Modelling the impact of controlling the E2E turnaround time constraints on the aircraft MRO component availability performance - A case study at KLM Engineering and Maintenance Component Services

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Modelling the impact of controlling E2E turnaround

time constraints on the aircraft MRO component

availability performance

A case study at KLM Engineering & Maintenance Component

Services

Joost M. C. van Welsenes

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TIL5060 –Master Thesis Project

MSc Transport, Infrastructure and Logistics

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Modelling the impact of controlling the E2E

turnaround time constraints on the aircraft

MRO component availability performance

A case study at KLM Engineering and Maintenance Component Services

TIL5060 Master Thesis Project

For the degree of Master of Science in Transport, Infrastructure and Logistics at the Delft University of Technology

By

Joost M. C. van Welsenes

Student number: 4102940 Date: 29 March, 2017 To be defended on April 6, 2017

Report number: 2017.TIL.8114

Graduation Committee:

dr. ir. D. L. Schott Chair TU Delft, Faculty 3ME

dr. W. W. A. Beelaerts van Blokland Supervisor TU Delft, Faculty 3ME

dr. ir. J. H. Baggen Supervisor TU Delft, Faculty CiTG and TPM

G. Philips van Buren KLM Engineering & Maintenance

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Preface

Dear reader

In my childhood I lived abroad and time after time I was impressed by the big blue airplane that flew us back home. Never knowing what was behind this company, the past six months I was able to explore the world of aircraft Maintenance, Repair and Overhaul during my graduation internship at KLM Engineering & Maintenance.

The work lying in front of you represents the result of my master thesis project to complete my master studies Transport, Infrastructure and Logistics (TIL) at the Delft University of Technology. The aim of this project was to reduce the inventory of an aircraft MRO component availability system by measuring and controlling the turnaround time performance at KLM Engineering & Maintenance Component Services.

Naturally, I could not have completed this master thesis project without the help of many others. I would like to use this opportunity to express my gratitude to these people.

First of all, I want to thank Guus Philips van Buren and Alex Gortenmulder for the opportunity to conduct my thesis project at KLM Engineering & Maintenance at the Lean Six Sigma Office. Their enthusiasm, knowledge and feedback helped and challenged me to get the most out of my internship period. Next, I want to thank all colleagues at Component Services and especially Chris Ankomah & John van der Jagt for sharing their time, knowledge and data with me. Thirdly, I want to express my thanks to my graduation committee of the TU Delft: dr. Wouter Beelaerts van Blokland helped me a lot on the continuous improvement, process control and performance measurement part of the research. dr. Ir. John Baggen helped me with the research approach, scientifically underpinning of the research and the scenario selection. Lastly, Dr. Ir Dingena Schott, thank you for your critical feedback on the scientifically relevance and contribution of the research. This helped me greatly to make this research both relevant for science as for practice. And lastly I would like thank all my fellow interns, friends and family for their patience, support and input.

Enjoy reading,

Den Haag, 29 March 2016 Joost van Welsenes

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Executive Summary

In the competitive environment of the aviation industry, it is paramount to secure aircraft availability by providing the aircraft fleet with efficient component support. In the aviation industry, efficient component support is realized with inventory pooling of rotable components. This system allows fast replacement of serviceable, rotable components to the fleet and allows the Maintenance, Repair and Overhaul (MRO) of unserviceable components to be performed later on. It may take weeks to repair the failed unit, but the aircraft is available to operate its schedule. How efficient the component availability process performs has significant impact on the operating costs of an airline. Reliable and modular components increase utilization and service, but it comes at a price. This is caused by the capital tied up in the inventory of rotable components, in monetary terms referred as Capital Employed Inventory (CEI).

Efficient component support means that a certain service level performance is realized with a minimal amount of costs, in this case low CEI. This can only be realized by having a short turnaround time (TAT) of the MRO and logistic processes. However, this is not always the case. A significant problem for component availability services is that extra inventory is used to compensate the underperforming TAT performance. Investing in extra inventory is an easy and fast method to make sure components are available as much as possible. However, it is not an economical feasible situation as CEI will increase and therefore endanger the market competitiveness of the airline.

Managing and controlling the TAT performance is key in achieving an optimal component availability performance (Cobb, 1995). Within the MRO industry, business process management and control on TAT performance are still in its infancy. In order to control and improve the component availability performance, it is crucial to have End to End (E2E) operational performance measurements. As Drucker (1966) stated “If you can’t measure it you can’t manage it”. Efficient and effective process performance measurements provide insight in the limiting factors (i.e. constraints) of the E2E process. Identifying these constraints gives managers insight in how to control the component availability performance. This research aims to model the impact of controlling the turnaround time constraints on the component availability performance at KLM Engineering & Maintenance Component Services (KLM E&M CS). In order to identify the constraints a new designed Business Process Control System (BPCS) is proposed. The BPCS defines the E2E operational process, measures the process performance and identifies the turnaround time constraints. The identification of these constraints gives managers insight on how to efficiently and effectively control the constraints and thereby improve component availability performance. The main research question that is answered in this research is:

How do the constraints of the E2E operational turnaround time need to be controlled to improve the aircraft MRO component availability performance?

In order to answer the main research question, a case study research approach is used. This approach consists of five phases (Yin, 1994): 1) description, 2) theory, 3) methodology, 4) methodology testing and 5) methodology evaluation. The objective of this research is to propose a BPCS for aircraft component availability services that measures TAT constraints and determine the main control levers to control these constraints. Subsequently the impact of controlling these constraints is calculated to improve the component availability performance of KLM E&M. Each of the five phases of the research approach is explained below.

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I - Description

The description of the research problem is stated above. An important remark is the scope of this research. This research entirely focusses on internal repair at Shop MRO and not on Shop HUB and external vendors.

II – Theory

In the theory phase the current BPCS that is used by KLM E&M CS is reviewed to determine the current limitations. In this review six main limitations are identified: 1) insufficient definition of operational processes, 2) high level KPI’s that focus on measuring result and not process performance, 3) no insight on the difference between waiting time and processing time, 4) no E2E performance measurement of the whole integral chain, 5) no translation of customer agreements to internal transaction agreements and 6) no insight into the impact of the TAT performance on the Service Level (SL) performance and CEI. In order to design a BPCS that eliminates these limitations, a literature review is conducted on Business Process Mapping, Measurement, Management and Improvement. This research also focusses on determining the impact of the TAT performance on the service level performance and CEI. In order to determine this impact a single-item, single-echelon, non-indenture, static demand inventory model is used.

