MANAGEMENT 3620

SK Y L I N E AV IAT I O N
OPERATION AND RESOURCE MANAGEMENT ANALYSIS.

SKYLINE AVIATION

B Y: KALEY DULFER H E AT H E R K I N G ANDREW RUBIO EBAAD AHMED

OPERATION AND RESOURCE MANAGEMENT ANALYSIS SKYLINE AVIATION.

OPERATION AND RESOURCE MANAGEMENT ANALYSIS SKYLINE AVIATION.

SUMMARY:

This document outlines a project plan to evaluate and analyze the operations and resource management strategies of Skyline Aviation, a world renowned custom aircraft manufacturing company who has been in the business for over half a century. Safety, luxury, and efficiency has been the vision and manufacturing custom air transport solution to serve its customer base is the mission of Skyline Aviation for the last several years. The company has been operating with increasing revenues and profit margin until lately. Due to the fierce competition Skyline Aviation has recently lost considerable market share. The company has not only lost the business, but also has given up a significant part of its seasoned and experienced work force in the hands of new and upcoming competition. The purpose of this document is to review and analyze some of the processes and procedures being followed and monitored to improve enterprise wide operations of Skyline Aviation. It also includes proposals to alternative practices and methodologies using Total Quality Management, Supply Chain Management and inventory control to reduce operating costs, enhance quality, increase employee morale, and find ways and means to incorporate value added innovative solutions to its existing product line. It will also suggest methods to train and educate sales force, and strategically locate them to best serve customer based communities. This document will review the process of gathering customer feedback and market surveys to help the organization understand future trends and strategically position itself to meet the upcoming

OPERATION AND RESOURCE MANAGEMENT ANALYSIS SKYLINE AVIATION.

challenges. It also puts forth some suggestions to improve the quality of workforce and educate them to enhance productivity and commitment towards the organization. This document also focuses on means and measures to implement and adopt key Supply Chain management concepts to harness unmanaged inventories, procurement procedures and purchasing workflows. It also talks about ways to better plan ordering cycles to align the production and demand forecasts and eliminate nonproductive process steps to conserve resources and increase efficiency. It also suggests ways to build long term relationships with vendors to explore alternate and innovative solutions to existing manufacturing materials and processes. It recommends some crucial steps needed to survive and regain the market share by developing key alliances to reach out to potential customers and better serve the existing clientele by a highly trained and aggressive customer service team, and strategic location of sales and service points, thus impacting increased profit margins, dependable, reliable, and high quality products, consistent organizational growth, and higher return on investment. The project will encompass most of the aforementioned factors and components of the plan with respect to the topics prescribed by the text and concepts discussed within the framework of this course.

OPERATION AND RESOURCE MANAGEMENT ANALYSIS SKYLINE AVIATION.

INTRODUCTION:

About 85 years ago, on August 16, 1927, Glenn L. Martin established the Glenn L. Martin Company in Los Angeles, California. He started the company after building his first plane in a rented church, where he took a leap of faith on his risky but innovative new aircraft design at the urging of none other than Orville Wright. Four months later and four hundred miles away, on December 19, 1927, Allan and Malcolm Newhouse founded the Alco Hydro-Aeroplane Company, later renamed the Skyline Aircraft Company. Talented mechanics, they set up shop out of a garage, constructing seaplanes that would shatter speed and distance records for overwater flights. A church and a garage, these were humble beginnings. But these were also men of unrelenting vision and unwavering purpose. The gift that Martin and the Newhouse brothers shared was a unique ability to look past the obstacles of today to the promise of a brighter tomorrow. And they knew as weve known for 100 years that innovation, performance and purpose were the keys to accelerating that tomorrow. Together Glenn Martin and the Newhouse brothers combined their efforts to form the United States fifth largest custom aircraft manufacturing company named Skyline Aviations providing luxury performance aircrafts to customers worldwide using the strategy of differentiation. The company differentiated its products through constant innovation, unique features, and high quality. Increasing sales, expanding list of future orders, and potential buyers at company headquarters in Los Angeles, California, suggested that the strategy was working. Since its inception in 1927, Skyline Aviations has designed, produced and delivered more than 193,500 airplanes around the globe. This includes more than 6,300 Citation business jets,

