XOJet stays grounded with strong strategic sourcing
By Wayne Forrest -- Purchasing, 3/18/2009 1:15:00 PM
 This Cessna Citation X is one of 27 aircraft in XOJet's fleet. |
As a midmarket company, XOJet has brought a new, more positive meaning to the old expression "Flying by the seat of your pants” by being able to adapt to shifting market conditions and last-minute customer demands.
The San Carlos, Calif.-based aviation services firm makes its money by flying executives, entertainers and other high-profile people around the world. With a fleet of 27 aircraft including the Cessna X from Cessna Aircraft of Wichita, Kans., and the Challenger 300 from Montreal-based Bombardier, XOJet logs approximately 2,000 flights and more than 40,000 in-flights hours per year. The company has a unique connection to the procurement world, as it was founded in 2006 by Paul Touw, who also founded Sunnyvale, Calif.-based spend management solutions provider Ariba.
But the business aviation industry brings a unique challenge for XOJet’s Vice President of Procurement Tracy Chaplin and her colleagues—because the company does not have a set flight schedule, its buyers cannot plan much of its spending like a traditional airline might.
|
Company: XOJet Location: San Carlos, Calif. Business: Aviation services |
“We are not in and out of the same airports everyday,” Chaplin says. “We can look at historical patterns, so we know what locations we frequent most often, but we will not necessarily be there on a flight at a certain time or day like a traditional airline. So we have to quickly find [suppliers] that meet our standards and specifications while making sure it doesn’t affect the customer experience."
Procurement staff
But Chaplin is up to the challenge, as she has been in the aviation procurement arena for 20 years, 13 of those in the commercial airline industry and the last seven years in business airlines. She joined XOJet in March 2008.
The company has five people in its procurement department. Two staffers are dedicated exclusively to sourcing parts and warranty for the aircraft, “because that is such a large portion” of the company's spend, Chaplin says. Two other procurement staffers exclusively handle fuel purchases. Chaplin's various responsibilities include negotiating contracts for hotel accommodations and air travel for the flight crews.
|
Scale Up Archive If you liked this story, be sure to check out Scale Up, Purchasing.com’s exclusive archive of midmarket strategic sourcing case studies. www.purchasing.com/scaleup |
The procurement staff also will arrange for car services required to meet customers at an airport and also negotiates office supply contracts and other more typical business supplies and services. Once the procurement staff finalizes agreements with suppliers, individual departments, such as the crew service group, will buy against those contracts.
“We have the checks and balances in place to make sure we are abiding by the contract and suppliers are performing,” Chaplin says. ‘We have weekly meetings with the subject groups to make sure clients are delivering what they are supposed to.”
Biggest spend
XOJet's three biggest spend areas are crew training services, maintenance costs and fuel, which, Chaplin points out has been “quite volatile for us over the last six months.”
XOJet has what Chaplin calls a “natural hedge” on fuel costs which means the two members of the procurement staff charged with fuel purchasing monitor industry indices on the base price of fuel across the country on a daily basis. Fuel procurement is generally based on yearly contracts and sources include both brokers and the larger fuel companies, such as Shell Oil or Air BP.
One of XOJet’s key supplier groups is the fixed based organizations (FBOs) at airports, such as Atlantic Aviation in Plano, Texas. FBOs typically handle ground support such as refueling and cleaning the inside of the aircraft, as well as handling luggage and catering.
“We partner with them and negotiate discount pricing based on volume and commitment,” Chaplin adds. “In this market right now, everybody wants your business.”
Choose wisely
 Tracy Chaplin, vice president of procurement at XOJet. |
Another critical consideration in XOJet’s procurement is the payment process itself. For example, if a pilot uses the wrong card for a fuel purchase, the difference in price could be as much as 25¢/gallon. “There are 12 different ways to buy fuel and if you choose the wrong one, you could quickly spend $1,000 more than you meant to," Chaplin says.
To avoid any confusion, the procurement team typically informs pilots ahead of time how, where and what to pay for fuel, the expected ramp charge at an airport and other fees. “It's a moving target,” Chaplin says, but an FBO will “waive those charges, if we uplift so much fuel.”
For crew training services, XOJet’s primary partners are FlightSafety International, headquartered in Flushing, N.Y., and Dallas-based CAE SimuFlite. The firms provide both initial training and recurrent annual training for XOJet pilots and crew.
XOJet has its own mechanics which handle approximately 75% of the maintenance on its 27-airplane fleet. With an average age of 15 months, XOJet's fleet is under manufacturer warranty, so Chaplin’s team also collaborates with Cessna and Bombardier for additional service and maintenance. “If an aircraft breaks down, we will send our own mechanic and our contract with the OEM to have them come in,” Chaplin says. “That way we control the quality.”
Contract evaluation
Travel is another big spend area for XOJet. The procurement team is re-evaluating its lodging contracts for crew members and partnering with the major hotel chains, such as Hilton and Marriott. The procurement staff reviews flight trends on a quarterly basis. In turn, those results will affect agreements with travel agencies with which the company partners on two- to five-year agreements. But managing that spend doesn’t mean doing things on the cheap.
“Our pilots are what we consider our road warriors,” Chaplin says. “They are on the road for so many days and we have to make sure we take care of them, so they have Internet access to contact family and friends and we have the catering and restaurants so they can rest and get a good night's rest before going out the next day.”
Even though XOJet's air traffic volume is down slightly from a year ago due to the dire U.S. economy, the company plans to expand. XOJet has some 100 planes on order and expects to take delivery on one aircraft per month in 2009.
No doubt adding planes to the fleet will make procurement more challenging for Chaplin and the rest of the procurement staff but “That's what we thrive on,” she says. “We love coming up with solutions to unique problems.”
XOJet grounded in strong strategic sourcing
04/30/2009What is Strategic Sourcing?
12/03/2007Staying out in front
03/02/2005
Now Playing: 