Airasia’s Logistic and Channel Management

As Airasia’s vision is to be the largest low cost airline in Asia, our proposal might be a useful tool for Airasia to achieve their vision. The goal of our proposal is to decrease the operational cost of Airasia to attain cost efficiencies and provided the public with a lowest cost so that “Now everyone can fly” with Airasia. Objective of this proposal is to develop e-Supply Chain Management to attain a much lower operation cost for Airasia in the coming year. In this proposal, we will discuss about:

1. Analyze of the factors contributing to enable e-SCM for Airasia,

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2. Create an appropriate implementation plans to develop e-SCM,
3. Discuss the environmental factors that will affect the implementation,
4. Determine which department will e-SCM help the most,
5. Show the benefit of e-SCM to Airasia and stakeholders and
6. Suggestions for how to further improve the e-SCM.

Overview of the Company

Now everyone can fly, this slogan held in every Malaysian’s mind deeply. Airasia was an Asia’s leading airline with a dream of making flying possible for everyone. The vision of Airasia is to be the largest low cost airline in Asia and serving the 3 billion people who are currently underserved with poor connectivity and high fares. The mission of Airasia included:

1. To be the best company to work for whereby employees are treated as part of a big family
2. Create a globally recognized ASEAN brand
3. To attain the lowest cost so that everyone can fly with Airasia
4. Maintain the highest quality product embracing technology to reduce coast and enhance service levels

There are 6 main values that Airasia focused in to attain the lowest cost.

The Strategies Used

• Safety first
• Partnering with GE Engine Services the world’s most renowned maintenance providers and complying with the world airline operations.
• GE Engine Services began servicing jet aircraft engines over 50 years ago.
• Provide large or small jet engines for commercial or military aircraft as well as engines for marine and industrial applications (Breaking Travel News, 2002).
• Hight Aircraft Utilisation o Implementing the regions fastest turnaround time at only 25 minutes, assuring lower costs and higher productivity. Low Fare, No Frills
• Providing guests with the choice of customizing services without compromising on quality and services.
• Example services provided food: beverage, merchandise, excite, baggage supersize, pick a seat, premium service or corporate booking.
• Streamline Operations
• Making sure the process are as simple as possible.
• Example online ticket booking.
• Lean Distribution System
• Offering a wide and innovative range of distribution channels to make booking and traveling easier.
• Strategy of distribution like call centre, sales office; airport sales counter, authorized travel agents, mobile booking or online.
• Point to Point Network
• Applying the point-to-point network keeps operation simple and cost low

Airasia’s Annual Report

According to Airasia’s Five-Year Financial Highlights from 2006 until 2009, Airasia’s revenue is increasing steadily. Unfortunately, in year 2008 is having loss around RM497 million. This is because their operating expenses (-RM3,207 million) had exceeded their revenue (RM2,955 million).

From the report, year 2008 Airasia had huge amount of air craft fuel expenses (-RM1,390 million) and derivatives (-RM679 million) on operational cost compare with years 2009 –RM928 million and RM22 million. Due to the fuel expenses and derivatives, it causes Airasia making loss in year 2008 (Airasia Berhad, 2010). From the balance sheet, we can know that net current asset of year 2008 and year 2009 was increasing from RM163 million to RM511 million. It is because of non-current assets and current assets increased and current liabilities decreased.

Other than that, e-enabled SCM lead to deduct the cost and add extra value for the company. Those enabling software like CRM, ERP and EDI which can help in make improvement on the integration with its buyers, sellers, suppliers and partners. Rapid changing of technology forcing the companies must plan to change their business strategy in order to understand consumer behavior and fulfill their needs. Due to the inefficiencies of the traditional supply chain management, many company decided to acquiring e-SCM are aim to better manage their supply chain flow to ensure it is operating smoothly.