OPERATION AND RESOURCE MANAGEMENT ANALYSIS SKYLINE AVIATION.

making it the largest fleet of business jets in the world. Today, Skyline Aviations has two principal lines of business: aircraft sales and aftermarket services. Aircraft sales include Citation business jets, Caravan single-engine utility turboprops, single-engine piston aircraft and lift solutions by Skyline Air, a subdivision focused to design and fabricate propeller aircraft. Aftermarket services include parts, maintenance, inspection and repair services. In 2008, Skyline Aviations delivered 689 aircraft, including 183 Citation business jets, and reported revenues of $2.990 billion. Skyline Aviation has been a pioneer in custom aircraft manufacturing business and has held the highest air safety records in the industry due to the quality, dedication and innovation that was induced to build master piece aircrafts exclusively designed and fabricated according to the specific need and requirements of its customers and clients. Expanding from its humble beginnings, Skyline Aviations has designed each aircraft with a special purpose and determination, but due to the recent economic downturns, lack of attention to innovation, antiquated and outdated processes, and upcoming fierce competition, the company has lost a fair amount of market share. Skyline Aviation failed to secure some critical contracts and was unsuccessful to deliver to few of its crucial clients. In the airline business, safety is the first and foremost concern, and due to some unforgiving safety incidents, a couple of crashes and unsafe landings added to the list of reasons to a swift decline in company reputation. This document will provide some insight as how the company can reclaim the fame and regain the lost status in the industry by the help of some key concepts mentioned in the prior section.

OPERATION AND RESOURCE MANAGEMENT ANALYSIS SKYLINE AVIATION.

CHAPTER 1:

In order to bring Skyline Aviations processes and practices up to date with modern times, it will have to make some fundamental changes to the way it approaches business operations. One such implementation to promote a change to the way it conducts business is to implement Total Quality Management (TQM) into its business practice. TQM provided a means to encourage all members of Skyline Aviation to make improvements to the culture, products, and services that they provide. By giving each member of the organization a vested interest in the ongoing success of the company, Skyline Aviation will be better positioned to stimulate innovative growth within the company, thereby allowing the company to offer new and improved services and products to its clients. Continuous improvement will be an essential element to ensuring Skyline Aviation is able to recapture its lost market share and increase its revenue stream. This cultural shift must begin with the managers and leaders within the organization. In order to offer better products and services, they must first gain a better understanding of their clients desires. Meeting customer requirements will allow the company to have long term growth with clients as their own needs change. As a manufacturing company, customers are repeatedly most disappointed with products that are either defective or do not meet the specifications previously contracted. To address this issue the leadership of Skyline should have one, or more, all staff meetings to identify the faults in processes and procedures which enable defects to pass on to the customer. Additionally they should promote more meetings between business departments to identify solutions to systematic problems which cause negative customer feedback. One example to curb the amount of defects in their products, would be to install an inspection process when a product moves on from one

OPERATION AND RESOURCE MANAGEMENT ANALYSIS SKYLINE AVIATION.

