XOJet grounded in strong strategic sourcing
By Wayne Forrest -- Purchasing, 4/30/2009 2:00:00 AM
XOJet • Location: San Carlos, Calif. • Business: Private aviation services provider
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 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. XOJet 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.
"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."
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.
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."
XOJet's three biggest spend areas are crew training services, maintenance costs and fuel, which Chaplin says has been "quite volatile for 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 based on contracts from both brokers and large fuel firms 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, cleaning. handling luggage and catering.
"We negotiate discount pricing based on volume and commitment," Chaplin adds. "In this market right now, everybody wants your business." 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 different ways to buy fuel and if you choose the wrong one, you could spend $1,000 more than you meant to," Chaplin says.
To avoid 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 buy 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.
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