E-SCM is taking advantage in coordinate the cooperation with suppliers. E-commerce allow the seller promote and sell their products and services through the internet. Some of the buyers today prefer to search, buy, compare or book the products and services on the internet. Since the consumer behavior has changed, all of the companies are forcing to change their supply chain processes to adopt the new channel to meet the customer expectations. Thus, the supply chain needs to be different with the traditional channel.

Airasia can provide customers booking flight ticket via internet (Gimenez et al., 2003). Information sharing is a crucial part in supply chain management. Traditional supply chain management provided limited information flow among the employees, customers or the suppliers. That is higher cost and time consuming to get the information and it will cause the company can’t make a good decision. Therefore, internet provided a chance for company to share and access the real time information among its partners to ensure effective.

Extranet can build a network to link the company and the partners together and granted to share and access information faster. Therefore, company can easily get the urgent information instantly in low cost. It can make a big improvement in enhancing the integration company with its suppliers. Other than that, an intranet can send and accept the documents through electronic media among the firms. In addition, internet is a high speed medium where can reach global. Internet can help the Company connect with their foreign partners in a minute for business information, discussion and proceed to procurement decision.

It can know as e-procurement, example, Airasia can order the air bus spare part via internet (Gimenez et al., 2003). Knowledge sharing, in the database management is not only offer precious information, there are also including planning, analyze the result and transfer and transform into meaningful information and share with business partners . Company can get the data with just a few clicks and help them to make a better decision for their business. That is providing big advantages to the company where is cost saving and improve the efficiency of their business decision.

Example, Airasia can collect their sales data and analyze it into meaningful information in order to respond to customer needs and demands and react quickly to the market. It can also use to forecast the company sales, so, the company can make decision to improve their sales (Gimenez et al., 2003). One of the factors e-enabled supply chain management is it can design an effective supply chain to strive for effective collaboration and integration with suppliers and customers, increase the competitive advantages in the intense competition environment, improve the operational process, and gain a long-term benefit.

Even though internet is an inexpensive and faster way to obtain the useful information to assist the company to improve the supply chain management, company has to design a good supply chain structure to make the supply chain flow more effective. The better of the supply chain design, the more benefits company can gain from it. Intense competition today has forcing the company to do better always in order to survive in the market. Internet has offering the company a chance to design a better supply chain to enhance its supply chain performance by adding new functions to achieve the company objectives (Gimenez et al. 2003).

Implementation Plans To Strategize an e-SCM

In competitive environment today, internet technology provided strong tools to strengthen the company’s electronic supply chain management. If the company can carry out an appropriate implement planning, it would lead to obtain a competitive edge. A poor planning may cause supply chain produce the poor result like low quality, poor services and higher cost. Initially, the company must clarify the supply chain goals to indentify which goals are going to set to get best effect in the business.

Competitive level, distribution, production, financial and customers needs need to be concern to assure the new supply chain able to achieve company goals and fulfill customers’ need. Outsourcing can be more suitable because operating a new supply chain is costly. After that, conduct a supply chain readiness audit to analyze the business. To understand the existing company core and capabilities priority. How the company is going to respond with high demand, global reach? It such as an evaluation of business before a new supply chain is implementing.

Next step is developing a business case, the top management should develop a business case that understands electronic supply chain can increase the performances of business and it would improve the customer satisfaction, supplier integration and cost effectiveness. To make a better business case can help in achieve company’s mission and objectives. Fourth step is establishing a supply chain coordination unit. Establish a skillful e-SCM team to implement and coordinate the supply chain.

The team is to make sure the supply chain is operating under a smoothness condition, reduce the cost, facilitate business performance and increase customer satisfaction. Training has to give out to improve the SCM team skill, knowledge and leadership (Kalakota et al, 2001). Next, begin supplier integration. Business partners are the important part in the supply chain to help the company to achieve their new business projects or objectives. Electronic supply chain will be inefficient if without any supplier support.

