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Procurement Process in Aviation Industry

Procurement Process In Aviation Industry

Business Scenario

Aviation businesses whether engaged in Airline operation, Maintenance Repair or any other related functions cannot do away with purchasing or outsourcing. In case the business organization happens to be an operator, the procurement plays a major role in attaining higher-level efficiency through optimized procurement strategies. This is the major source of savings for any organization and hence demands better management. Thus procurement becomes an important element of an operational excellence of any aviation operation unless and until the same has not been outsourced.

Procurement starts with identification of a need and ends with provisioning the need in the right quantity at the right time with the right quality. Thus the procurement cycle can be depicted as below:

Procurement CycleProcurement Cycle

Procurement Cycle

Requisitioning Process

Procurement begins with identification of need, meaning, what to procure (identification of needed spare part number), how much to procure (identification of quantity of spares required), where to deliver (identification of place where it is to be delivered), what are the quality standards required (identification of any special quality requirements) etc. This need is communicated through a document called Purchase Request.

Demand Processing

There are possibly three main sources from where the demands are sourced:

Ø    Initial provisioning Every operator plans his procurement in a phased manner to support his fleet. Manufacturers of Airplanes do recommend spares that ought to be provisioned for a particular level of servicing through a document called Recommended Spare Parts List commonly referred to as RSPL. However, most operators wish to trim this list based on criticality of spares as governed by their operational requirements and prepare what is known as Initial Provisioning List – IP List. Further this list of spares would be scheduled to be procured in a phased manner to obviate a sudden surge in the funds’ demand. Thus the IP List is one of the major sources to prepare a Purchase Request.

Ø    Need-based demand arises whenever there is requirement for spares and there is no stock. This could arise either because of the stock-out situation or because the spare would not have provisioned in first place – probably not listed or scheduled for later procurement. This demand would have risen due to some unscheduled jobs.

Ø    Replenishment Action. Most of the low cost spares are procured when their stocks reaches a particular level

Purchase Request

Thus in all these cases, after due identification of the demand the same will be communicated to Purchase department. Through Purchase Request the user can create a Direct PR as per the IP List. PR may also get generated for those parts whose inventories are low from safety stock.

While raising a PR, the following activities can be performed:

Ø    Defining delivery schedules

Ø    Specifying quality parameters/specification for each part

Ø    Authorizing or rejecting requests


The purchase request process is depicted in the following figure.


Quotation Process

Request for Quotation

Once the need has been communicated to the Purchase department, the Purchase department initiates action on these needs. The first and foremost action is to publish the need to registered suppliers so that their quotations can be received and processed to identify the best-suited ones.


The supplier, on receipt of RFQ, would revert with his offer in the form of Quotation. This Quotation information is captured in the system. Each quotation refers to details of one Supplier. The details consist of the validity period of his offer, quantity price breaks, tax/charge/discount details, delivery terms, delivery details etc.

These Quotations would then be analyzed for the various factors like Quality, Price, delivery date etc. before authorization The Authorized Quotation, which meets the company’s expectation, would be referred to for creating a Purchase Order in future until the validity period of the quotation. Once a quotation is referred to in a Purchase Order it cannot be modified since ordering has been done with the details available. Authorized Quotations can be amended if it has to be used in other Purchase Orders.

Purchase Order Management

Aviation industry is no different from any other industry as far as the general purchasing cycle is concerned. However, the difference lies in the Supplier Selection. The same items can be procured in different conditions and suppliers may have different approvals. Additionally, items can be procured in conditions namely New, Overhaul (OH), Serviceable (SV), and Unserviceable (not for procurement) and New Surplus (NS) which eventually have financial implications as illustrated in the following example:

Consider an airline operator procuring a rotable. The operator floats tender for it and gets quotations from three suppliers as shown in Table 1.1

S No




Lead Time


Supplier 1



20 days


Supplier 2


$ 10,000

10 days


Supplier 3


$ 9,000

7 days

Table 1.1 Comparison of Suppliers Case 1

Now, in a conventional industry, Supplier 3 will clearly get the order because of the least price, but in case of the aviation industry the buyer may still go for Supplier 2 because of the difference in the condition of the item to be procured.

Now, if one more dimension of certification is added as shown in the next table, then the selection of the supplier becomes more complex. The buyer because of superior certification may now like to select Supplier 3 in spite of the increased price.