III - Methodology

In the methodology phase a new BPCS from an E2E operational perspective is proposed. The proposed BPCS provides an E2E operational process performance measurement structure on three levels (E2E, shop and operational) with five process Key Performance Indicators (KPI’s): turnaround time, on time performance (OTP), standard deviation (SD), waiting time (WT) and processing time (PT). All these aspects eliminate the pre-defined current limitations of the BPCS at KLM E&M CS. This eventually provides insight into the process constraints, which is needed to provide efficient and effective process control to improve the component availability performance.

IV - Methodology testing

The proposed BPCS from an E2E operational perspective is tested on the basis of a case study at KLM E&M CS. The Define, Measure, Analyse, Design, Control & Validate cycle (DMADC-V cycle) of the Lean Six Sigma approach is used in order to perform the case study in a systematic way. The proposed BPCS is used for to define the processes, measure the performance and identify the constraints (DMA). Subsequently E2E control scenarios are designed and modelled to determine the impact on the component availability performance (“DC-V”). Each step of the cycle is discussed below and supported by Figure 1.

Define & Measure

The total E2E TAT performance is 29 days for closed loop and external pool and 25 days for KLM pool. The total average of E2E TAT performance is 26 days with a standard deviation of 19 days (Current TAT – Contracted TAT). The high standard deviation shows that the process is fairly instable. The total chain consists of 92% waiting time and the OTP performance is 42%. Based on the measurements from the BPCS, two constraints are identified: 1) the repair administrator (RA) and the expedition in the logistics-in and 2) the process and the repair operations (buffer and repair) at Shop MRO. Both constraints are illustrated in red in Figure 1. In total these two constraints cause 88% of the waiting time of total E2E TAT performance.

Analysis

The next step is to analyse the root cause of the two constraints. With the help of the 4M (Method, Manpower, Material & Machine) analysis of Lean Manufacturing the root cause of the two constraints is identified. Based on this analysis it is concluded that inefficient planning and control (P&C) of manpower capacity over time is the root cause of the high turnaround times. The aim of

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hierarchal decision model, four levels of control are determined: reactive control (level 0), active control (level 1), planning control (level 2), predictive control (level 3) and optimal control (level 4).

Figure 1: Applied BPCS from an E2E and operational perspective at KLM E&M CS

Design

Six E2E control scenarios are designed in which the degree of exploiting and or elevating the constraints with the defined control lever levels is varied. The six scenarios are: 1) current state (level 0), 2) exploiting logistics-in (level 1), 3) exploit Shop MRO + logistic-in (level 1), 4) elevate Shop MRO + exploit logistics-in (level 2), 5) elevate Shop MRO + exploit logistics-in (level 3) and 6) ideal world Shop MRO + logistics-in (optimal). The use of the scenarios gives insight into the effect of controlling the process constraints on the component availability performance.

Control & validate

The impact of the different E2E control scenarios on the E2E TAT performance is modelled using a static, deterministic model. Subsequently the E2E TAT performance is the input for the inventory model to determine the impact on the service level performance and CEI. See Table 1 for an overview of the impact of the E2E control scenarios on the component availability performance. Eventually this impact gives managers strategic insight into the effect of efficiently controlling the TAT constraints. It also offers the opportunity to discuss whether certain improvement investments outweigh the returns. In the current state an extra investment of 14 million euros CEI is needed to compensate the underperforming E2E TAT performance of 26 days and to meet the planned service level (SLP) target performance of 98%.

Table 1: E2E TAT, SLP and CAI performance per E2E control scenario

Scenarios Control level TAT (days) SLP (%) SLP Target (%) CEI (€) Delta SLP (%) Current State 0 26 92% 98% +€14M + 6% Exploit Logistic-In 1 25 93% 98% +€13M + 5%

Exploit Shop MRO + Logistic-In 1 18 97,5% 98% +€1.9M + 0,5 % Elevate Shop MRO + Exploit Logistic-In 2 14 98% 98% -€12M - Elevate Shop MRO + Exploit Logistic-In 3 12 98% 98% -€19M - Ideal world Shop MRO + Exploit Logistic-In 4 9 98% 98% -€22M -

Outbound

E2E Component Service Supply chain

Logistic-In Shop MRO Log-Out

= Process Time PT

WT = Waiting Time

Transport

to MRO Buffer Repair CIR-Out

Transport To LC Pool ½ dy 1 dy 1.5dy TA ATAT = Transaction Agreement = Average Turnaround time

½ dy 12 dy

1 day

OTP = On Time Performance

= Standard deviation SD Repair Administ Buffer CIR-In Import ½ dy 1 dy Hangar Expeditn Export KLM Pool Closed Loop External Pool 2 dy 14 dy 0.8 0.2 70%1 dy 0.3 0.1 86% 21 1 45% 3 3 22 19 1 1.5 0.1 0.1 12% 0.1 0.1 22% 0.40.05 93% 24 2 42% 26 20 2.5 0.5 61% 10 1 42% 0.970.0388% 0.2 0.1 94% 0.4 0.1 92% 0.9 0.1 95% 0 0.05 93% 0.9 0.5 89% 3.8 9 0.970.0377%

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V - Methodology evaluation

In the last phase the proposed methodology is evaluated. Based on the case study at KLM E&M CS it can be concluded that the proposed BPCS from an E2E and operational perspective has been successfully applied. The proposed BPCS has identified two main constraints and the amount of waiting time in the total E2E supply chain is identified. Which gives insight into the potential improved that can be made to reduce the E2E TAT performance.

