CASE STUDY – Warehouse

The following case about Otter Aerospace is a fictionalized look at a real problem faced by a real Canadian company. As you read through the case, think about different ways to build a service network to improve service time and service quality to far away customers, and about what other factors would influence your decision to open a warehouse in a foreign country.

Otter Aerospace is a Canadian aircraft manufacturer, specializing in small and medium-body midrange aircraft. A large part of their business is supplying after-market spare parts to their customers (the airlines) when their aircraft require routine or unexpected maintenance. For routine maintenance, the airlines will typically keep a small supply of parts at major airports around the world. These parts are re-stocked at regular intervals and can be shipped from Otter’s manufacturing campus in Montreal.

A more challenging problem arises from unexpected maintenance requirements. Aircraft are routinely inspected before every flight, and occasionally worn or defective parts will be found. For safety reasons, aircraft cannot fly until these part(s) are replaced. Having an aircraft on ground (AOG) waiting for a part can be quite expensive for the airlines, costing up to $40,000 per hour (source: www.boeing.com). As Otter’s customers grow their airline businesses, and the company attracts international airlines as new customers, urgent requests for spare parts have increasingly been coming from airports around the world. Otter’s management team is wondering if they need to expand their spare parts service network.

Currently, Otter has service parts warehouses in Montreal and Berlin. The service policy they guarantee to their customers is a 24-hour Return-to-Service (RTS), meaning that Otter will deliver a new part and assist with the installation so that the grounded aircraft will be flight-worthy within 24 hours of the part being ordered.

It takes 3 hours for Otter to pick an order at their warehouse and get it to a nearby airfield. It takes 5 hours from the time the order is placed to arrange a small cargo plane to make the delivery. Both the warehouse and the airfields operate from 6am to 12am (midnight), but a plane can be arranged overnight and ready to fly at 6am. It then takes time to fly to the destination airport, as given in the table below. All times are in hours, including taxiing, takeoffs and landings.

Otter then allows 5 hours at the destination airport to get the part to the plane, install the replacement part, and perform a final inspection before certifying the plane as air-worthy.

For simplicity, assume that the destination airport and mechanics can work around the clock (so that Otter does not have to worry about time zones and the local time of arrival).

Customer orders can be placed at any time during the day. Customer orders are filled from the closest Otter space parts warehouse. Assume Otter always has the spare parts in stock.

Questions:

1. An airline in Honolulu orders a part at 9am Montreal time for a grounded plane. How long until the aircraft in Honolulu is returned to service? Please provide detail to your answer.

2. How many major cities (in the table) are within the 24-hour guarantee range of Tokyo (including itself) that are not within range of warehouses in Montreal, Berlin or Sydney? Explain.

3. What is the minimum number of new warehouses that Otter should open to ensure all the cities in the table are within the 24-hour guarantee range of an Otter warehouse?