ASK LARRY MONTREUIL ABOUT his biggest challenge at JetBlue Airways and the refrain is familiar: Shift the culture. The LCC's director-supply chain and fuel understands that the airline's roots are quintessentially entrepreneurial. Whether it's technical operations, flight ops, IT or marketing, the refrain has been, "Get it Done." Period.
"From a procurement standpoint, that [made] sense" when JetBlue served a few routes out of New York JFK back at the turn of the century with a gaggle of A320s. Things, of course, have changed. Today there's a fleet of 102 A320s and 26 E-190s. With the addition of service to Santo Domingo, the carrier flies to 54 destinations. This is a markedly mid-size enterprise now, less entrepreneurial and more systematic. From Montreuil's perspective, "It makes sense to centralize some of the procurement effort"-systematize and standardize it.
The perennial problem when a company grows rapidly is that people don't want to relinquish control. "That," he says, "is the biggest challenge." He contends procurement is making progress: "We're getting a lot more cooperation."
Cooperation doesn't come without some coaxing. "Yeah," he says, "there's a bit of salesmanship." What there are not are top-down dictatorial mandates. "We offer [business units] some suggestions as to how our team can help. Then, with successive wins, we engender confidence in the [cooperative] capability, showing them that there's a support group here."
Montreuil's background hasn't hurt efforts to forge cooperative links within the carrier. Unlike some purchasing people who have come from nonairline positions, he was a seasoned industry pro when he landed at JetBlue back in March 2003. He had worked in supply chain management at the Trump/USAir Shuttle, Continental Airlines and New York Airways. Then there was a 10-year stint leading the materials group at New York City's largest private transit operator.
Background has helped, but it is results that are prompting people to cooperate with purchasing efforts. JetBlue's supply chain team wrested a not-inconsequential $33 million from the system in 2006. Early in 2007 it capitalized on that momentum, reorganizing purchasing into two groups: Technical Purchasing and Supply Chain and Fuel. Technical acquires day-to-day aircraft parts, Montreuil's shop virtually everything else. There's a crossover when it comes to the strategic purchase of long-term heavy aircraft maintenanceengines, components, airframes. "We're still very much involved in driving those efforts," he says.
The division of labor works, he adds. Technical gets to focus on supporting fleet maintenance and bolstering reliability. Supply Chain gets to "go out into the company and encourage more spend [to flow] through corporate purchasing."
Even before the realignment, Purchasing helped negotiate some major deals for the LCC. One of the biggest wins was a 10-year power-by-the-hour pact with Germany's MTU to support the IAE V2500s powering the A320s. While Montreuil labels the agreement "a big-hit item for us," he declines to discuss savings. Suffice it to say both parties are pleased, so much so that "we just extended the agreement to make it 15 years."
When JetBlue went in search of outsourced airframe maintenance, it probed not just the numbers offered up by bidders but the corporate culture that underpinned those numbers. Team members made site visits and conducted extensive quality assurance evaluations that "looked at how they treat their people, how their break rooms look, what people on the floor said about [company] leadership," says Montreuil. He says JetBlue was perfectly cognizant of the fact that "you might hear one thing from the leadership" and quite another from the people performing the touch labor. "Those are the people turning the wrenches and fixing our airplanes," he says, and their input is important. Aeroman, ACTS and Empire Aero Center are the three airframe maintenance providers right now.
SEPARATION OF POWERS
Central to JetBlue's purchasing philosophy is a pattern of segregation. "The team that does the qualitative assessment doesn't normally have access to the bidding side, the economics," says Montreuil. The company tries to separate them. The rationale: "We don't want to cloud the qualitative assessment piece with the economics." The idea is to isolate assessment folks so they can render objective judgments, "so they're not influenced by what the price offering is."
Quality, of course, has to be reconciled with price. Before the carrier chooses a vendor, "We bring both [quality team members and price people] together and start making some down-selects." This approach works well with big-ticket, long-term commitments such as airframe work and powerplant maintenance but less so with comparatively mundane materiel. Turnaround time dictates that lengthy assessments can't be carried out with all vendors. "There's a very fast-paced environment here," he says. "In many cases, for efficiency's sake, we'll just have to present all the material at the same time."
It is demonstrable deals like the V2500 support and airframe MRO pacts that have enabled Supply Chain and Fuel to broaden its purchasing purview at JetBlue. "We probably handle about 80%" of sourceable spend. Put fuel together with other items and "the spend on my side is about $1.2 billion per year," Montreuil says.
While the focus is set on strategic spend, "smaller projects come up all the time that our [40-member] corporate team is working on," he says. One of the smallestliterally and figurativelyis headsets. JetBlue offers free DirecTV onboard its flights. Heretofore it purchased inexpensive headsets from China. In keeping with its more-for-less philosophy, it wanted to upgrade the listening devices. "Our buyer went after that and secured a source, also in China, for a better quality headset at a reasonable cost," he says.
Those headsets retail at $7 each. JetBlue sells them for $1. "Of course," Montreuil says, "we buy them for considerably less." Sale of the sets is pegged to the honor system. There is a box of headsets at the gate and passengers just reach in and grab one. A sign suggests they leave $1. "It's totally up to the integrity of the customer."
The more-for-less ethic extends from the ear to the palate, specifically to the Low Fare Sommelier product that helps give the airline its Target- esque tint.
It also is looking to achieve the kind of growth that will continue to help it consummate the best deals with suppliers. It currently has 102 A320s with another 76 firm orders and 50 options. By 2013 the potential A320 fleet is 228 aircraft. Its E-190 backlog numbers 75 firm orders and another 100 options. That makes for a potential Embraer fleet of 201 aircraft by 2015.
"A lot of our strategy [with vendors] is to capitalize on that growth," says Montreuil. JetBlue still calls its suppliers "partners." Understanding that this term is one of the most abused in the English language, he insists, "It's a term we take seriously. We really look toward establishing longer-term relationships with our supply base."
One way to do that, and drive down costs, is "to look at the growth opportunities that are ahead of us." This is the essence of the sales pitch he uses with Purchasing's external audience, its suppliers. The idea is "to provide our business partners a base load of work"--a low-margin base. The aim is to make it up on a volume that continues to expand.
"JetBlue will continue to be a company that outsources heavily," says Montreuil. The challenge is to manage that outsourcing so as to satisfy both the people who make the airline work and those who would supply them with the stuff to do so.