Develop a performance score card to evaluate the performance of new supply chain. Reengineering might need when there have problems occur or something is going wrong. Penalties and performance reward may place into the measurement as incentives to drive e-SCM efficiency. The following step is always educate, educate, educate the members who are involve in the supply chain management by provide training, education, mentoring to the members to get the newest knowledge and information to perform well. At the final step, company has to learn to manage failure.

Not every system will always implementing smoothly, failure will lead into inefficiencies and influence the company daily operations. Thus, company must able to cope with the failure, understand the problem and learn from the failure and make improvement on it to prevent the problems occur again (Kalakota et al, 2001). Airasia is using Low Cost Carrier (LCC) business strategy to operate their business and transform supply chain management to electronic. Airsia is going to adopt several systems to support the e-SCM to operate smoothly.

All of the systems are operating to achieve the business goals by cost effective of the operation (ERP and CRS) and maximize the revenue (YMS). Airasia attempts to integrate information technology with current supply chain management to carry out some planning and strategy that is implementing effectively to support and develop their business to coordinate their daily operation, integration and communication (Kho, 2005 and Wong, 2009). Advanced Planning and Scheduling (APS) is introduced to improve the internal operational process and achieving low cost business strategy.

In airline industry, complex network, huge daily operation and a lots of external factor that will influence the operational performance like bad weather. In order to be successfully implementing a good supply chain, Airasia can use APS to become a core of their supply chain to deal with the customer and supplier requirements. A series of effective functions will provide by APS to support Airasia in their daily operational activities. There are supplier portals, it will provide some useful information for Airasia to help them avoid from any system error such as order processing.

APS also assist in inventory planning and maintenance management. APS is ability to integrate Airasia, its maintenance supplier, GE aviation, and other suppliers to manage the inventory such as spare part to check resource availability and place order priority to prevent out of maintenance stock and set a maintenance schedule to ensure the aircraft is in a safety condition all the time. Route profitability analysis is conducting to set and plan an efficient route in order to save cost and increase revenue (Kho, 2005 and Wong, 2009).

Computer Reservation System (CRS) is an integrated web-based inventory and reservation system including call center, airport departure control function, internet and others. Airasia is going to use e-commerce to facilitate the online reservation and purchase e-ticket process. Intermediary had eliminated in this process. Airasia will offer 24 hours per day and 7 days a week for real time transaction that enable local and global customers to book the ticket anytime. The system software will provide data in online booking and categorize stored, update automatically and help in scheduling flight activities.

This is also cost effective by less depend on human resource for data entry. Therefore, Airasia can fully utilize the available of vast booking information where bring customers to the website to minimize the unsold seat and maximize their sales. The comprehensive information is available by the supply chain system on the internet for customer to view, search and compare with others companies before they decide to purchase in terms of service, price or flight time.

CRS has provided convenient for the company to maximize their sales to meet customers’ needs (Kho et al, 2005 and Wong, 2009). Beside that, Airasia had decided to acquire a Wireless Delivery System (WDS) to provide convenient to the customer so they able to book ticket through their mobile phone while increasing Airasia sales (Kho et al, 2005 and Wong, 2009). ERP is application software integrated with its company system that helps the company to manage the operational activities effectively and efficiency.

Airasia can implement ERP system which is a system that will focus on company daily operations and help in save operational cost, maintain integrity, speed up reporting and increase efficiency of the operational performance and better manage its electronic supply chain (Kho et al, 2005 and Wong, 2009). Yield Revenue System (YMS) used to aid in understand, react and anticipated the buyer behavior to enhance the company revenue. The system can effectively result in optimize the Airasia’s flight ticket price and maximize the company expected revenue. Example, seat price is available by different level in the different time.

A ticket booking at a later time may be charge a higher price than an earlier booking. Other than that, the system will help the company adjust the ticket price when there have high demand in that destination. YMS is obtaining advantages in charge a lower price to maximize the revenue and adjust the price into higher price when the peak time through the demand forecast. In this case, Airasia can fully understand their consumer behavior and implementing the effective strategy to achieve their revenue objectives (Kho et al, 2005 and Wong, 2009). ECRM is a system software use to build a long term relationship with the customers.

