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SKYLINE AVIATION
OPERATION AND RESOURCE MANAGEMENT
ANALYSIS.
M A N A G E M E N T 3 6 2 0
B Y :
K A L E Y D U L F E R
H E A T H E R K I N G
A N D R E W R U B I O
E B A A D A H M E D
SKYLINE AVIATION
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OPERATION AND RESOURCE MANAGEMENT
ANALYSIS – SKYLINE AVIATION.
SUMMARY:
This document outlines a project plan to evaluate and analyze the operations and resource
management strategies of “Skyline Aviation”, a world renowned custom aircraft manufacturing
company who has been in the business for over half a century. Safety, luxury, and efficiency has
been the vision and manufacturing custom air transport solution to serve its customer base is the
mission of Skyline Aviation for the last several years. The company has been operating with
increasing revenues and profit margin until lately. Due to the fierce competition Skyline Aviation
has recently lost considerable market share. The company has not only lost the business, but also
has given up a significant part of its seasoned and experienced work force in the hands of new
and upcoming competition.
The purpose of this document is to review and analyze some of the processes and
procedures being followed and monitored to improve enterprise wide operations of Skyline
Aviation. It also includes proposals to alternative practices and methodologies using Total
Quality Management, Supply Chain Management and inventory control to reduce operating
costs, enhance quality, increase employee morale, and find ways and means to incorporate value
added innovative solutions to its existing product line. It will also suggest methods to train and
educate sales force, and strategically locate them to best serve customer based communities. This
document will review the process of gathering customer feedback and market surveys to help the
organization understand future trends and strategically position itself to meet the upcoming
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challenges. It also puts forth some suggestions to improve the quality of workforce and educate
them to enhance productivity and commitment towards the organization.
This document also focuses on means and measures to implement and adopt key Supply
Chain management concepts to harness unmanaged inventories, procurement procedures and
purchasing workflows. It also talks about ways to better plan ordering cycles to align the
production and demand forecasts and eliminate nonproductive process steps to conserve
resources and increase efficiency. It also suggests ways to build long term relationships with
vendors to explore alternate and innovative solutions to existing manufacturing materials and
processes. It recommends some crucial steps needed to survive and regain the market share by
developing key alliances to reach out to potential customers and better serve the existing
clientele by a highly trained and aggressive customer service team, and strategic location of sales
and service points, thus impacting increased profit margins, dependable, reliable, and high
quality products, consistent organizational growth, and higher return on investment.
The project will encompass most of the aforementioned factors and components of the
plan with respect to the topics prescribed by the text and concepts discussed within the
framework of this course.
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INTRODUCTION:
About 85 years ago, on August 16, 1927, Glenn L. Martin established the Glenn L.
Martin Company in Los Angeles, California. He started the company after building his first
plane in a rented church, where he took a leap of faith on his risky but innovative new aircraft
design at the urging of none other than Orville Wright.
Four months later and four hundred miles away, on December 19, 1927, Allan and
Malcolm Newhouse founded the Alco Hydro-Aeroplane Company, later renamed the Skyline
Aircraft Company. Talented mechanics, they set up shop out of a garage, constructing seaplanes
that would shatter speed and distance records for overwater flights.
A church and a garage, these were humble beginnings. But these were also men of
unrelenting vision and unwavering purpose. The gift that Martin and the Newhouse brothers
shared was a unique ability to look past the obstacles of today to the promise of a brighter
tomorrow. And they knew – as we’ve known for 100 years – that innovation, performance and
purpose were the keys to accelerating that tomorrow.
Together Glenn Martin and the Newhouse brothers combined their efforts to form the
United States’ fifth largest custom aircraft manufacturing company named Skyline Aviations –
providing luxury performance aircrafts to customers worldwide – using the strategy of
differentiation. The company differentiated its products through constant innovation, unique
features, and high quality. Increasing sales, expanding list of future orders, and potential buyers
at company headquarters in Los Angeles, California, suggested that the strategy was working.
Since its inception in 1927, Skyline Aviations has designed, produced and delivered more
than 193,500 airplanes around the globe. This includes more than 6,300 Citation business jets,
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making it the largest fleet of business jets in the world. Today, Skyline Aviations has two
principal lines of business: aircraft sales and aftermarket services. Aircraft sales include Citation
business jets, Caravan single-engine utility turboprops, single-engine piston aircraft and lift
solutions by Skyline Air, a subdivision focused to design and fabricate propeller aircraft.
Aftermarket services include parts, maintenance, inspection and repair services. In 2008, Skyline
Aviations delivered 689 aircraft, including 183 Citation business jets, and reported revenues of
$2.990 billion.
