COORDINATING THE PURCHASING
activities of seven airlines within a group is no simple task, but it is one that David Rowell, head of purchasing-Aviation Flight & Ground Operations with TUI Travel PLC, believes is crucial for any large airline assemblage dealing with a complex supply chain.
COORDINATING THE PURCHASING activities of seven airlines within a group is no simple task, but it is one that David Rowell, head of purchasing-Aviation Flight & Ground Operations with TUI Travel PLC, believes is crucial for any large airline assemblage dealing with a complex supply chain.
"Purchasing plays a major role at every stage of the vertically integrated supply chain across the TUI group," Rowell tells Airline Procurement. "Without a centralized procurement strategy, we would not be fully leveraging our supplier base and our volume bundling opportunities." Rowell's responsibilities currently include purchasing and supplier management of the aviation expenditure on behalf of the group's airlines, covering an annual spend of more than €1.5 billion. He played a key role in the design and implementation of group purchasing as a central function within the group.
TUI Travel PLC officially came into being in September following the merger of the UK's First Choice Holidays with the Tourism Division of German-based tourism and travel services giant TUI. Shares in the combined company began trading on the London Stock Exchange on Sept. 3.
The new company includes within its portfolio the seven European carriers in the TUI grouping: Arkefly (Netherlands), Corsairfly (France), First Choice Airways (UK), Jetairfly (Belgium), Thomsonfly (UK), TUIfly Nordic (Sweden) and TUIfly.com (Germany). Among them, the airlinesa mixture of startups and legacy carriersoperate to more than 150 destinations worldwide. With more than 160 aircraft, TUI Travel claims to have the biggest holiday fleet in Europe, and there are moves toward greater fleet standardization focusing on the 737NG.
Among them, the TUI group airlines and First Choice have placed orders for up to 23 787s for delivery between 2009 and 2013. First Choice, which has ordered 12, was the European launch customer for the type in 2004. TUI Travel claims it will have one of the biggest Dreamliner fleets with the earliest delivery dates in Europe.
Rowell's group purchasing team handles predominantly bought-in goods and services such as ground handling, catering, fuel, crew accommodation and transport on a centralized basis for all seven airlines. Aircraft purchasing is managed by the fleet management department and engineering and maintenance are coordinated with the airlines. He acknowledges that greater coordination within the E&M sectors could improve efficiency and generate savings, so ways of achieving this are being examined again. Where required, the group purchasing team provides advice and consultancy to these specialist sectors, primarily in a negotiating and contracting role.
Rowell stresses, "For the most part, specifications are drawn up by the end user and we just tend to provide a coordination role in that process. That's as it should be. The end user is the main driver behind the purchase and will be responsible and accountable for that purchase. However, in the event of a major negotiation or tender process, we may have an input, especially where we can, for example, suggest a standardized specification that may benefit the end user and the group as a whole by generating cost savings and efficiency gains."
He believes that across the airlines in the fields of ground handling, catering and fuel, centralized purchasing has generated significant savings. In general, low-risk, low-value, short-notice purchasing is done at the airline level but where a purchase is high-value, high-risk and involves strategic leveraging with international suppliers, he thinks his team's specialist skills should be brought to bear. "We agree [to] purchasing plans and savings targets with the airlines and we have an agreement with them that when a purchase is high-risk/high-value they refer to my teams for assistance with the process. There is a place for both," he says.
Rowell is crucially aware that within a centralized system, decision-making can be seen as remote and bureaucratic and there often is less scope for flexibility and creativity. However, with the sort of critical mass he is dealing with, he believes it is essential for managing risk, ensuring compliance and securing the best price. And he works hard at maintaining a close relationship with his airline customers to ensure they see his department as a help rather than a hindrance. "I believe the airlines see us as a service rather than a control, but there does have to be a degree of governance because of the different working practices and different cultures between the airlines. But it is up to us to win the hearts and minds of our customers. The relationship must be seen as and developed on a service basis," he explains.
The various carriers use several different accounting systems, and here again efforts are being focused on some degree of standardization in the future. Rowell says the group purchasing team uses a system called Airpas, an integrated solution with a built-in decision support tool to assist with management of flight-related revenues and services such as fuel, ground handling, catering and navigation. The system works well and has much potential for the future, he adds.
The advent of Internet-driven technological solutions is changing the face of purchasing and bringing about significant efficiency improvements, he confirms. Two that offer particular potential are e-auctioning and e-sourcing, and although he admits that these systems still have to bed-in fully, he is optimistic of the role they will play in the future.
TUI has been using e-auctions for three or four years now; it is a tool that is employed by a number of airlines as well as companies outside aviation, so it is well-tried and tested. It is a system whereby suppliers bid in real time online for a particular tender. Although participants cannot see what rival firms are bidding, they can see a regularly updated graph of where the bids are going.
"It is a very dynamic tool to have in the right circumstances, but you have to be very careful when and where you use it," says Rowell. "It can be very effective, but used in the wrong application it can also work against you." The key, he says, is to make sure it is used in straightforward and relatively simple applications where the product or service is clearly defined, the specifications are clear-cut, the market is measurable and there are plenty of suppliers. Examples include inflight magazine publishing, uniforms, inflight catering tray setup and headsets. Using e-auctions alone has generated savings in the order of 20%-30% in some instances, he says. In the case of cross-group cabin equipment, for example, savings in excess of 25% have been achieved.
E-sourcing is still very much under development, but Rowell believes it has real potential for helping to manage the tender process and TUI is watching its progress closely. "E-sourcing is constantly improving as an automation tool. In the airline business, there is always scope for further tightening up and e-sourcing can help a lot with that," he states. "However, I don't think we'll ever reach a utopia as far as purchasing systems go, so it is always important to maintain a close dialogue with suppliers."
The same applies to local experts within the TUI airlines themselves, especially in such an international arena. "We are very heavily dependent on our operational experts out in the field," he stresses. "We are not day-to-day operational front-end specialists; it is our job to support them and free up their time to do what they do best. Experts are essential to the process." Essentially, Rowell believes there are three main purchasing levers and instruments that can help reduce total internal and external cost of ownership successfully:
- Maximizing purchasing leverage, which leads to lower unit costs.
- Optimizing purchasing processes, governance and organization, which leads to lower internal process costs and better decision-making.
- Supplier management, which can help reduce overall supply chain costs.
He acknowledges that green issues are starting to put much greater pressure on purchasing, driving a move to quieter and cleaner aircraft, reduced fuel consumption and new technologies to help mitigate the impact of aviation on the environment. Security concerns also are affecting the way contracts are negotiated and awarded, making the process more complex. So there are plenty of challenges still in the pipeline.
But Rowell feels well-positioned to meet them. He entered the airline industry straight out of university in 1986 when he joined East Midlands-based holiday carrier Orion Airways as a business studies sandwich student. He then joined Air 2000, the airline division of First Choice Holidays, and began a move into the specialist field of purchasing. He went to Britannia Airways as purchasing manager in 1994, taking responsibility for the company's aviation fuel purchasing requirements. His remit at Britannia was extended in 1999 to cover the Engineering Materials and Logistics Dept., managing a spares inventory of £100 million and a team of 70.