Many companies are plan to cut customer service cost while improve customer satisfaction. ECRM is providing extra advantages compare with offline CRM. Airasia will use ECRM to manage the complaints from the customers through the call center and solve the customer problem and question by FAQs with further customer service support line on the Airasia homepage. Besides that, ECRM also provide convenience for customer to check in through the internet and mobile phone. ECRM can help the Airasia indentify the frequent customer and reward them through reward program like frequently flyer program.

Email notification may be send to the customers to inform them about the promotion information (Wong, 2009). Environmental factors that may affect the implementation of e-SCM in AirAsia

External factors

Sociological

Social environment includes the cultures, customs, mores, values and demographic characteristic of the society in which an organization functions. Social processes also determine the goods and services, as well as the standards of business conduct, that a society is likely to value and accept. (Smith, 2010) In Malaysia, most of the population is educated and 65. % of Malaysians use internet (Internet World Statistic, 2010). This eases the process of implement e-SCM. When suppliers, customers and employees of Airasia are educated and able to operate a computer, it will be very easy for them to understand the concept of e-SCM, accept and use it. Therefore, the learning cost of Airasia’s e-SCM can be lower down. However, Airasia’s supplier have different values in implementing e-SCM. They may refuse to share actual data with other companies due to lack of trust (Scalet, 2001). This caused a barrier while implementing e-SCM.

Political

The political environment reflects the relationship between business and government, usually in the form of government regulation of business (Smith, 2010). Political factors such as labour laws, tax, trade policy, and political stability defines what Airasia can and cannot do while implementing e-SCM. During year 2009, the Prime Minister, Abdullah Badawi was set to step down in March 2009. This caused political uncertainty. This issue may lead to difficulties in setting rules or changing any structure in Airasia in order to implement e-SCM.

Besides, Airasia also operate in other countries, many laws will be different compare to Malaysia. So Airasia will face another issue while implement e-SCM. Economic Economic environment refers to relevant conditions that exist in the economic system in which a company operates. Those factors in economic environment are interest rates, exchange rate, economic growth, inflation rate and others (Smith, 2010). For example, the rising of oil and arousal of low-cost competitors like Firefly will affect Airasia’s operating cost.

They will influence the profits and availability of funds and cause implication on implementation of e-SCM (Yahoo! Answer, 2010). When Airasia is lack of fund, there will also lack of employees training cost on e-SCM and implementation cost. A Thai individual holds 1%, Airasia holds 49% and Shin Corporation hold 50% of Thai Airasia. Shin Corporation was owned by previous Thailand prime minister and it has strong financial strength to support Airasia to implement technology such as e-SCM (International Transport Workers' Federation, 2007).

Technological

Technological environment includes human knowledge, work methods, physical equipment, electronics and telecommunication and various processing systems which used to perform business activities. (Wong, 2009) Technology nowadays helps a lot in e-SCM. The main technology that affects implementation of e-SCM is Internet. It is serving as a medium for information access, transmission and sharing among suppliers, Airasia and its customers. Apart from that, with the aids of other technologies like intranet, extranet, e-mail, online conferencing, and others, all the supply chain partners.

Airasia can easily communicate and collaborate. Speed of information flow faster through Airasia to its customers or supplier. The other technology platform is Enterprise Resource Planning System (ERP) and Electronic Data Interchange (EDI). These technologies have stimulated implementation of e-SCM. Internal factors Human Resource When Airasia implement e-SCM strategy, every process, goal or system must be carry out by employees. Thus Airasia need to provide training to its employee, development, restructure and compensate in order to support e-SCM process. However, some employees may resist to change. Airasia must be award or compensate them so that implementation goes smoothly (Lancaster, 2006).