operation to another. This would help to identify where frequent problems may be arising in the manufacturing process, thereby allowing the leadership to better focus its efforts to correct the issue. Another way to ensure customer satisfaction and help identify if products are meeting the needs of the customers, is to conduct surveys 3-6 months after shipment of the product. This will give the customers ample time to evaluate the product and determine if it meets their requirements. When conducting the survey, the company may want to outsource the development of this survey to a third party to ensure that the right questions are being asked. A company such as Direct Opinions can help Skyline Aviation to better understand how to obtain the most crucial information from a survey in order to better understand their clients. However, regardless of the results of the survey, the company should still reach out to its clients on a regular basis to see if they have any suggestions for improvements. While this will target new opportunity areas for improvement, it will be of far more benefit by safeguarding against loss of current and or new customers. In order for a culture change to be successful, the leadership of Skyline must make their employees a priority as well. The companys inability to be innovative in the airline manufacturing field can be attributed to its inability to attract and retain qualified prospects that can help bring new and creative ideas into the business. Additionally, emphasis must be placed on initiating improvement initiatives for its current employees. Management must help foster an environment where employees are encouraged to find new and more efficient ways to process daily activities in order to reduce cost and guarantee client satisfaction. One way to promote innovative thinking within the organization is to offer employee trainings and education. Employees should be knowledgeable in all aspects of the design, production, and shipment process so that they can be better equipped to improve upon their individual business processes

OPERATION AND RESOURCE MANAGEMENT ANALYSIS SKYLINE AVIATION.

for the betterment of manufacturing company as a whole. For example, by providing more information and better understanding of the design process to employees in the production unit in relation to the customer needs, they will be more equipped to assist with meeting the client needs. If the client desires to reduce cost and makes a request to use a cheaper material, the production unit will be able to understand the clients needs and recommend alternative materials to use which may produce better results at a lower cost. Material cost to performance ratio is something the client may not be aware of, and by having each employee thoroughly educated in the overall manufacturing process, it will be less likely that the client is unsatisfied with their order due to a lack of information being distributed through the work flow. With this in mind, one of the trainings which should be implemented into employees educational material is the use of cost-benefit analysis (CBA). CBA is a systematic approach to comparing the costs and benefits of a given project, policy, etc. This will enable each employee to effectively analyze the monetary implications of their decisions, or client related projects by determining if the financial investment into a project is sound, and will provide a base for comparison for any alternative projects or solutions for a given issue. The use of CBA will be very important to Skyline Aviation due to the unique aspect of each individual order of a custom aircraft. Customers will want to maximize the value of each order while minimizing costs. Sharing this information with the customer will help to promote a trust between the customer and the company, thereby increasing the likelihood of the order meeting the customers requirements. Managers and leaders will also have increased responsibilities if they are committed to implementing the TQM (Total Quality Management) process company wide. In addition to creating educational and training programs to assist their employees with ensuring customer satisfaction, they will also have to utilize additional tools to further safeguard against poor

OPERATION AND RESOURCE MANAGEMENT ANALYSIS SKYLINE AVIATION.

quality, mismanagement, or process failures. Control charts would be an excellent way to help ensure quality by making sure that a process is falling within expected parameters. In manufacturing, this could be used to determine, if components being produced for a specific project, is within the acceptable range. The measurements of the materials being produced would be gathered at set intervals throughout the process, and would then be used to plot a control chart, with each measurement representing a single point. If the points on the chart exceed the upper or lower limits, then the process would be outside the statistical limitations and therefore not meet the quality standards. In this case the control chart could also help to determine the source of the process failure as well. If the points which exceeded the limits occurred at the same time, it could be related to a malfunction in machinery or be attributed to a user not properly following procedures. Managers can also use Pareto diagrams to identify reoccurring issues, and then prioritize them creating solutions to those issues based upon their respective occurrence and significance. An example of this would be if there was large percentage of product or material defects attributed to damage which occurred during shipping. Management could then take the appropriate action and prioritize finding a solution to this issue. This may include a process change to the way products are shipped, or finding a new distributor to supply materials to prevent this issue from causing further loss in revenue. Pareto charts can also be used in conjunction with the customer surveys previously mentioned. If the customer surveys indicate several different customer complaints, these can be can be used as data within a Pareto chart. Once accumulated the chart would then show which complaints are received more frequently than others.

OPERATION AND RESOURCE MANAGEMENT ANALYSIS SKYLINE AVIATION.

