Third-party logistics provider in aviation industry PDF

RUNNING HEAD: TERM PAPER 8.2
Third-party logistics provider in aviation industry
8.2 Term Paper
Edward Tan (2439983)
Embry Riddle Aeronautical University (Asia)
9 December 2019
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Abstract
Flight catering is a complex food service industry that caters to a wide range of airlines.
Meals provided to passengers are a measure of in-flight service on an airplane. In the case of the
airline industry, flight catering companies are responsible for preparing the meal that flight crews
serve it at a voyaging altitude. This case study examines how SATS collaboration with DHL will
optimise flight catering supply chain. Based on literature review, articles and company
publication, the paper will showcase how DHL will lend their expertise in logistic supply chain
in helping SATS improve their efficiency and business operation.
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Introduction (Airline Catering Supply Chain)
The inflight service industry has a vast and complex operations. Every year, almost 2
billion passengers are served on board. It has one of the most complex supply chain models in
the world for a number of reasons. Everyday, large international airlines operate between 500
and 1,000 takeoffs and landings. A single A380 or 787 requires thousands of items loaded onto it
before it flies. These items range from meals to toilet paper, from newspapers to headsets. Food
items in most cases are still produced fresh while crew or passenger inflight equipment tends to
be recyclable items. When considering the number of aircraft operating in a single day, with
different cabin configurations and the number of flight route, the logistics challenges is very
clear.
In-flight catering is 80% logistics and 20% catering, and 100% important for your
customers. DHL recognizes that in-flight experience can be a crucial factor in the selection of an
airline (DHL, n.d.). Managing the movement of millions of airline meals from cooking to plane
and the reverse logistics stream of washing up and waste in a highly complex and controlled
world is a daunting problem (DHL, n.d.).With increasing competition among airlines to attract
and maintain customers, and increasing cost pressure, it is difficult to generate significant profits
in a challenging business environment (DHL, n.d.). Airlines sought to reduce costs and improve
yields through restructuring, with leading airlines investigating innovative solutions to deliver
efficiency gains and enhance customer value (DHL, n.d.).
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DHL
DHL is the logistics industry's leading global brand. The DHL group family offers a wide
range of logistics products ranging from domestic and international parcel delivery, e-commerce
shipment and fulfillment solutions, international postal, rail, sea and ocean transport to industrial
supply chain management (Media OutReach, 2019). Having about 380,000 workers in more
than 220 countries and territories around the world, DHL safely and efficiently links people and
businesses, facilitating global trade flows (Media OutReach, 2019).With tailored services for
growth markets and sectors like engineering, life sciences and healthcare, energy, automobile and
retail, a demonstrated dedication to corporate responsibility and an unrivaled footprint in
developing markets, DHL is firmly placed as the logistics company for the world (Media
OutReach, 2019).
SATS
SATS is the largest food services and gateway service provider in Asia. The food services
provide catering to airlines as well as local food service chains and organisations kitchens
(Media OutReach, 2019). Their extensive gateway facilities include air freight handling,
passenger transportation, ramp handling, baggage handling, aviation safety, indoor and outdoor
aircraft cleaning, and cruise center management. SATS is available in Asia Pacific and the
Middle East at more than 60 locations and 13 countries (Media OutReach, 2019).
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Literature Review
Challenges faced by airline industry
The airline industry is dynamic, with each customer and subsector having its own
requirements, process challenges and needs.
● Cost and complexity (new and legacy)
It is critical to understand the balance between the uncertainty price and the generated
benefit of the consumer request (DHL, n.d.). Additional costs and complexity are often
overlaid with existing legacy processes rather than re-examining the end-to-end process,
which can provide the opportunity to save costs and improve the customer proposal
(DHL, n.d.).
● Consistency of operations
Production of reliable airline service operations is of great importance for the foundation
and end of route operations (DHL, n.d.). Knowledge and understanding of the local
market climate, the willingness to import products and the ability to find suppliers
capable of meeting the airline's specifications are the main factor for selling
considerations (DHL, n.d.).