Financial Resource

Financial is critical factors that affect e-SCM. Without enough funds and capital, e-SCM cannot be implementing because e-SCM needs huge fund to carry out. Although Airasia is suffering loss during year 2009, Airasia can raise its fund to implement e-SCM by selling its share or capital restructure (Whitley, 2009). Physical Resource The infrastructure needed to be carry out e-SCM are corporate portals, workflow system and tools, EDI, intranet, extranet and others groupware tools.

Airasia should gets all infrastructure ready to implement e-SCM. Organizational structure A flattened organization structure can easier to accept, adapt and implement new technologies or strategies (Pearlson, 2006). However, board of directors of AirAsia is too narrow, decision making will be too shallow (Onwutalobi, 2008). When implement e-SCM, decision making need to be fast, effective and efficient. Area that e-SCM help most in Airasia E-SCM helps Airasia a lot in this airline competitive industry and one of the ost significant advantages are reduced manifest preparation time, reduced paperwork handling time, reduced time in communicating with up- and down-stream intermodal partners and reduced load transference times between intermodal partners One of the significant e-SCM for an aviation company is the Computer Reservation System (CRS). Online sales through this system captured more than 50 percent of Airasia’s revenue (Corporate website, 2005). The system can also detect the frequent flyers and rewards them accordingly to create higher customer retention rate and lead to a better stage of relationship marketing with the customers.

The Customer Relationship Management (CRM) process provides the structure for how relationship with the customer is develop and maintained (Croxton et al., 2001). CRM can be a system linked together with the CRS in order to obtain the customer description and reservation description to provide them with full range of customer service including the FAQ questions in it. Besides that, Distributed Database System (DDS) is also a core element in this successful Airasia in the airline industry. If Airasia tend to expand to a wider range of market share, a geographically dispersed database can be used to plan its flight schedule carefully.

Another element is that Wireless Delivery System (WDS) for the ease of their customers to browse company website details and place their reservation using their mobile phone. Airasia practices online booking if the customers tend to save money for lower price when they purchase their ticket online. The complexity of managing the flexible price can be carrying out using Yield Revenue System (YRS). Airasia can price accordingly by referring to the demand of the flight and pick the best price for Airasia’s yield revenue.

Demand driven resource planning and employee scheduling is crucial to the success of all aviation service providers and Advanced Planning and Scheduling (APS) can help Airasia in the dynamic airline environment. Crew scheduling, fleet management, gate and check-in desk planning and the ground crew planning is a crucial part for the company to overcome the increasing operating costs. Benefits of e-SCM to AirAsia, suppliers, and consumers The common model of e-commerce supply chain system transaction view is shown as below; company, suppliers and consumers are all linked throughout the whole transaction.

So, as Airasia applies e-SCM, besides benefit to Airasia, it also benefits to suppliers and consumers (Hultkrantz et al., 2001). Company Airasia can use the computer network to operate its businesses as one of the e-SCM strategies. Airasia’s can introduce booking air ticket through the online website which is assisted Air Asia transformed towards a more well-established communication media which is available 24/7. As the forecast, there will about 40% total revenue can be gain via the Internet transactions.

It is because of Airasia can take the advantage of B2B marketplaces to forecast the demand for their services and, using differentiation pricing strategy to attract more customers and gain more market share by implementing the Yield Revenue System (YMS). In addition, the e-CRM in e-SCM allows Airasia to provide personalized service and one-to-one relationships between merchants and consumers. The ERP system had speed up reporting and increase efficiency of the operational performance which will directly increase the satisfaction of customers towards the services quality provided by Airasia.

At the end, Airasia can enhancing relationship with both existing and potential customers and also the suppliers since the communication became a straightforward task. Besides that, Airasia can cost saving through the Advanced Planning and Scheduling (APS) which improved the internal operational process and achieving low cost business strategy. The company can also saves on the cost to operating and managing the bricks and mortar outlets and able to reach national markets without any efforts on developing a physical distribution network.

