Company supply chain management and operations

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Company supply chain

Southwest Company supply chain: How to cut costs and keep quality high?

Southwest Airlines has proven to be one of the most forward-thinking companies in the airline industry, with its quirky style, customer-friendly focus and the clever ways it finds to slash the costs of flights and pass savings on to customers (Carbonara 1996). Given its low-cost orientation, having a lean supply chain is extremely important for the business model of Southwest. "Southwest has been the benchmark for many of today's discount carriers in obtaining maximum operational use of fleet aircraft," with a standard of less than 30 minute turnaround regarding flight landings and departures, "as well as the maximum utilization of aircraft during any given 24 hours of flight schedules" (Ferrari 2009).

Southwest has outsourced significant components of its supply chain in an effort to curtail costs. For example, it recently employed i2 Technologies' Service and Parts Management to identify excess inventory and other problems with inventory management. Thanks to i2, "the company has saved well over $2m by changing its materials sourcing and procurement" (Southwest Airlines maintains its profitability with i2 technologies, 2004, Supply Chain Brain). The company developed a way to tabulate "data from three main areas -- our legacy and flight-ops systems, and our home-grown scheduling system -- for maintenance production control" and to "generate a forecast based on historical usage, as well as deterministic usage" (Ensuring optimal parts inventory at Southwest Airlines, n.d., i2)

However, while some aspects of Southwest's operations remain well above industry standard, in recent years, the company's reputation for safety and quality has been tarnished, suggesting problems with policing the supply chain. In 2009, a "dispute between the FAA and Southwest over the use of potentially unauthorized parts forced the airline to temporarily ground 46 of its 737 aircraft, nearly 10% of its fleet, forcing significant delays in its service operations" (Ferrari 2009). Southwest had outsourced maintenance to "D-Velco Aviation Services, that in turn, subcontracted work on the affected systems to another company that was not authorized by the FAA to provide the particular parts. Southwest has suspended D-Velco as a maintenance contractor" but Southwest's fondness for outsourcing has forced it to pay a high price in terms of its compromised reputation amongst many fliers (Ferrari 2009). It has also extracted a high monetary price from the company -- the FAA fined Southwest $10.2 million in 2008 for flying 46 jets which were overdue for safety inspections for fuselage damage (Ferrari 2009).