Skyline Aviation has been a pioneer in custom aircraft manufacturing business and has
held the highest air safety records in the industry due to the quality, dedication and innovation
that was induced to build master piece aircrafts exclusively designed and fabricated according to
the specific need and requirements of its customers and clients. Expanding from its humble
beginnings, Skyline Aviations has designed each aircraft with a special purpose and
determination, but due to the recent economic downturns, lack of attention to innovation,
antiquated and outdated processes, and upcoming fierce competition, the company has lost a fair
amount of market share. Skyline Aviation failed to secure some critical contracts and was
unsuccessful to deliver to few of its crucial clients. In the airline business, safety is the first and
foremost concern, and due to some unforgiving safety incidents, a couple of crashes and unsafe
landings added to the list of reasons to a swift decline in company reputation. This document will
provide some insight as how the company can reclaim the fame and regain the lost status in the
industry by the help of some key concepts mentioned in the prior section.
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CHAPTER 1:
In order to bring Skyline Aviation’s processes and practices up to date with modern
times, it will have to make some fundamental changes to the way it approaches business
operations. One such implementation to promote a change to the way it conducts business is to
implement Total Quality Management (TQM) into its business practice. TQM provided a means
to encourage all members of Skyline Aviation to make improvements to the culture, products,
and services that they provide. By giving each member of the organization a vested interest in
the ongoing success of the company, Skyline Aviation will be better positioned to stimulate
innovative growth within the company, thereby allowing the company to offer new and
improved services and products to its clients.
Continuous improvement will be an essential element to ensuring Skyline Aviation is
able to recapture its lost market share and increase its revenue stream. This cultural shift must
begin with the managers and leaders within the organization. In order to offer better products and
services, they must first gain a better understanding of their client’s desires. Meeting customer
requirements will allow the company to have long term growth with clients as their own needs
change. As a manufacturing company, customers are repeatedly most disappointed with products
that are either defective or do not meet the specifications previously contracted. To address this
issue the leadership of Skyline should have one, or more, all staff meetings to identify the faults
in processes and procedures which enable defects to pass on to the customer. Additionally they
should promote more meetings between business departments to identify solutions to systematic
problems which cause negative customer feedback. One example to curb the amount of defects
in their products, would be to install an inspection process when a product moves on from one
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operation to another. This would help to identify where frequent problems may be arising in the
manufacturing process, thereby allowing the leadership to better focus its efforts to correct the
issue. Another way to ensure customer satisfaction and help identify if products are meeting the
needs of the customers, is to conduct surveys 3-6 months after shipment of the product. This will
give the customers ample time to evaluate the product and determine if it meets their
requirements. When conducting the survey, the company may want to outsource the
development of this survey to a third party to ensure that the right questions are being asked. A
company such as Direct Opinions can help Skyline Aviation to better understand how to obtain
the most crucial information from a survey in order to better understand their clients. However,
regardless of the results of the survey, the company should still reach out to its clients on a
regular basis to see if they have any suggestions for improvements. While this will target new
opportunity areas for improvement, it will be of far more benefit by safeguarding against loss of
current and or new customers.
In order for a culture change to be successful, the leadership of Skyline must make their
employees a priority as well. The company’s inability to be innovative in the airline
manufacturing field can be attributed to its inability to attract and retain qualified prospects that
can help bring new and creative ideas into the business. Additionally, emphasis must be placed
on initiating improvement initiatives for its current employees. Management must help foster an
environment where employees are encouraged to find new and more efficient ways to process
daily activities in order to reduce cost and guarantee client satisfaction. One way to promote
innovative thinking within the organization is to offer employee trainings and education.
Employees should be knowledgeable in all aspects of the design, production, and shipment
process so that they can be better equipped to improve upon their individual business processes
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for the betterment of manufacturing company as a whole. For example, by providing more
information and better understanding of the design process to employees in the production unit in
relation to the customer needs, they will be more equipped to assist with meeting the client
needs. If the client desires to reduce cost and makes a request to use a cheaper material, the
production unit will be able to understand the client’s needs and recommend alternative materials
to use which may produce better results at a lower cost. Material cost to performance ratio is
something the client may not be aware of, and by having each employee thoroughly educated in
the overall manufacturing process, it will be less likely that the client is unsatisfied with their
order due to a lack of information being distributed through the work flow. With this in mind,
one of the trainings which should be implemented into employee’s educational material is the
use of cost-benefit analysis (CBA). CBA is a systematic approach to comparing the costs and
benefits of a given project, policy, etc. This will enable each employee to effectively analyze the
monetary implications of their decisions, or client related projects by determining if the financial
investment into a project is sound, and will provide a base for comparison for any alternative
projects or solutions for a given issue. The use of CBA will be very important to Skyline
Aviation due to the unique aspect of each individual order of a custom aircraft. Customers will
want to maximize the value of each order while minimizing costs. Sharing this information with
the customer will help to promote a trust between the customer and the company, thereby
increasing the likelihood of the order meeting the customer’s requirements.