Then, Airasia can reduce the cost of sales commission of the middleman, which is the travel agent. So, as a conclusion, if Airasia adopted e-SCM, the company can streamline and restructure the services provided to its customers, developing new markets, and thus creating innovative business opportunities to its customers and suppliers. Suppliers [pic] Due to the supplier’s view of e-commerce supply chain, they concern on the process of buy and fulfillment, ship and logistics and fleet management (Hultkrantz et al. , 2001).

The suppliers of Airasia can strengthen their forecasting ability, meet and exceed Airasia’s demands by offering the right promotion of products and services at the right time, as well as align their production schedules based on their manufacturing capacity and inventory management is improved because of the efficient information exchange, inventory visibility and transactions through the EDI system. So, the supplier can minimize ordering, handling and other costs and avoid from the bull-whip effect which may cause them profit loss from the surplus of the stocks or failed to gain more profit because of the shortage of stocks.

In addition, the supplier can increase its reputation by meeting the needs and demands from the customers.

Consumers

The customer’s view point towards the e-SCM can be represented simply, as the figure below (Hultkrantz et al. , 2001). The e-SCM delivers value across Airasia customers’ supply chain allow customers make quicker and better decisions because the information about inventory visibility and transactions.

Airasia customers can compare the pricing and the quality of services provided by Airasia and the others competitors on Internet. Besides that, the e-SCM automating the e-procurement function, simplified purchasing processes which benefits Airasia in lower their transaction costs and overhead. Since the expenses or costs of Airasia reduced, they may able to lower down the pricing but maintaining the same quality of services, which is also considered as benefit to customers. Customers get the same quality of services but with a lower pay.

Through Computer Reservation System (CRS), Airasia can launch the ticketless system which the customer of Airasia has the opportunity in doing the booking and purchasing process at anytime, anywhere as customer preferences. Once the customer booking completed, Airasia will provide customer with a program which include customer booking number, payment and travel details. So, the ordering and settlement process had simplified and more convenient to customers during they check in by just mentioning the booking number and must present identification card (IC) or passport of customer for identification purposes.

Recommendation and improvement on e-SCM The constantly changing external environments which faced by the organization or company nowadays cause the Airasia have to always ensure that its own internal resources and capabilities are sufficient enough to meet or exceed the needs of the external environment. So, the e-SCM system that Airasia executed need to always keep up-to-date to meet the needs of the external environments. Besides that, in order to survive in the air flight services industry, Airasia also need to always undertake an analysis about their external and internal environment.

The e-SCM system plays an important role in this process because the visible of information about the supplier side and customers’ side is useful in the analysis. So, e-SCM system needs to be improved by reducing the degree of error happened and increase the accuracy and reliability of the data flow within the supply chain flow. Since Airasia still receiving a lot complaint from customers on their service, such as the flight delays, or being charged for a lot of things and also customers is not allowed to change flight or get any refund from Airasia if they couldn’t make it.

So, Airasia can improve the e-SCM through the Balance Score Card (BSC) which helps in the improvement of the internal and external communications, and monitor the organization performance based on financial perspective, internal business process perspective, learning and growth perspective and also customer perspective. So, by measuring the quality management and customer satisfaction index, Airasia could further improve the e-SCM based on the feedbacks from the customers and the measurement of the performance. On the other hand, Airasia can also further improve the e-SCM in the collaboration area.

There are several unexpected events are converging. Therefore, company can increases the number of platforms, packages and more advanced technologies to do the filtering tasks which only permit meaningful collaboration from sharing data and information, to developing customer reward programs and joint forecasts.

References

1. The Breaking News (2002), AirAsia ; GE Engine Services Sign Major Engine Maintenance Agreement Worth Over US$20 Million, Breaking Travel News. Available from: - http://www. breakingtravelnews. com/news/article/btn40003248 [Accessed 3 July 2010] Airasia (2010).

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