● Trust and partnership
Invest in choosing a partner to fulfill business goals and needs (DHL, n.d.).
Bringing versatility and price efficiency to airlines and the ability for try and achieve
these often compelling cost savings (DHL, n.d.).
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● A different customer proposition
When choosing an airline, differentiation becomes more and more important with
catering and on-board services as a key customer influencer (DHL, n.d.). Passengers are
more aware of trends, sustainability and provenance, requiring ever higher product
quality and the ability to meet their dietary needs (DHL, n.d.). In pursuit of their vision to
deliver the best dining experience in the sky, airlines are seeking greater choice and
product innovation from their suppliers (DHL, n.d.).
● Lack of visibility, traceability and transparency
Decision-making without comprehensive planning knowledge will make the
management of the catering and supply chain plan very difficult for effective control
(DHL, n.d.). This can contribute to an inefficient supply chain, high stock levels of
expensive products, and the inability to manage the process of handling without any
benefit (DHL, n.d.).
● Sustainability
Carbon efficiency, emissions reduction, noise and waste are all key tactics to today’s
airline environmental strategy (DHL, n.d.). The reuse of food waste and packaging
materials has resulted in a transition to landfill disposal through developments in
technology and procedures and has provided the basis for an improvement in the source
of income (DHL, n.d.).
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● Security
Aviation security is vital to the airline's passenger’s safety and security (DHL,
n.d.). The traceability of people and goods in both airside and off-airport operations is
therefore important (DHL, n.d.).
How will reliable third-party logistics (DHL) improve an aviation firm(SATS) in
supply chain?
In a challenging business climate, airlines have tried to reduce costs and improve returns
by consolidating. Recent collaboration, acquisitions and joint projects contributed to economies
of scale and choice of customers.Together with the economic climate, this business restructuring
has made the sector difficult for new entrants and has been a major factor for changing the
architecture of the industry.
Airport and food service provider Sats recently collaborated with logistics giant DHL to
offer new ways to better manage food and other resources to carriers such as Singapore Airlines
(SIA) (Ting Wei, 2019).The plan will provide carriers with cost savings, while supplying
travelers with more in-flight meal options and a broader range of services such as duty-free
goods, among other advantages (Ting Wei, 2019). The comprehensive solution covers market
forecasting, product and scheduling configuration, supply chain management, and reverse
logistics. In reverse logistics, goods are transferred back to their point of origin from where they
are used for reuse and recycling (Ting Wei, 2019).
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Increased consistency, improved inventory management, reduced waste and increased
customer insights with end-to-end visibility will be achieved by airlines (Ting Wei, 2019). The
tie-up will also remove the need for airlines to look for various service providers (Ting Wei,
2019). In order to be able to better predict demand, airlines will not have to hang on to the
inventory unnecessarily, which in turn reduces storage and warehouse costs (Ting Wei, 2019).
DHL will contribute to the collaboration through its expertise in areas such as the use of data
analysis to forecast demand and generate revenue from food waste, while Sats brings its
experience in large-scale catering and ground handling (Ting Wei, 2019).
Combining DHL’s strengths in third party logistics (3PL) solutions with SATS’ large
scale culinary, procurement and last mile expertise, this new solution will help airlines to
enhance the passenger experience with a wider range of authentic F&B offerings and amenities.
The comprehensive integrated solution spans demand planning, menu customization and
planning, to supply chain consultancy and reverse logistics.
With end-to-end visibility, airlines will be able to achieve higher consistency, better
inventory management, reduced waste and greater customer insights. Both companies have
identified India, Singapore, Thailand, and Vietnam as the focus markets for the partnership.
Advantages of using reliable third-party logistics ( DHL)
Third-party logistics will be able to use their industry and supply chain expertise to turn
complex customer requirements into flexible solutions which meet customer challenges head-on.
