A growing trend I’ve observed in my consulting and auditing activities involves Maintenance Repair and Overhaul MROs) organisations opening up affiliated aftermarket distributorships. For example, an MRO opens up a separate but affiliated firm, and gets that distributor firm to be accredited to the ASA-100. From all appearances there seems to be many benefits for the MRO with this arrangement, and these will be reviewed.

This trend also extends to OEMs, Airlines, and tear-down/disassembly facilities starting their own affiliated aftermarket distributorships, but in this article I’ll stick to MROs. Also, for a certainty, there is also the same reverse trend wherein distributors open up affiliated MROs.

The following will be addressed:

• Existing and emerging business practices.
• Royboy’s recommendations regarding structure and startup.

EXISTING AND EMERGING BUSINESS PRACTICES:

The following are what appears to be emerging uses of distributorships to support MRO Operations:

• Part outs: The distributor engages in part-out, disassembly projects and targets assets that that can be routed to the MRO either for complete repair and overhauls or as spare parts.
• Purchasing expertise: A core expertise for any distributor is purchasing. In recognition of this, the MRO uses the distributor to perform all of its purchasing activity.
• Leases. It may be that the MRO repairs or overhauls assemblies which are classic lease candidates including aircraft, engines, APUs, Landing Gear etc. Leasing is one activity the distributor may engage in which will also drive business to the MRO.
• Exchange Management: For operators who are under-spared, exchanges are a popular alternative, but are typically labor intensive for the service provider requiring careful management of fees, the exchange agreement, ERP entries, accounting, and the documentation. Let the distributor handle these and drive the repairables to the MRO.
• Contract/Agreement management: Let the distributor be the signatory and contract manager for subsequent customer agreements. For example, Power by the Hour contracts and their equivalents are popular. Let the distributor administer the details of these.

For successful MRO-distributor relationships, the following are apparent:

• The affiliated distributor becomes one of the MRO’s most prominent customers.
• The affiliation allows the MRO to concentrate on and specialize on its core tasks.

If not obvious, advantages of having your own separate but affiliated distributorship, which may tickle your imagination include:

• Unlike your MRO, the distributor is not encumbered by restrictions on what parts it can trade. We know your MRO is limited by its Certificate, Operations-Specifications or Capabilities List. Now, as an example let’s say your MRO only works on engine accessories. The Distributor buys an entire engine, has it parted out, sends all the accessories to the shop, but independently sells the remaining disassembled parts as it pleases.
• Seizing upon this example, it may be that you wish to make it known to the world that you’re thee one-stop engine accessory specialists. The distributor can stock, buy, sell, exchange, and manage outsourced repairs for any engine accessory even if it’s not on the MRO Capabilities List (please read “Be careful” below). In this case the MRO is not used at all, but your reputation and expertise base has accordingly increased significantly.

RECOMMENDATIONS REGARDING STRUCTURE AND STARTUP

• Establish the distributorship as a wholly separate and independent firm. This makes it easier to track ledgers, profitability, and cash flows, and to facilitate independent business ventures not encumbered by MRO restrictions.
• Even though employees, floor space, and the ERP system may be shared, each firm should treat each other in a typical Customer – Supplier relationship. For example, any work the Distributor sends to the MRO is accomplished with a Repair Order. Parts the MRO obtains from the Distributor are accomplished with a Purchase Order.
• Keep the Quality Systems and their Manuals wholly separate from each other. I have seen where the MRO tries to incorporate elements of their Distributor’s Quality requirements into the MRO Manual/Quality Control Manual and/or Training Manual or other Expositions. At first this may seem efficient since so many requirements are shared; for example both must have strict controls on shelf life inventory. The problem emerges that these manuals will have frequent revisions due to the Distribution operation, and since the manuals will have to be approved/accepted by the respective Civil Aviation Authority, you will soon find your CAA contact asking why are you bothering them to approve/accept non-MRO related revisions.
• Segregate the inventory of two firms. Your CAA regulator and ASA auditor will look for physical evidence of this.
• Accreditation. It is well known that getting the distributor operation Accredited per the FAA’s AC 00-56 and ASA-100 will greatly assist in getting the firm on your customer’s Approved Supplier’s List, and adds a degree of credibility to your operation’s quality. You will also enjoy the visibility of having your firm listed on the FAA database of accredited distributors.
• Share the Approved Suppliers List. You will likely discover that there are many resources that can be shared, duplication eliminated, and efficiencies realized. One of the pesky quality requirements is that you have an Approved Suppliers List (ASL). I have written quality manuals and systems which plainly state the two firms will share a common ASL. There are other commonality candidates you may consider such as:
• A common database used to manage shelf life products.
• A common database for tracking training.
• If needed, the distributor’s equipment requiring calibration is managed by the MRO.
• Be careful: If the distributor is trading parts that are not on the MRO Capabilities List, which is OK, be careful that the distributor’s paperwork and documents do not exercise the MRO Certification Number possibly falsely misleading the customer or buyer that they have trace to an MRO/145, or that any product was an extension of the MRO’s approved quality system. Give that some thought please…

Over ‘n out

Roy ‘Royboy’ Resto

www.AimSolutionsConsulting.com