Answering the main research question

In order to answer the main research question this research proposes a BPCS from an E2E and operational perspective. The proposed PBCS is successfully applied at KLM E&M CS and helps to define the E2E operational processes, measure the process performance and identify the operational process constraints. Knowing the process constraints makes it possible to efficiently and effectively control the constraints and eventually improve the component availability performance. Subsequently this research modelled the impact of controlling the E2E operational TAT constraints on the on the component availability performance. In order to determine this impact, several different E2E control scenarios are designed in which there is varied in degree of exploiting and or elevating the constraints with a certain level of P&C of manpower capacity. If the repair operations and the RA/Expedition constraints would be controlled in such a way that the contracted E2E TAT customer agreement would be met the E2E TAT performance decreases from 26 days to 17 days. The reduction of the E2E TAT performance means that the same service level performance of 98% can be met €14 million less CEI. This results in the same service with less inventory and thus less cost. Which eventually improves the competitiveness of an airline.

Contribution to literature

This research aims to contribute to science in two ways. First of all, this research proposes a design for a BPCS that defines and measures the E2E operational performance of MRO processes. This is essential in order to control the operational constraints. Secondly, this research showed the importance and relevance of measuring the impact of the TAT performance on CEI and SL. This is an indicator that could be added to the theory of Lean Six Sigma.

Recommendations and further research

For KLM E&M it is strongly recommended to apply the newly designed BPCS with weekly data. This ensures that the performance of constraints can be monitored frequently to enable continuous control of the constraints. Furthermore, it is recommended to apply the newly designed BPCS not only on the internal repair flow of Shop MRO, but also for Shop HUB and external repair.

Further research is necessary in implementing planning and control of manpower capacity at the logistic-in process and the Shop MRO. The analysis showed that there is sufficient manpower capacity available but that it is not efficiently utilized over time. Currently KLM E&M CS only applies reactive planning and control for their manpower capacity. This research showed the potential of both waiting time and CEI reduction. The reduction in CEI can provide the financial resources to invest in more sophisticated planning and control of manpower capacity.

From a scientific aspect, it is useful to test the proposed BPCS at other industries to see if this design helps other MRO businesses in defining the processes, measuring the E2E operational performance and identifying the constraints.

Overall, this research shows how a MRO company can define and measure its E2E and operational processes so that the constraints can be identified. Furthermore, this research shows the impact

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List of figures and tables

Figure 1: Applied BPCS from an E2E and operational perspective at KLM E&M CS ... IX

Figure 2: KLM Boeing 777 at Hangar 11 (KLM E&M, 2016) ... 1

Figure 3: Simplified illustration of the Component Availability system for a rotable component .. 4

Figure 4: Component Availability process (unserviceable at A/C to serviceable at pool) ... 7

Figure 5: Report structure ... 10

Figure 6: Rotable components at Shop MRO (KLM E&M, 2016) ... 11

Figure 7: Chapter 2 ... 13

Figure 8: Section 2.1 ... 14

Figure 9: BPCS of KLM E&M CS (KLM E&M CS, 2016)) ... 15

Figure 10: Component Availability services performance triangle ... 16

Figure 12: Illustration of Unified Field theory (Philips van Buuren, 2016) ... 24

Figure 13: DMAIC Cycle ... 25

Figure 14: Toyota Production System "House" ... 26

Figure 15: Illustration of a Single- Multi-Echelon Inventory model ... 29

Figure 16: Aircraft engine disassembly stage (KLM E&M, 2016) ... 35

Figure 19: Design of the proposed BPCS from an E2E perspective ... 39

Figure 20: Overview of case study methodology ... 43

Figure 21: Avionics repair mechanic at Shop MRO (KLM E&M, 2016) ... 45

Figure 23: Case study - Define steps ... 48

Figure 24: SIPOC level 2 process KLM E&M CS supply chain ... 50

Figure 25: SIPOC Level 3 process KLM E&M CS supply chain ... 51

Figure 26: Defined KLM E&M CS supply chain ... 53

Figure 27: Case study – Measure step ... 54

Figure 28: Normal Probability plot E2E level 1 ... 57

Figure 29: Normal Probability plot E2E level 2 ... 58

Figure 30: Normal Probability plot E2E logistic-In level 3 ... 58

Figure 31: Normal Probability plot E2E Shop MRO level 3 ... 59

Figure 32: Normal Probability plot E2E Logistic-Out level 3 ... 59

Figure 33: OTP E2E level 1 & 2 processes ... 60

Figure 34: OTP Logistic-In level 3 processes ... 61

Figure 35: OTP Shop MRO level 3 processes ... 61

Figure 36: OTP Logistic-Out level3 processes ... 61

Figure 37: WT/PT E2E level 1 & 2 processes ... 62

Figure 38: WT/PT ratio Logistic-In level 3 processes ... 62

Figure 39: WT/PT ratio Shop MRO level 3 processes ... 63

Figure 40: WT/PT ratio Logistic-Out level 3 processes ... 64

Figure 41: Measure results of KLM E&M CS E2E level 1, 2 & 3 processes ... 64

Figure 42: Case study – Analyse step ... 65

Figure 43: VSM of KLM E&M CS E2E level 3 operational process constraints ... 66

Figure 44: Manpower capacity RA ... 67

Figure 45: Manpower Capacity/Input per weekday ... 68

Figure 46: Delta Input & Manpower capacity in hours ... 68

Figure 47: Delta Input/Manpower capacity &calculated backlog in days ... 69

Figure 48: Input & Manpower Capacity Shop MRO (Felter, 2016) ... 70

Figure 49: Calculated Backlog (Felter, 2016) ... 70

Figure 50: Control levels of Manpower capacity planning (Wild & Schneeweiss, 1993) ... 71

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Figure 52: Payoff matrix level of P&C versus E2E TAT reduction ... 76

Figure 53: Case study - Control step ... 79

Figure 54: Impact E2E control on the Logistic TAT ... 80

Figure 55: Impact E2E control on the Shop MRO TAT ... 80

Figure 56: Impact of E2E control scenarios on E2E TAT performance ... 81

Figure 57: Ratio removals/LLP ... 83

Figure 58: Missed deliveries per year per service level ... 84

Figure 59: Overview of LLP per LRU ... 84

Figure 60: Capital Employed inventory/SL ... 85

Figure 61: Scenario A - Capital Employed inventory/SL ... 86

Figure 62: Scenario B - Capital Employed inventory/SL ... 86

Figure 63: Scenario C - Capital Employed inventory/SL ... 87

Figure 64: Scenario D - Capital Employed inventory/SL ... 87

Figure 65: Scenario E - Capital Employed inventory/SL ... 88

Figure 66: Scenario F - Capital Employed inventory/SL ... 88

Figure 67: Illustration of improving the component availability performance by controlling the E2E TAT constraints ... 90