10

CHAPTER 2:

The main objective of supply chain management is to maximize value and lower waste of resources. Supply chain management spans all movement and storage of raw materials, workin-process inventory, and finished goods from point of origin to point of consumption. Another definition, provided by the APICS Dictionary, defines SCM as the "design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand and measuring performance globally." A few supply-chain management strategies that could be implemented into Skyline Aviations strategy consist of the following: 1) Partnerships- Skyline should strive to maintain long term relationships with its suppliers. When choosing a supplier, they should look for commitment towards producing the most reliable and readily available products. Because of Skylines relationship with its suppliers, they would be able to exchange ideas for possible new products. They want only the best for their customers, so they must be dedicated to selecting vendors who deliver those same standards. Using this process, they will be able to provide outstanding customer service and ensure the safety of each aircraft. 2) Maintain low inventory- Through the control of raw material, Skyline Aviation would be capable of reducing its daily on hand material. This helps lower costs by saving on warehousing. 3) Strategic Sourcing- In order to control raw material inventory, Skyline could partner with two or three main vendors for the parts necessary to build their aircraft. Their supplier

OPERATION AND RESOURCE MANAGEMENT ANALYSIS SKYLINE AVIATION.

11

would visit on a weekly or bi-weekly basis to look at each production area and determine what they might need in terms of products and supplies. They could take orders from the production team and then deliver the requests within only a few days. This process could eliminate receivables, payroll hours, and warehousing. 4) Outsourced resources Business Process Outsourcing (BPO) - They could work with an agency to outsource some of the recruiting and screening processes for employees, allowing them to lower labor and material cost.

They can also use supply chain management to produce parts economically and invest back in the company to research for new and efficient and environmentally friendly technologies. They can use the customer feedback and market surveys to find out the trends of the market and growing demands for new concepts and built in amenities to be for value added product. They can locate their services to a location where they are centrally located for easy access to their custom communities and also train their sales force and distributors to get to know the needs and requirements of their customers and match them to most suitable products. One of Skyline Aviations supply chain management strategies is visible within their partnerships. Developing long-term partnership consists of maintaining arrangements with a few suppliers who will work with the company to satisfy the end customer needs and ensure the aircraft meets all required safety standards. Understanding this concept allows us to understand how Skyline maintains a supplier partnership. Skyline Aviation would require a strong supplier partnership, working with suppliers and partnering relationships with providers of key materials. They would also maintain a partially vendor managed inventory working out agreements with vendors providing assembly line

OPERATION AND RESOURCE MANAGEMENT ANALYSIS SKYLINE AVIATION.

12

products on a just-in-time basis, not actually transferring title until parts are used. Another way Skyline would use vendor managed inventory is contracting the recruiting and screening process for potential employees. Skyline has also formed a sort of virtual corporation, joining with other aircraft manufacturers in a purchasing group to work with vendors to reduce prices. Both this strategy and the following one are incredibly important in terms of being resourceful and maximizing value on a daily basis. Inventory planning and control is based on identifying how much inventory is needed in order to satisfy the customer and materials demands, and when it is needed. The objective is to minimize total inventory costs. To plan inventory quantity, a range of inventory models is used. The first model Skyline will use is the expression for the annual inventory holding cost for the production order quantity model: Q = Number of units per order H = Holding cost per unit per year P = Daily production rate D = Daily demand rate, or usage rate T = Length of production run in days (Annual Inventory holding cost)= (Average inventory level) x (Holding cost per unit per yr) (Average inventory level)= (Maximum inventory level)/2 (Max inventory level)= (Total prod during production run) (Total used during production run)

OPERATION AND RESOURCE MANAGEMENT ANALYSIS SKYLINE AVIATION.