They make it their business to understand customer goals, objectives, key customers and
competitive issues to help improve business models. They work closely with their customers,
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shoulder to shoulder with their management teams to establish trust and confidence to develop
same-side-of-the-table behaviors to drive mutual success.
● Food design and management
Solutions to help airlines differentiate between their rivals and the customer
experience. Quality and creativity in product design and sourcing is key to DHL's service
(DHL, n.d.). Understanding the customer context, product specifications, destination
segments and plan to design and deliver an exemplary menu afterwards (DHL, n.d.). For
example, the DHL Food Innovation Council, consisting of multi-award and gold medal
winning chefs, has given us a proven reputation for running a broad supplier base of food
and beverage (DHL, n.d.). This is one of the unique advantages of being supplier
impartial, as they are not bound to any source food supplier (DHL, n.d.).
● Flexible commercial approach
Open book management model gives customers full transparency of financial
information about their operation (DHL, n.d.). By doing so, third-party logistic partner
can work towards aligned goals, eliminate conflicts of interest and provide flexibility
over the contract term to support any change in strategic direction (DHL, n.d.).Sharing
risk and reward provides the incentive for both parties to develop long-term strategies
(DHL, n.d.).
● Delivering value
In order to mitigate increasing cost pressure, Third-party logistic partner can
deliver through streamlined processes, greater efficiency, innovation, thought leadership
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and adopting best practice from their global business in a broad range of industries (DHL,
n.d.). This allows the client to realize both cost savings and an enhanced customer
proposition (DHL, n.d.).
● IT Solutions
Third-party logistic partner can provide flight usage, aircraft monitoring, vehicle
and driver information and performance management through passenger, food,
warehouse and transportation systems to align product availability with price and
operational efficiency (DHL, n.d.).
● Operational excellence
Third-party logistic partner can provide flight usage, aircraft monitoring, vehicle
and driver information and performance management through passenger, food,
warehouse and transportation systems to align product availability with price and
operational efficiency (DHL, n.d.). Together with creativity and collaboration, these tools
also contribute to the success of their customers (DHL, n.d.).
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Conclusion
In this research paper, we have discussed the importance of collaboration between third-
party logistics provider and the service industry in the current environment. Logistics play a key
role in the supply chain for every industry determining customer satisfaction and saving cost.
The aviation industry is a lucrative market but there are many competitors fighting to have a
bigger share of the market. To keep an edge over the others, every organization has to develop
and find solutions. In this case, teaming up with DHL, the world leader in logistics, will allow
SATS to focus on expanding their specialisation and leaving the logistical matters with the
experts. This strategic move will allow both parties to benefit each other and expand their
capabilities. It is important that every company are responding to the ever changing
environment to meet the customer needs.
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Reference
DHL. (n.d.). A fresh approach to airline catering and “above the wing”spend[PDF file].
Retrieved from
https://www.dhl.com/content/dam/downloads/g0/logistics/brochures/dhl_airline_brochure_en.pd
f
Media OutReach. (2019, September 13). SATS And DHL Join Forces to Enhance Digital
Integrated Supply Chain for Airlines. Retrieved from https://www.businessinsider.sg/sats-and-
dhl-join-forces-to-enhance-digital-integrated-supply-chain-for-airlines/.
Ting Wei, T. (2019, September 15). Sats and DHL sign MOU to create offerings for airlines to
better manage supply chain. Retrieved from https://www.straitstimes.com/business/companies-
markets/sats-and-dhl-signs-mou-to-create-offerings-for-airlines-to-better-manage.
Sats Ltd. (2019, September 16). SATS and DHL Join Forces to Enhance Digital Integrated
Supply Chain for Airlines. Retrieved from https://www.aviationpros.com/ground-
handling/ground-handlers-service-providers/catering-cleaning-services/press-
release/21105716/sats-ltd-sats-and-dhl-join-forces-to-enhance-digital-integrated-supply-chain-
for-airlines.
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