Figure 68: Applied BPCS KLM E&M Component Services ... 91

Figure 69: A-Check of Boeing 747-400 at Hangar 11 (KLM E&M, 2016) ... 93

Figure 72: Boeing 777-300 Olympic special (KLM E&M, 2016) ... 113

Figure 73: Organizational structure of KLM E&M (Air France KLM, n.d.) ... 115

Figure 74: Cross-functional chart of KLM Pool process ... 116

Figure 75: Cross-functional chart of Closed Loop process ... 117

Figure 76: Cross-functional chart of External Pool process ... 118

Figure 77: Legend VSM (Smith & Hawkins, 2004) ... 119

Figure 78: VSM External Pool ... 120

Figure 79: VSM KLM Pool ... 120

Figure 80: VSM Closed Loop ... 121

Figure 81: Measuring density per process ... 122

Figure 82: Impact of TAT, MTBUR, service level and number of units supported (Kilpi & Vespsalainen, 2003) ... 128

Table 1: E2E TAT, SLP and CAI performance per E2E control scenario ... IX

Table 2: Sub questions ... 8

Table 3: Business process mapping tools ... 20

Table 4: Operational process KPI's ... 21

Table 5: Business Process Improvement methodologies ... 28

Table 6: Overview of several inventory models ... 31

Table 7: Overview of selected theories to eliminate current BPCS limitations ... 32

Table 8: Methodologies steps - Define ... 40

Table 9: Methodologies steps - Measure ... 41

Table 10: Methodology step – Analyse ... 41

Table 11: Methodology step - Design ... 42

Table 12: Methodology step – Control & validate ... 42

Table 13: Actor Analyses KLM E&M CS ... 49

Table 14: Shop MRO workstations per Cell ... 51

Table 15: E2E Component Services supply chain Level 2 transaction agreements ... 52

Table 16: E2E Component Services supply chain Level 3 transaction agreements ... 52

Table 17: KLM E&M CS ERP systems ... 54

Table 18: Data set records per customer type ... 55

Table 19: ATAT E2E Level 1 and 2 processes ... 56

Table 20: ATAT Logistic-In level 3 processes ... 56

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Table 24: Normal & disrupted flow RA operations ... 66

Table 25: Root Caused disrupted flow ... 67

Table 26: Normal & disrupted flow Shop MRO ... 69

Table 27: Root Caused disrupted flow ... 69

Table 28: E2E TAT, SL and CAI performance per E2E control scenario ... 89

Table 29: Overview of top 10 LRU’s effecting CEI ... 98

Table 30: Overview impact E2E control scenarios on component availability performance ... 102

Table 31: General building block flow chart (Halseth, 2008) ... 117

Table 32: Level 2 time stamps ... 122

Table 33: Removed outliers ... 123

Table 34: Filling blank data cells with averages ... 123

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List of abbreviations

Abbreviation Explanation

AFI KLM Air France Industries KLM

AIP Average In Process

AOG Aircraft on Ground

ATAT Average Turnaround Time

BPCS Business Process Control System

BPM Business Process Management

CEI Capital Employed inventory

CLA Closed Loop Agreement

CPS Creative Problem Solving

CS Component Services

C&P Control and Planning

DMAIC Define, Measure, Analyse, Improve and Control

E&M Engineering and Maintenance

ERP Enterprise Resource planning

ES Engine Services (KLM E&M)

E2E End to End

GM/FA Gross Margin per Fixed Asset

I/FA Inventory per Fixed Asset

IATA International Air Transport Association

KLM Koninklijke Luchtvaart Maatschappij

KPI Key Performance Indicator

LC Logistic Center

LCC Low Cost Carrier

LLP Latest List Price

LRU Line Replicable Units

LSS Lean Six Sigma

LT Lead Time

MRO Maintenance, Repair and Overhaul

MTBF Mean Time Between Failure

MTBUR Mean Time Between Unscheduled Removal

OEM Original Equipment Manufacturer

OTD On Time Delivery

OTP On Time Performance

OTS On Time Start

PSAA Product Supplier Agreement and Assurances

PT Processing Time

RA Repair Administrator

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SD Standard Deviation

SIPOC Supplier, Inputs, Processes, Outputs, Customer

SL Service Level

SLP Planned Service Level

SLPT Planned Service Level Target

SPC Statistical Process Control

SRU Shop Replaceable Units

SSC Supplier Support Conditions

T/FA Turnover per Fixed Asset

TA Transactional Agreement

TAT Turnaround Time

TH Throughput

TOC Theory of Constraints

TPS Total Productive Systems

TSO Trouble Shooter

VSM Value Stream Map

WIP Work In Progress

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Phase I) Description

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1 Introduction

This chapter serves as an introduction of the research performed in this thesis. At first this chapter will provide the context in which the research takes place, after which the research field is explained. Next, the scope of the research is given and research questions are presented. The chapter will conclude with the approach.

1.1 Research Context

Since the first commercial flight in 1914 air transport is one of the world’s most rapidly growing industries. In the year 1919, total worldwide air traffic is estimated to have amounted to about 3,500 passengers (Hammarskjold, 1969). In the year 2016, around 20,000 commercial aircraft have carried around 3.5 billion passengers around the world (IATA, 2016). Forecast of the International Air Transport Association (IATA) even predict that the world’s fleet will double as 40000 planes take over the skies carrying 7 billion passengers in the year 2034 (IATA, 2016).

“The growth of the passenger aviation market goes along with increasing competition. Much of the growth has been driven by low-cost carriers (LCCs), which now control some 25 percent of the worldwide market and which have been expanding rapidly in emerging markets” (Clayton & Hilz, 2016). “Besides LCC, growth also came from continued gains by airlines in developed markets” (Clayton & Hilz, 2016). Yet, Wall Street Journal research showed that in many cases, 99 percent of the revenue received per flight by many airlines is needed simply to break even on the high base costs incurred in operation (Deal, 2016). Under massive pressures (economic & regulatory), airlines are increasingly looking at ways to differentiate themselves and compete on quality, service and cost in order maintain market share and increase competitiveness (Anglin, 2016).