13

Annual inventory holding cost= (Max inventory level/2)(H)= (Q/2)[

( ) ]

The previous equation is useful when inventory continuously builds. The following is used in situations that contain the following assumptions: 1. Demand for an item is known, reasonably constant, and independent of decisions for other items. 2. Lead time is known and consistent 3. Receipt of inventory is instantaneous and complete. 4. Quantity discounts are not possible 5. The only variable costs are the cost of setting up or placing an order. 6. Shortages can be completely avoided if orders are placed at the right time. Daily demand = D Holding cost = H Ordering cost = S Purchase price = P Lead time = LT One of the most popular models is Economic Order Quantity (EOQ) Q* = Another formula that will be used when determining inventory is the reorder point (ROP). The reorder point is the amount of inventory in stock which indicates that a new order should be placed.

OPERATION AND RESOURCE MANAGEMENT ANALYSIS SKYLINE AVIATION.

14

ROP = d*LT ROP = Demand during Lead Time (DDLT) Where: d = demand per unit time LT = lead time The final formula Skyline Aviation would find useful is the Quantity Discount Model. This formula is used to increase sales by offering discounts to their customers. It is a reduced price for items purchased in large quantities, such as aircraft parts needed in the preparation assembly line. Total Cost = Ordering cost + Holding cost + Product Cost Where Q = Quantity Ordered D= Annual Demand in units S = Ordering or setup cost per year P = Price per unit H = Holding cost per year Inventory control is crucial in order to develop a profitable company in which there exists a quick and efficient turnover of goods and material

OPERATION AND RESOURCE MANAGEMENT ANALYSIS SKYLINE AVIATION.

15

CONCLUSION:

To conclude, there are many techniques available at a companys disposal to utilize in order to improve the business including supply chain management, total quality management, inventory control, and many others. Through constant innovation and implementing many of the techniques mentioned above, Skyline Aviation can focus on safety, quality, value, and efficiency, to better serve their customers. By improving supply chain management and utilizing total quality management, Skyline Aviation can increase revenues and profit margins. By partnering with both the suppliers and customers, Skyline Aviation can better service their customers by meeting and exceeding expectations. Using surveys and well trained employees to find out the customers wants and needs will improve satisfaction ratings and efficiency. Training the employees to know more about the products and services will serve both the customers and the company well through building trust and delivering quality products. There are many useful charts and formulas available to use to improve the firm, for example, the Pareto Chart and the reorder point (ROP). Simply creating the charts or calculating the equations is not useful, but knowing how to interpret them and plan ways to improve upon the results is the key. If managers utilize these tools properly, there should always be constant improvement and new ideas how to improve results. Overall, there are many opportunities for improvement in any company. For Skyline Aviation, major improvements could be realized through utilizing the previously mentioned techniques. The downward trend in revenue and profit could turn around, and Skyline Aviation could return to their roots of innovation and luxury for their faithful customers.

OPERATION AND RESOURCE MANAGEMENT ANALYSIS SKYLINE AVIATION.

16

BIBLIOGRAPHY:

1. Customer Satisfaction Survey Telephone and Online Research. July 30, 2012. http://www.directopinions.com/customer-satisfaction-survey.html 2. Fisk, B. How Pareto Charts Can Improve Quality of Business Processes. August 1, 2012. http://www.bia.ca/articles/qm-pareto-charts.htm 3. Hashmi, K. March 16, 2010. Introduction and Implementation of Total Quality Management (TQM). August 30, 2012. http://www.isixsigma.com/methodology/total-qualitymanagement-tqm/introduction-and-implementation-total-quality-management-tqm/ 4. Heizer, J. and Render, B. 2011. Principles of Operations Management. New Jersey: Prentice Hall. 5. Reh, F. J. Cost Benefit Analysis aka Running the Numbers. August 14, 2012. http://management.about.com/cs/money/a/CostBenefit.htm 6. Supply Chain Management. August 30, 2012. http://www.apics.org/gsa-mainsearch#supply%20chain%20management|allResults 7. The Thirteen Quality Elements. August 5, 2012. http://www.analog.com/en/quality-andreliability/total-quality-management/thirteen-quality-elements/content/index.html