S No





Lead Time


Supplier 1


FAA Certified


20 days


Supplier 2


FAA Certified

$ 10,000

15 days


Supplier 3


FAA Certified (P&W Certified)

$ 10,500

10 days

Table 1.2 Comparison of Suppliers Case 2

Thus it is paramount that the buyers in an MRO do not get carried away by the ‘L1′ principle (on the basis of price and lead-time) alone.

In general, there are mainly five types of parts in the aviation industry:

Ø    Rotables

Ø    Repairables

Ø    Spares

Ø    Consumables or Expendables

Ø    Tools, which are further classified as

i)      Special Tools

ii)     Special Equipment

iii)    General Tools

Since the Part Types such as Consumables or Expendables are considered typically lived items but are essential and routine in nature, procurement of these items may be undertaken through Blanket Purchase Orders. Initial Provisioning and subsequent procurement of Spares, Rotables, Repairable and Tools need



purchase orders to be generated for their procurement either on planned procurement cycles or on the basis of need.

Another typical feature of procurement process in this industry is that procurement of items takes place from industry-approved sources only.

Purchase Order

Ø  Purchase Orders can be created either with reference of PR’s or Quotations, in this case all the details are taken from the referenced document like PR or Quotations.

Ø  In second case PO can be created without any reference to any PRs or Quotations, here user can put in all the details of Suppliers, Part, Quantity of material to be procured, warehouse etc. manually


Blanket Purchase Order / Contract

There are certain parts such as consumables expendable or fuel can be purchased on a contractual basis so that the supplier supplies as and when the operator needs those parts with a guarantee of minimum business. Such long-term contracts are called Blanket Purchase Order (BPO) / Contracts and subsequent purchases are done through Release Order (RO) / Release Slip (RS).

In the aviation business process scenario, the Contract is essentially a long-term contract or agreement with a supplier, for the supply of certain materials that are typically of low value but of high volume consumables/expendables. Long-term contracts help the company get a consistent supply of materials with very little chances of delay by the supplier, since he is informed well in advance. For the same reason, it helps the supplier as well in planning his resources properly.

Contract could be any of the three types:

Ø    Rate

Ø    Quantity

Ø    Value


Release Order / Release Slip

In the Aviation business process scenario, Contract is essentially a long-term contract or agreement with a supplier, for the supply of certain materials of typically low value but high volume consumables/expendables. This kind of long term contracts help the company in getting a consistent supply of materials with very little chance of delay by the supplier since he is informed well in advance. For the same reason, it helps the supplier as well in planning his resources properly.

The Release Order (RO) is the advice to the supplier to deliver a certain quantity of materials at a specified/stipulated time based on the Contract already raised on the supplier. RO is an ordering document like Purchase Order (PO), which is used to place orders on a Supplier against long-term contracts or agreements

The Release Order requires the following vital information for its creation:

Ø    Contract Number

Ø    Quantity to be ordered

Ø    Delivery date (in case of single schedule)

Ø    Warehouse to which the material has to be shifted


Goods Receipt


Good Receipt (GR) is the process wherein the details of the materials delivered by a supplier are recorded, upon its receipt into the premises of the company. The material would be supplied with reference to the order placed on him by the company, such as PO, RO. Depending on the agreed terms of shipment, the Supplier would send the material in different consignments.

Upon arrival of consignment into the premises, the same can be recorded as the macro-level information about the consignment that is coming in is recorded. For example, details like weight of the consignment, number of boxes in which the consignment has been packed, delivery note number etc.

The second stage is the one wherein the goods are received in the respective warehouses and specific details like quantity received etc., are recorded by the user. This is done through the “Goods Receipt” process. After recording the receipt details, inspection (if required) can also be carried out. To the extent of quantity accepted based on inspection, the materials can be taken into the inventory stock.

Invoice Matching

Invoice Matching is the comparison of the quantity and value of goods available at different points in the procurement process. The quantity ordered, the quantity received or the quantity accepted is matched with the quantity invoiced to ensure that payment is made for the proper quantity and value of items.

There are various kinds of matching schemes

Two-way Matching

Two-way matching indicates matching of the invoiced quantity and value with the ordered quantity and value. Two-way matching is used only for POs where the “Goods Receipt” document need not be prepared.

Three-way Matching

Three-way matching indicates the matching the invoice after receipt of goods. This type of matching will primarily be used for items/suppliers for which inspection of goods is not necessary, or for bulk quantity items, or for suppliers whose quality process is good. This type of matching can be further classified as:

Ø    Three-way matching at PO level

Ø    Three-way matching at GR level

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