AirCo Goes Full Throttle on Procurement Program Revamp

Following several years of substantial losses, a leading regional airline engaged us to provide procurement support during the launch of a multiyear cost transformation program. Phase One lasted 15 months, generated 50 to 60 cost-saving initiatives across several third-party procurement categories, and concentrated on external spending. Phase Two lasted six months and focused on helping the company improve its procurement capabilities in the wake of a reorganization.

At the start of the engagement, AirCo was struggling with a variety of third-party procurement issues: several strategic contracts and few suppliers available across the world who could meet them; unclear exit options; and missing go-to-market strategies across most cost categories. It had a fragmented procurement base and lacked procedures to identify, assess, and manage suppliers.

Using the Bain Accelerated Transformation framework, in a 100% at-risk program, AirCo improved its sourcing strategies and produced viable savings across most non-people cost categories. Following a diligence and diagnostic phase, we identified several categories, including airport charges, cargo handling, catering, fuel, ground handling, and IT/telecommunications, to target for significant savings.

The implementation phase focused on the development of category-specific go-to-market strategies. It was followed by tender execution support, which included the preparation and launch of requests for proposals (RFPs), negotiations, and finalization of suppliers. Several initiatives were launched across select categories in multiple waves. Each wave lasted between three and six months.

In Phase Two we addressed procurement issues stemming from AirCo’s recent reorganization. Poor communication across teams was causing multiple inefficiencies, especially when it came to sourcing. Working closely with AirCo, we developed several sourcing initiatives, including:

• creating spending and category transparency to quickly define go-to-market strategy;
• detailing sourcing strategy and other documents required to launch tenders within the client’s governance requirements; and
• providing support during the tender process (communication, bid review, and supplier feedback).

We also identified weaknesses in the company’s new contract management system, which hampered the leadership team’s view into contract inventory and status, resulting in a high share of expired contracts. We helped establish a new contract management approach and codesigned a new supplier relationship management process. We then executed the redefined process across select categories to assist AirCo in optimizing spending base and supplier performance while also launching multiple RFPs.

These efforts had a massive impact on AirCo’s performance, delivering $150 million in annualized savings, with potential for an additional $90 million realized through capability building. The new procurement processes we helped put in place also positioned AirCo to become a more sustainable and efficient organization.