Managers and leaders will also have increased responsibilities if they are committed to
implementing the TQM (Total Quality Management) process company wide. In addition to
creating educational and training programs to assist their employees with ensuring customer
satisfaction, they will also have to utilize additional tools to further safeguard against poor
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quality, mismanagement, or process failures. Control charts would be an excellent way to help
ensure quality by making sure that a process is falling within expected parameters. In
manufacturing, this could be used to determine, if components being produced for a specific
project, is within the acceptable range. The measurements of the materials being produced would
be gathered at set intervals throughout the process, and would then be used to plot a control
chart, with each measurement representing a single point. If the points on the chart exceed the
upper or lower limits, then the process would be outside the statistical limitations and therefore
not meet the quality standards. In this case the control chart could also help to determine the
source of the process failure as well. If the points which exceeded the limits occurred at the same
time, it could be related to a malfunction in machinery or be attributed to a user not properly
following procedures. Managers can also use Pareto diagrams to identify reoccurring issues, and
then prioritize them creating solutions to those issues based upon their respective occurrence and
significance. An example of this would be if there was large percentage of product or material
defects attributed to damage which occurred during shipping. Management could then take the
appropriate action and prioritize finding a solution to this issue. This may include a process
change to the way products are shipped, or finding a new distributor to supply materials to
prevent this issue from causing further loss in revenue. Pareto charts can also be used in
conjunction with the customer surveys previously mentioned. If the customer surveys indicate
several different customer complaints, these can be can be used as data within a Pareto chart.
Once accumulated the chart would then show which complaints are received more frequently
than others.
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CHAPTER 2:
The main objective of supply chain management is to maximize value and lower waste
of resources. Supply chain management spans all movement and storage of raw materials, work-
in-process inventory, and finished goods from point of origin to point of consumption. Another
definition, provided by the APICS Dictionary, defines SCM as the "design, planning, execution,
control, and monitoring of supply chain activities with the objective of creating net value,
building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with
demand and measuring performance globally."
A few supply-chain management strategies that could be implemented into Skyline
Aviation’s strategy consist of the following:
1) Partnerships- Skyline should strive to maintain long term relationships with its suppliers.
When choosing a supplier, they should look for commitment towards producing the most
reliable and readily available products. Because of Skyline’s relationship with its
suppliers, they would be able to exchange ideas for possible new products. They want
only the best for their customers, so they must be dedicated to selecting vendors who
deliver those same standards. Using this process, they will be able to provide outstanding
customer service and ensure the safety of each aircraft.
2) Maintain low inventory- Through the control of raw material, Skyline Aviation would be
capable of reducing its daily on hand material. This helps lower costs by saving on
warehousing.
3) Strategic Sourcing- In order to control raw material inventory, Skyline could partner with
two or three main vendors for the parts necessary to build their aircraft. Their supplier
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would visit on a weekly or bi-weekly basis to look at each production area and determine
what they might need in terms of products and supplies. They could take orders from the
production team and then deliver the requests within only a few days. This process could
eliminate receivables, payroll hours, and warehousing.
4) Outsourced resources – Business Process Outsourcing (BPO) - They could work with an
agency to outsource some of the recruiting and screening processes for employees,
allowing them to lower labor and material cost.
They can also use supply chain management to produce parts economically and invest
back in the company to research for new and efficient and environmentally friendly technologies.
They can use the customer feedback and market surveys to find out the trends of the market and
growing demands for new concepts and built in amenities to be for value added product. They
can locate their services to a location where they are centrally located for easy access to
their custom communities and also train their sales force and distributors to get to know the
needs and requirements of their customers and match them to most suitable products.
One of Skyline Aviation’s supply chain management strategies is visible within their
partnerships. Developing long-term partnership consists of maintaining arrangements with a few
suppliers who will work with the company to satisfy the end customer needs and ensure the
aircraft meets all required safety standards. Understanding this concept allows us to understand
how Skyline maintains a supplier partnership.
Skyline Aviation would require a strong supplier partnership, working with suppliers and
partnering relationships with providers of key materials. They would also maintain a partially
vendor managed inventory working out agreements with vendors providing assembly line
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products on a just-in-time basis, not actually transferring title until parts are used. Another way
Skyline would use vendor managed inventory is contracting the recruiting and screening process
for potential employees. Skyline has also formed a sort of virtual corporation, joining with other
aircraft manufacturers in a purchasing group to work with vendors to reduce prices. Both this
strategy and the following one are incredibly important in terms of being resourceful and
maximizing value on a daily basis.
