To Appreciate the Value of Digital Networks, Look to the Skies…

How are digital networks providing greater visibility and helping to achieve savings by making risk more manageable? 

On route to a recent conference on how procurement networks are reshaping the aviation industry, I realised how amazing it was to be arriving in the historic city of Athens, the cradle of Western civilisation. My enthusiasm owes not only to the city’s timeless beauty, though that’s reason enough to visit. Athens, it turns out, is ideally suited for such a gathering because it holds a unique place in the imagination for all of us who’ve ever wanted to fly.

When you’re fortunate enough to have as many Greek family members as I do, you learn about the ancient legends. So the fable of Icarus is well known to me.

Icarus, of course, was an early aviator. He looked to the birds and thought, “Why not me?” So he constructed a set of wings using wax and feathers. But his father warned him not to fly too close to the sun as the wax would not tolerate the heat. As we all know, Icarus declined to follow his dad’s advice — and, as he soared skyward, his wings began to melt. Icarus crashed back down to Earth.

What’s the moral of the story? Some people say Icarus was too ambitious, too proud, too single-minded. They say he flew too high.

But I believe Icarus had a different problem. Now, I may not be an expert on classical antiquity. Yet I believe Icarus could have been much more successful — he could have built much stronger, sturdier wings — if he’d only had a better supply chain!

In all seriousness, when it comes to aviation in our own time, there’s no mythology about it: The industry faces immense opportunities but also enduring challenges. High demand and low interest rates have fueled significant growth in recent years. Air transport has doubled in volume every fifteen years, with no end in sight. Aircraft keeps getting more reliable, more efficient, more technologically advanced. But high fixed costs and fierce competition are facts of life for airlines.

That’s why controlling costs spells the difference between success and failure, in every economic climate. To control costs, airlines are turning to technology to improve operations and the customer experience in four main ways: increasing real-time visibility and control, optimising efficiencies across business functions, enhancing service offerings, and deepening customer loyalty through personalisation and rewards programs.

In aviation, we’ve moved from wax and feathers to variable-intake turbofan engines and intelligent avionics. Yet in other respects, the industry remains largely unchanged. After all, the very same factors drive profits year after year:

• Revenue per passenger kilometer flown. How do airlines engage with customers to generate revenue premiums? Data, of course, plays a key role. What do they know about the passenger in seat 11C?
• Load factor. How do airlines optimise their routes, aircraft and services to ensure maximum lift per weight? Here again, data proves essential.
• Unit cost per available seat kilometer. How do airlines maximize efficiency and minimise costs? As with the other factors, the right data leads to the right outcome — for passengers, shareholders, and the environment.

Meanwhile, as airlines seek to optimise value, safety and support while improving the passenger experience, they need to be able to track and manage every part and every piece of equipment. Naturally, it helps to do so when airlines can also track and manage the suppliers of those parts and equipment.

In an industry like aviation, where risk management is so crucial — risks ranging from weather to regulation to commodity prices to exchange rates — savings become essential. Digital networks achieve savings by making risk more manageable. By providing visibility into the interconnected operations of airlines and their suppliers, cloud-based procurement platforms help to identify and resolve issues before they arise, aided by machine learning and artificial intelligence applications.

In addition, digital networks enable trading partners to collaborate on product design and service delivery, thus creating mutual value, extending competitive advantage for their organisations, and empowering them to reimagine not only the airline industry’s future but procurement’s role in shaping it. In the aviation business, real-time collaboration with one’s suppliers unleashes innovation and spurs growth. More often than not, success arises through partnership.

Seldom do we succeed when flying solo.

Pat McCarthy will be speaking at Big Ideas Chicago on 27th September. For more information and to request an invitation to this leading CPO event, click here.