID technology is about to break into the MRO supply chain Not quite

yet cautions Airbus Pierre Steffen Its too early to say when RFID parts will become

standard to the industry he said

Still the very real progress made in RFID inflight testing and the joint cooperation between

Airbus and Boeing to promote this new technology bodes extremely well for the entire

aviation industry In fact RFID technology looks so promising--and so necessary--that one

can imagine MRO managers ten years from now looking back to 2004 wondering how the

aviation industry ever survived without it

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GOEBBELS ON SAPS RFID STRATEGY

SAP vice president aerospace and defense offered these insights on SAPs view of RFID

technology applied to the aviation aerospace industry

1 Is RFID a key strategic direction for SAP

Back in 1998 SAP first initiated RFID research in SAPs corporate research center and in

2001 SAP joined the Auto-ID Center as a founder-member and as one of the first enterprise

application software vendors RFID processes will enable SAP to drive further advantage

from the benefits our customers are already receiving from their existing IT investments One

major piece of the RFID puzzle for Aerospace and Defense (AampD) companies is the

automization and capitalization of the efficient supply chain management processes When it

comes to the domain of MRO we also believe that RFID will become a key toolenabler for

compliance

2 Do SAP AampD customers want RFID info

Absolutely We have several prominent customers--both in AampD manufacturing and in AampD

MRO--who are prototypinginstalling RFID solutions with SAP We are currently also in

discussions with airline MRO organizations to launch their first RFID projects

3 What about RFID speed of adoption

For RFID solutions to succeed in this industry it is of vital importance that the technology is

driven by all the key players in the AampD ecosystem A success factor for the entire industry

is the gathering of as much information as possible This will translate into maximum

technological advantage

As the US defense organizations will make RFID mandatory we believe that RFID

compliance will naturally catch on quicker than other technologies The AampD industry is all

about very expensive products and assets In the AampD arena the price for the RFID tags is

comparatively negligible Another pro-RFID factor is the fact that the AampD industry is one of

the most regulated Considering all these factors I am confident that this technology will be

adopted sooner rather than later

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As far as the obstacles for fast adoption go in my opinion they comprise a) the fact that the

standardization process must lead the way and b) the physical complexity of using tags and

readers in the AampD setting comprising lots of metals etc and c) frequency regulations that

are controlled on a country-by-country level

4 Are there greater opportunities for aerospace RFID in manufacturing or maintenance

The technology will obviously assume its greatest potential if the entire community supports

it Relevant to both segments with regards to the material supply process one can provide

inventory visibility tracking partskits from goods receipt updown to the goods-issue area

Monitoring sensitive components tracking materials through the assembly process tracking

parts by serial number is driving visibility of the whole end-to-end business process Two

other important processes relevant to both OEMs and MRO-type organizations are those of

order fulfilment and the asset lifecycle management The inventory process is just a part of

the entire end-to-end process like order fulfilment

Another considerable area of opportunity is that of using RFID tags for the tool-tracking

process Many businesses hire out equipment and tools to other companies When receiving

them back it is extremely useful to be able to ascertain who rented the tool the duration of

the loan the duration of utilization etc This can end up in triggering vital maintenance

follow-up activities such as sending the tool back to the warehouse or directly to calibration

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Bibliography

Reference Site

httpwwwboeingcomnewsreleases1999news_release_990922bhtml as retrieved on 1st

September 2009

httpwwwtouchbriefingscom - Pdf New Developments in Purchasing and Supply Chain

Strategies for the Aviation Industry - A report by D r Jorg Rissiek amp Joachim Kresse las

retrieved on 1st September 2009

httpenwikipediaorgwikiSupply_chain_management as retrieved on 1st September 2009