Improving reverse logistics at KLM

Hazenberg, Sybren (2011) Improving reverse logistics at KLM.

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Abstract:When aircrafts arrive at the KLM E&M department for checks, mechanics take out defect (‘unserviceable’) plane parts and replace them by new (‘serviceable’) parts. Some of the defect parts, called unserviceable parts, should go back into the logistic chain in order to get repaired and put back on stock. This process of ‘reverse logistics’ is, at the moment, not going well at KLM, especially for the so-called ‘repairable’ parts since those parts are often not returned from the production site or are sent to wrong departments. This has a negative impact on the material availability and causes high costs. In this Master thesis the focus is on the collection and sorting of the repairable parts since stakeholders within KLM stated that these parts cause most of the problems. There are several reasons for the repairables not coming back or getting sent to wrong departments. The first reason is that the procedure and administration for returning the unserviceable (U/S) repairables is vague and too extensive. Also, the repairable parts are not visually distinguishable from expendable parts, which always have to be scrapped. On top of that, the U/S repairables are not traceable in SAP, KLMs companywide system. These are the main reasons for the unawareness amongst mechanics and expedition workers that the parts are repairable and should be returned instead of being scrapped. Even if repairables return it is often with the wrong documents, causing the parts to go to the wrong department instead of directly to one of the repair shops. Data indicates that much valuable repairable parts were unnecessary scrapped or sent the wrong way (through the department Salvation). This not only results in more costs, but also reduces the material availability, because some parts are not repaired at all or too late. It is important to create awareness amongst mechanics (and expedition) that there are repairable parts that should always be repaired and sent back with the correct documents. Also, we need to simplify the return process, because the current reverse logistic process is too complex. Preferably we want to take away as much of the administration from the mechanics as possible. We asked nine different logistic actors to make a list of requirements that new solutions should contain. By using a SMART analysis we let the actors chose between several options. Those options are: implementing logistic points, slightly improving the current situation or outsourcing reverse logistics. We also let them score the possible scenarios on their ‘gut feeling’. There was a strong preference for installing logistic points. Based on the combined scores of the actors, we suggested KLM to implement a logistic point in each hangar to which all parts can be sent. The task of this centrally located logistic point is to label and send the parts to their respective destinations, relieving mechanics of some administrative tasks since the mechanics have to label less parts. Also, there is a central point where all parts are being sorted out and labelled, which means that parts are easier to trace and to find when lost. The workers that staff the logistic point will rapidly gain experience in the returned parts and thus reverse logistics efficiency will increase. No repairables will go to Salvation, which means that the flow time of U/S repairables will decrease, i.e., parts get fixed and put back in the warehouse faster. Other U/S parts will go faster through the reverse logistic chain, and scrap gets centrally handled. It also enables KLM, when the SAP ‘freeze’ (which means that no improvements on SAP can be made) is lifted, to program SAP to check the returns and warn whenever a part was sent to mechanics but was not returned. The central ‘character’ of logistic points even makes it possible to implement RFID or bar- 5 coding in the near future, which greatly improves traceability and registration of the part. The potential of implementing logistic points is great, and there are indications that they can save much money per year while investment costs are small. This advice was given to the same actors in a meeting. The actors decided not to follow this advice and to pick the scenario that suggests leaving the current way of doing reverse logistics and improving it with minor adjustments. Their motivation was that on second thought there were too much implementation issues that would arise when implementing logistic points. Staffing of the logistic point, handling of the ‘flood’ of scrap, the amount of logistic redesign and losing the knowledge of the mechanics for reverse logistics were their main arguments. The actors thought implementing logistic points would be too difficult and that more is gained with minor adjustments. We followed the preference of the actors and further explored the scenario which does small improvements for the reverse logistics. Serviceable (S/E) repairables will be made recognisable with coloured stickers, attached to new repairable labels that the mechanics have to fill in and use to return the repairable parts in specially designed return places for repairables. The sticker, label and return place for repairables get the same, distinctive colour in order to increase awareness for return. See the picture for a schematic view of the new way of doing reverse logistics. We tested this idea with a pilot. In this pilot we interviewed 38 mechanics of all levels and production places, to ask their opinions and ideas for improvement. We also tested with 13 mechanics whether or not the above mentioned ideas improved the returning of unserviceable repairables, without explaining up front. The results were good. 11 out of 13 mechanics understood the new procedure for returning unserviceable repairables without explanation and all 38 mechanics were positive about the new ideas. Short term reverse logistic improvements Since the pilot was successful, we recommend KLM on short term to implement a new return label for repairables, a sticker on the serviceable repairable and special return places for repairable parts, preferably in the same colour. The pilot has created awareness amongst mechanics on different places, so the sooner KLM implements the ideas, the better. For the long term, we recommend KLM to reconsider implementing logistic points and to find solutions for the implementation issues brought up by the actors. The expected gains, both in money and material availability, are high. Additionally, logistic points make implementing RFID tags, bar coding and other tracing systems easier because the parts are more controllable.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Industrial Engineering and Management MSc (60029)
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