Inventory planning and control is based on identifying how much inventory is needed in
order to satisfy the customer and materials demands, and when it is needed. The objective is to
minimize total inventory costs.
To plan inventory quantity, a range of inventory models is used. The first model Skyline
will use is the expression for the annual inventory holding cost for the production order quantity
model:
Q = Number of units per order
H = Holding cost per unit per year
P = Daily production rate
D = Daily demand rate, or usage rate
T = Length of production run in days
(Annual Inventory holding cost)= (Average inventory level) x (Holding cost per unit
per yr)
(Average inventory level)= (Maximum inventory level)/2
(Max inventory level)= (Total prod during production run) – (Total used during
production run)
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Annual inventory holding cost= (Max inventory level/2)(H)= (Q/2)[ ()]
The previous equation is useful when inventory continuously builds. The following is
used in situations that contain the following assumptions:
1. Demand for an item is known, reasonably constant, and independent of decisions for
other items.
2. Lead time is known and consistent
3. Receipt of inventory is instantaneous and complete.
4. Quantity discounts are not possible
5. The only variable costs are the cost of setting up or placing an order.
6. Shortages can be completely avoided if orders are placed at the right time.
Daily demand = D
Holding cost = H
Ordering cost = S
Purchase price = P
Lead time = LT
One of the most popular models is Economic Order Quantity (EOQ)
Q* =
√
Another formula that will be used when determining inventory is the reorder point
(ROP). The reorder point is the amount of inventory in stock which indicates that a new order
should be placed.
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ROP = d*LT
ROP = Demand during Lead Time (DDLT)
Where: d = demand per unit time
LT = lead time
The final formula Skyline Aviation would find useful is the Quantity Discount Model.
This formula is used to increase sales by offering discounts to their customers. It is a reduced
price for items purchased in large quantities, such as aircraft parts needed in the preparation
assembly line.
Total Cost = Ordering cost + Holding cost + Product Cost
Where Q = Quantity Ordered
D= Annual Demand in units
S = Ordering or setup cost per year
P = Price per unit
H = Holding cost per year
Inventory control is crucial in order to develop a profitable company in which there exists
a quick and efficient turnover of goods and material
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CONCLUSION:
To conclude, there are many techniques available at a company’s disposal to utilize in
order to improve the business including supply chain management, total quality management,
inventory control, and many others. Through constant innovation and implementing many of the
techniques mentioned above, Skyline Aviation can focus on safety, quality, value, and
efficiency, to better serve their customers. By improving supply chain management and utilizing
total quality management, Skyline Aviation can increase revenues and profit margins.
By partnering with both the suppliers and customers, Skyline Aviation can better service
their customers by meeting and exceeding expectations. Using surveys and well trained
employees to find out the customers’ wants and needs will improve satisfaction ratings and
efficiency. Training the employees to know more about the products and services will serve both
the customers and the company well through building trust and delivering quality products.
There are many useful charts and formulas available to use to improve the firm, for
example, the Pareto Chart and the reorder point (ROP). Simply creating the charts or calculating
the equations is not useful, but knowing how to interpret them and plan ways to improve upon
the results is the key. If managers utilize these tools properly, there should always be constant
improvement and new ideas how to improve results.
Overall, there are many opportunities for improvement in any company. For Skyline
Aviation, major improvements could be realized through utilizing the previously mentioned
techniques. The downward trend in revenue and profit could turn around, and Skyline Aviation
could return to their roots of innovation and luxury for their faithful customers.
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BIBLIOGRAPHY:
1. Customer Satisfaction Survey Telephone and Online Research. July 30, 2012.
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2. Fisk, B. How Pareto Charts Can Improve Quality of Business Processes. August 1, 2012.
http://www.bia.ca/articles/qm-pareto-charts.htm
3. Hashmi, K. March 16, 2010. Introduction and Implementation of Total Quality Management
(TQM). August 30, 2012. http://www.isixsigma.com/methodology/total-quality-
management-tqm/introduction-and-implementation-total-quality-management-tqm/
4. Heizer, J. and Render, B. 2011. Principles of Operations Management. New Jersey: Prentice
Hall.
5. Reh, F. J. Cost Benefit Analysis aka Running the Numbers. August 14, 2012.
http://management.about.com/cs/money/a/CostBenefit.htm
6. Supply Chain Management. August 30, 2012. http://www.apics.org/gsa-main-
search#supply%20chain%20management|allResults
7. The Thirteen Quality Elements. August 5, 2012. http://www.analog.com/en/quality-and-
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