The largest cost to airlines is fuel, followed by salaries, taking 29 and 20 percent of revenue respectively. For airlines it is not easy to save cost for fuel as they cannot influence the fuel price. Salaries are also difficult to reduce because of the global competition in a unionized industry for qualified aircraft maintainers driven by forecast market demand growth, insufficient numbers being trained. As such, both fuel and people are costs that cannot be influenced easily or minimized to maximize profit (Deal, 2016).

The one area where an airline can help boost profits is that of efficient and effective maintenance, repair and overhaul (MRO). MRO is responsible for aircraft safety and airworthiness, where costs typically make up 11 percent of revenue. “By transforming MRO and its associated supply chain into a more efficient and effective enterprise it is possible to achieve increased value from investments” (Deal, 2016).

Overall it can be concluded that the aviation market is fast growing and highly competitive with very low profit margins. To build market share and stay competitive in these hard conditions, most important is to satisfy the customers. Providing a reliable high quality, on time and cost efficient MRO service is one of the key areas that an airline can significantly influence in order to drive increased profits and competitiveness. This will provide airlines with increased customer service, increased availability with minimized turnaround times (Deal, 2016). The research field of this research is explained in the next chapter.

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1.2 Research Field: Component Availability

“The role of MRO services in the airline industry is to ensure that aircrafts are in operative condition before the flight departure and that they complete the scheduled flight without technical disruptions” (Kilpi, 2008). “The product of aircraft MRO services is the technical reliability of the aircraft and the on time availability of an aircraft” (Kilpi, 2008). Lacking technical reliability causes flight delay, diversions and cancellations which influences passenger service and thereby the competitiveness of an airline (Kilpi, 2008). Aircraft availability holds that an aircraft is in operative technical condition on time for its flight.

To tackle the issue of aircraft availability the aviation industry uses Line Replaceable Units (LRUs), also called rotable components (Kilpi, 2008). These units are responsible for critical functions of the aircraft. In case of malfunction, the failed unit can be identified and replaced by a serviceable rotable component within a reasonable time frame. The serviceable rotable components are stored at a so called “component pool”. It may take weeks to repair the failed unit but the aircraft is available to operate its schedule. Besides rotables, aircraft also uses consumable components. These are less expensive components that are replaced when broken and are not repaired. Consumables are out of scope for this research. “The Component Availability services provides rotable components to support the airline fleet, while the Component MRO service performs the MRO activities needed to return the failed units into operative conditions” (Kilpi, 2008). See Figure 3 for a simplified overview of a Component availability chain.

Figure 3: Simplified illustration of the Component Availability system for a rotable component The main performance indicator of a component availability system is measured with the “Service Level” KPI (Dekker, Kleijn, & Rooij, 1998). Service level is the percentage of the amount of serviceable components that are available at the moment of request. The aircraft component pool provides the inventory that supplies the demand of customers that need a rotable component. How efficient the Component Availability process performs has significant impact on the operating cost of an airline (Cobb, 1995). “While reliable and modular components increase utilization, fast replacement service is paramount in case of failure” (Kilpi, 2008). “Keeping functional replacement units at hand shortens the delay of the service and allows the repair work to be performed later on” (Kilpi, 2008). However, the cost of the component availability service are caused mainly by the capital tied up in the inventory of rotable components, also referred as Capital Employed inventory (Kilpi & Vespsalainen, 2003).

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- Service level (SL) - Turnaround time (TAT)

- Capital Employed inventory (CEI)

Reducing inventory in the whole chain as low as possible and maintaining the customer service level will make an airline more competitive (Gunasekaran, Patel, & Tirtiroglu, 2001). This can only be realised by having a short turnaround time of the logistics and repair time (TAT), which has a positive effect on the utilization rate of the aircraft as fixed asset and as such turnover and profit, which increases competitiveness (Jong & Beelaerts van Blokland, 2016). Managing and controlling the TAT performance is key in achieving an optimal component availably performance. The field of this research focuses on the control of the TAT performance in the aircraft component availably industry and the impact of the TAT performance on component availably performance.

1.2.1 AFI KLM E&M – Component Services

KLM Engineering and Maintenance (KLM E&M) is such an airline that provides third party MRO and availability services for airframe, engines and components. KLM E&M Component Services (CS) is the division within KLM E&M responsible for the component MRO and Availability Services. For the component availability service KLM E&M CS uses a pool of rotable components for fast replacements for defect components. KLM E&M CS manages an aircraft component pool for aircraft types of Boeing (737,747,777 and 787) and Airbus (A330) for both the Air-France KLM fleet as for external airlines.

The market position of KLM E&M is currently under pressure and experiencing severe competition. For this reason Air France-KLM is implementing the new Perform 2020 plan (Air France KLM , 2016b). This plan is a strategical vision where increasing competiveness by improving its operational performance and reducing costs is a key (Air France KLM , 2016b). This also applicable for the division KLM E&M CS.

KLM E&M CS has outspoken a divisional strategy called CS 2.0. This strategy strives towards a 95 % service level performance of the aircraft component pool for both the Air-France KLM and External airlines. Furthermore, the operational repair time performance needs to meet de market standard of Boeing (PSAA) and Airbus (SCC) for an avionic repair of 9 days and mechanical repair of 14 days (Airbus, n.d.). In the next section the current problem of KLM E&M CS is described. Appendix A provides a more elaborate description of the role of Component Services within KLM E&M.

1.3 Research Problem

This section discusses the problem KLM E&M CS is currently facing at component availability services. At first the problem exploration gives an insight into the background of the problem, section 1.3.1. The definition of the problem statement is presented in section 1.3.2.

1.3.1 Problem exploration

Component Availability services of KLM E&M CS, is responsible for managing and controlling the aircraft component pool. The aircraft component pool is located at Schiphol-Oost and delivers serviceable rotable components to external customers around the world and to the local maintenance site of KLM at Schiphol. KLM aircrafts are mainly maintained at the four aircraft maintenance sites at Schiphol-Oost which are Hangar 10, 11, 12 and 14. It can occur that KLM aircrafts are repaired at external locations. External customers always do their maintenance at their own base airport. In that case the pool of KLM E&M CS then sends serviceable rotable components to those external locations.

It is the responsibility of Component Availability service to provide a certain level of available rotable components to the customer, in this case KLM or external customers. The service level target for Component Availability services is 90%. Currently the service level for all the maintenance site at Schiphol together is 96% (KLM E&M CS, 2016), which is above the agreed 90%.

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Indeed, the component availability performance for KLM is above the agreement of 90%. The problem is the fact that this is realised with very high Capital Employed inventory. Currently the on time performance of Shop MRO is 43%. The high inventory is used as a buffer to compensate the underperforming logistic and repair turnaround time (TAT) performance.

Compensating the slow TAT performance with high inventory levels is a general problem, and pitfall, of the aircraft MRO Component Availability industry (Kilpi & Vespsalainen, 2003). Investing in extra inventory is an easy and fast method to make sure the customer stays satisfied and gets his components. However, it is not an economical feasible situation as capital employed inventory will increase and therefore endanger the market competitiveness.

In order to improve the component availability system it can be concluded that the main focus is lowering the TAT performance so that the same service level performance can be realized with less inventory (Cobb, 1995), see also the literature review in section 2.2. However, within the MRO industry, supply chain management (SCM) and control on TAT performance are still in its infancy (Wallace, 2007). Currently most MRO businesses do not operate their business as a supply chain but are more internally focused (Terfher, 2009). In other words, departments within the supply chain operate more individually focusing on achieving local optimums and local productivity targets. Lowering the TAT performance of the whole E2E (further referred as E2E) supply chain is not about achieving local optimums, it is about optimizing the whole chain (Goldratt & Cox, 1984). In order to control and improve the E2E TAT performance, it is crucial to have E2E operational performance measurements. As Drucker stated (1966) “If you can’t measure it you can’t

manage it”. Companies therefore use Business Process Control System (further referred as BPCS).

A BPCS is a tool that helps to define the processes and measures the performance of these defined processes with a certain KPI’ structure. The performance measurements of these defined processes helps mangers to get insight in process constraints that are limiting the E2E performance. Efficient and effective process performance measurement and control from an E2E and operational perspective, eventually gives managers the control levers to improve the component availably performance (Pomffyova, 2010).

Currently KLM E&M CS has a poor and basic Business Process Control System. This accounts mainly for the operational repair and logistical processes of the component availability system. Performance is only measured on a high level and with a financial perspective, focusing on local optimums (Kleyngeld, 2016). The current BPCS does not give clear insight in the important limiting factors (i.e. constraints) and the in integral or E2E operational performance. Hereby it does not become clear and visible what kind of control levers need to be used to control and or improve the current TAT performance by eliminating the constraints and thereby improve the component availability system.

1.3.2 Problem statement

Together with the context description and the information on KLM E&M, the problem exploration leads to the following problem statement for this research:

Within the aircraft MRO industry there is limited focus on measuring and controlling the turnaround time performance from an operational and E2E perspective, subsequently there is no

insight into the effect of the TAT constraints on the service level performance and Capital Employed inventory of a component availability system.

This problem holds for KLM E&M CS but also for aircraft MRO business in general that have component availability services with an aircraft component pool.

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CS, the research focuses on Component Availability services for internal or in house repairs at Shop MRO, responsible for the repair of avionics components. This section will give a more elaborate description of the research scope.

KLM Engineering & Maintenance - Component Services

CS is responsible for both component MRO and Component Availability services. The component MRO takes place at the two repair location at Schiphol-Oost and at external vendors. The repair locations at Schiphol-Oost are Shop MRO and Shop Hub. Component Availability services offers three different services. These are the component pool (KLM and external customers), Aircraft On Ground (AOG) services and Loan & Lease services. This research focuses on the component pool services.

Component Availability – Pool

There are two types of parts that are used within KLM E&M. The first type of parts are the consumables, which is a component that is used only once and replaced for a new one when broken. The second type of components are rotables. These are namely bigger and more valuable components and are worthy to be repaired and reused. This research focusses on the availability of rotable components. Rotables are stored at an aircraft component pool. Component Availability has 3 customer types. These are external customers, KLM and closed loop customers (CLA). Closed loop customers are airlines that do not use the pool but send their unserviceable components to KLM E&M for repair and are send back after repair. This research focusses on all three customer chains.

Component Services – Unserviceable supply chain

The CS supply chain consists of five main steps and is triggered by the order placement of a serviceable rotable components from a customer. The first step is the delivery of a serviceable rotable component to one of the maintenance sites at Schiphol-Oost or to an external location. The second step is the substitution of the unserviceable part for the delivered serviceable part at the maintenance site. The third step in the chain are the logistics that take place to transport the unserviceable part to the repair shops. If the rotable component needs to be repaired at one of the two KLM E&M repair shops (Shop MRO, Shop Hub) then the component is directly delivered to the shop. If the rotable component needs to be repaired at an external vendor, then the component is first transported to the Logistic Center and then exported to the vendor. The fourth step in the chain is repairing the unserviceable component and making it serviceable again. The fifth step in the chain are the logistics that take place to transport the serviceable part from the shops to the pool at the Schiphol-Oost Logistic Center. When the rotable component is serviceable at the pool it can be used for the next customer. The total time it takes for a rotable component to go through the whole chain is called the E2E turnaround time (TAT). Figure 4 illustrates the five main steps of the component availably chain

Figure 4: Component Availability process (unserviceable at A/C to serviceable at pool)

For this research only a part of the Component Availability chain is relevant. In this case this is the part when the unserviceable component is removed from the aircraft, is repaired at the shop and brought back serviceable to the pool (step 2 to 5). The delivery of a servable component from the pool to the maintenance site does not affect the inventory level of the KLM pool. It may not physical be at the pool but at this moment in the chain the component is still servable stock. This research therefore focusses only on the return supply chain of unserviceable components to the moment the component is serviceable at the pool.

[1]

Delivery

[2]

Removal

[3]

Logistics-in

[4]

Repair

[5]

logistics out

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Internal Repair – Shop MRO

Components that move through the component availability supply chain can be repaired internally or externally. This research focusses only on internal repair. The vision of KLM is to first get insight in the performance of the internal operations. The internal operations are also internally controllable from a management perspective. At Schiphol-Oost there are two internal repair shops, namely Shop MRO and Shop Hub. Analyses show that on average the flow of components through Shop MRO is 60% and Shop hub is 40%. This research focusses only on internal repair and specifically Shop MRO. The reason therefore is the fact that previous studies have been done at Shop MRO and therefore more data is available.

1.5 Objective and Deliverables

Several studies have been done that focus on reducing specific TAT issues. In this case Mogador (2016) and Meijs (2016) all conducted research in reducing the TAT of engine MRO van Rijssel (2016) and Felter (2016) conducted research in reducing the TAT of component MRO. All these researches only focus on lowering the TAT performance of a specific part of the supply chain and have less focus on controlling the E2E supply chain. Furthermore, limited research is done to determine the impact of reducing or controlling the TAT performance on the service level performance or inventory level. The research objective is derived from the problem stated in section 1.3 and the research scope defined in section 1.4. The following objective is formulated:

Propose a BPCS that measures TAT constraints and determine the main control lever to control these constraints. Subsequently the impact of controlling these constraints on the component

availability performance of KLM E&M CS is modelled

As a result of this objective, the research will consist of the following deliverables:

• Propose a Business Process Control System to define the E2E operational process, measure the performance and identify the main constraints.

• Identify the main control levers to control the process constraints of KLM E&M CS • Inventory model to assess impact of controlling TAT constraints on Capital Employed

inventory and service level performance of a component availability system of KLM E&M CS

1.6 Research Questions

Based on the previously stated research objective, the main research question can be defined:

How do the constraints of the E2E operational turnaround time need to be controlled to improve the aircraft MRO component availability performance?

To answer this main research question, sub-questions are derived. These sub-questions are shown in Table 2;

Table 2: Sub questions

Sub questions

1 What are the limitations of current BPCS at KLM E&M CS?

2 What theories and studies can eliminate the defined BPCS limitations?

3 What BPCS can be proposed to identify E2E operational constraints and assess the impact of the constraints on the service level performance and Capital Employed inventory? 4 How is the current supply chain of KLM E&M Component Availability services defined? 5 What is the current performance of the supply chain by applying the proposed BPCS? 6 What operational constraints become visible by applying the proposed BPCS and what are

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1.7 Research Approach

In order to answer the main and sub questions the case study research approach is used from Robert Yin (1994). In his book Case Study Research: Design and Methods a five step framework is described for case study researches. This approach consists of five phases (Yin, 1994): 1) description, 2) theory, 3) methodology, 4) methodology testing and 5) methodology evaluation. The objective of this research is to propose a BPCS for aircraft MRO component availability services that focusses on measuring TAT constraints from an E2E operational perspective. Subsequently the impact of controlling these constraints is calculated to improve the component availability performance. Each of the five phases of the framework, in relation to this research, is explained below.

I) Description

In the description phase the problem is defined by giving the research context, the scope of the research, the objective of the research, the research questions and the research approach.

II) Theory

In the theory phase a review is done on the current Business Process Control System that is used by KLM E&M CS, to determine the current limitations. Subsequently a literature review is done to investigate how certain limitations of the current BPCS could be eliminated. The choices and selections of theories are also substantiated and discussed in this phase.

III) Methodology

In the methodology phase a new BPCS from an E2E operational perspective is proposed. The design of the new proposed BPCS is based on combining the theories, from the literature review, that eliminate the defined limitations of the current BPCS.

IV) Methodology testing

The proposed BPCS from an E2E operational perspective is tested on the basis of a case study at KLM E&M CS. The Define, Measure, Analyse, Design, Control & Validate cycle (DMADC-V cycle) of the Lean Six Sigma approach is used in order to perform the case study in a systematic way (Reid & Sanders, 2010). The proposed BPCS is used for to define the processes, measure the performance and identify the constraints (DMA). Subsequently E2E control scenarios are designed and modelled to determine the impact on the component availability performance (“DC-V”). Each step is described below;

Define

In the Define step the KLM E&M Component services supply chain is defined based on the proposed BPCS

Measure

In the Measure step the KLM E&M CS process performance is measured with the KPI’s of the proposed BPCS.

Analyse

In the Analyse step the performance of the KLM E&M CS process is analysed to identify the constraint and determine the root cause of the constraints. The root cause gives insight in the control levers that can be used to exploit and or elevate the constraints.

9 What is the impact of the E2E control scenarios on the E2E TAT performance, capital employed inventory and service level performance?

10 How well did the proposed BPCS eliminate the defined limitations of the current BPCS at KLM E&M

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Design

In the Design step, E2E control scenarios are designed in which there is varied in degree of exploiting and or elevating the constraints with the defined control lever. The use of the scenarios gives insight in the effect of controlling the defined process constraints

Control & Validate

In the Control & Validate step the impact of the E2E control scenarios on the E2E TAT performance, SL performance and CEI is determined. The different modelled scenarios give insight on the amount of extra CEI is invested to compensate the current E2E TAT performance to maintain the SL agreement with the customers. Eventually this impact gives mangers strategical insight in the effect of efficiently controlling the TAT constraints and offers the opportunity to discuss if certain improvement investments outweigh the returns.

V) Methodology evaluation

In the last phase the proposed methodology will be evaluated. The limitations that are found in the Theory phase are compared with the results and findings of the methodology testing phase. Insights and findings are then examined to what extent the findings could be an addition to the literature.

For an overview of the report structure;

I: Description II: Theory IV: Methodology Testing V: Methodology Evaluation III: Methodology H3 BPCS from an E2E operational perspective H2 Literature review H1: Introduction H4 Case study – KLM E&M CS H5 Evaluation and implementation H6 Conclusion and Define Measure Analyse Design Control & validate Business Process Control System (BPCS)

Literature study

Design of BPCS from an E2E and operational

perspective Case study methodology Evaluation of proposed BPCS Implementation proposed BPCS

Answering the research questions Context & field Problem & Scope Objective & deliverables

Research questions Approach RQ 1 & 2 RQ 3 RQ 4,5,6, 7,8 & 9 RQ 10 RQ 11

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Phase II) Theory

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2 Literature Review

As stated in the problem exploration (1.3), it can be concluded that the management and control of operational process within the MRO industry is still in its infancy (Wallace, 2007). This implies that process performance is measured and monitored in such a way that operational mangers do not have efficient and effective control levers to manage and control the E2E TAT performance. Within the MRO industry the current BPCS are too high level and focus on local productivity targets. The aim of this research is to propose a BPCS that focuses on defining the E2E operational processes, measure the process performance and identify the TAT constraints. In order to achieve this, first the limitations of the current BPCA that are used by MRO businesses have to be understood in more depth. For this reason, the BPCS that is applied at KLM E&M CS is taken as reference, answering the first sub question “What are the limitations of the current business process control system at KLM E&M CS?” (See section 2.1). Subsequently a literature study is conducted on theories and methods that can help to eliminate these limitations, answering the second sub question “What theories and studies can eliminate the defined BPCS limitations?” (See section 2.2). The relevant theories can then be used to propose a BPCS that eliminate the defined limitations. Subsequently the proposed BPCS is evaluated by means of a case study at KLM E&M CS (Chapter 4). This chapter will summarize the findings and answer the above stated sub question in section 2.3. An overview of the chapter is shown in Figure 7 below.

Figure 7: Chapter 2 Chapter 2 Literature review 2.1 Business Process Control System (PBCS) 2.3 Conclusions 2.2 Literature study

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2.1 Business process control system (BPCS)

The BPCS finds its origin from Process Performance Measurement and Business Process Management theories. “These theories state that the use of tools and techniques applied to enterprise environments are essential for enterprise continuous improvement” (Pomffyova, 2010). Pomffyova (2010) defines BPCS as “the combination of process, methodologies, metrics and technologies to measure, monitor and manage the performance of the business” (Pomffyova, 2010). Muehlen (2004) defines BPCS as “the collection of planning, organizing and controlling activities for the goal-oriented management of the organization’s value chain regarding the factors quality, time, cost and customer satisfaction” (Muhlen, 2004). In other words, a BPCS is a management tool to define and measure the performance of a supply chain or business processes and use the insights of the measured performance to control and manages the process that are underperforming the target goal. With the main goal to achieve more transparency with regard to process structure and process contribution to the performance of the system.

The basis of a BPCS is described in the following quote of Drucker (1966) “If you can’t measure it,

you can’t manage it”. This seems quite trivial to say that you can control something only when it

is measured. But this is definitely not the case for all the companies and businesses that use a BPCS. As also seen in the MRO industry the process performance measurement and control of the E2E TAT performance (repair and logistics) is not yet efficient and effective (Terfher, 2009; Wallace, 2007). Measuring the right performance at the right place and at the right level is key in order to manage and control the process in such a way that eventually improvements can be made. In order to understand in more depth what the limitations are of the BPCS in the MRO industry, the current BPCS of KLM E&M CS is reviewed. Section 2.1.1 focusses on the current KPI’s that are used to measure the performances and to what control mechanism, the information of the KPI’s, leads. The limitations of the current KPI’s and control mechanism that are found in the BPCS of KLM E&M CS are discussed in section 2.1.2. This section will summarize the findings in section 2.1.3. The overview of the chapter is shown in Figure 8 below;

2.1.1 Business process control system KLM E&M CS

At KLM E&M CS the BPCS consist of a flow chart with the main sub processes of Component Availability services and MRO services, which together form CS. On top of the defined process steps there are four main KPI’s that measure the performance of CS. An overview of the BPCS of KLM E&M CS is shown at Figure 9 below. The current BPCS at KLM E&M CS is reviewed, on the one hand, based on the performance measurement indicators or KPI’s (2.1.1.1). And on the other hand, the control mechanism that is applied at KLM E&M CS is reviewed, see section 2.1.1.2.

2.1 Business Process Control System (BPCS) 2.1.1 PBCS KLM E&M CS 2.1.3 Conclusion current BPCS 2.1.2 Limitations PBCS KLM E&M CS Figure 8: Section 2.1

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Figure 9: BPCS of KLM E&M CS (KLM E&M CS, 2016))

2.1.1.1 Performance measurement

The BPCS measures the service levels of the three main customer chain of KLM E&M CS. These customer chains are the KLM pool, External Pool and Closed Loop. Furthermore, there is a TAT on time KPI for the repair time of internal repairs (Shop MRO and Shop Hub). The last KPI is for the Capital Employed inventory. In appendix F a general explanation of the four main drivers of a component availability system is explained. The five KPI’s used for the BPCS at KLM E&M CS are explained below in more detail.

Service level KLM pool

This KPI measures the percentage of the amount of available serviceable components at the Pool at the moment of request. Every time an order cannot be fulfilled from stock then there is a backorder. The target for this KPI is 90% meaning that one out of ten components does not have to be serviceable at the pool at moment of request. The KPI measures the service level over all the different hangar/maintenance locations of KLM and does not make a distinction between aircraft types.

Service level external pool

This KPI measures both the percentage of the amount of available serviceable components at the pool at the moment of request of a customer. Beside this KPI also incorporates the on time delivery performance. The target for this KPI is also 90%. Both measurements are shown in one KPI and are not separated.

TAT on time closed loop

The KPI for the Closed Loop customer measures if the component is repaired and transported within the customer agreement. On average the target for a component is 14 days for repair and 3 days for logistics. The target for the TAT on time performance is 90%.

TAT on time internal repair

The TAT on time for internal repair measures if the component is finished at the internal repair shops within the Shop TAT agreement. This can differ per component from 5 to 40 days. The target for the TAT on time performance is 90%.

Capital Employed inventory

The Capital Employed inventory shows the current amount of inventory in monetary value. It is both the value of the components that are serviceable at the pool as the components that are still unserviceable in the supply chain.

Service level Pool

KLM 96%

External 85%

Capital Employed Inventory Inventory SE+US 276M €

InternalRepair

TAT On Time 43%

Closed Loop

Modelling the impact of controlling the E2E turnaround time constraints on the aircraft MRO component availability performance - A case study at KLM Engineering and Maintenance Component Services

Modelling the impact of controlling E2E turnaround

time constraints on the aircraft MRO component

availability performance

A case study at KLM Engineering & Maintenance Component

Services

Joost M. C. van Welsenes

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TIL5060 –Master Thesis Project

MSc Transport, Infrastructure and Logistics

Modelling the impact of controlling the E2E

turnaround time constraints on the aircraft

MRO component availability performance

Joost M. C. van Welsenes

Preface

Executive Summary

Contents