American Airlines' MacLean is supply chain manager of the year
American Airlines' John MacLean has expanded purchasing and supply chain management to new heights as he helps pilot the company through some of the worst storms in the industry's history. For his steady hand, team leadership and visionary approach, he is Purchasing's Supply Chain Manager of the Year.
By Paul Teague -- Purchasing, 10/15/2009 2:00:00 AM
Read about past winners
Walk into John MacLean's corner office at American Airlines and you can immediately see evidence of his love affair with airplanes. In this corner, near a picture of his family, is a large photo of a Boeing 777. In that corner: two photos of a Stealth fighter jet. On another wall, an X-ray-like view of a fuselage and engine compartment. Nearby, there's also a propeller blade. And, outside one window is a view of Dallas-Fort Worth Airport.
But one thing you won't see is any photographic or other reference to the tragedy of 9/11, when terrorists used planes as weapons. He doesn't need anything to remind him. The images and the aftermath are constantly with him, his team and everyone else at American Airlines.
"That event will forever shape every employee who was here at the time," says MacLean, who is American's vice president of purchasing and transportation. And, it was the beginning of the most turbulent decade in the history of both American Airlines and the airline industry in general.
It has been a decade in which the industry has undergone several once-in-a-lifetime crises, says Tom Horton, American's executive vice president for finance and planning and chief financial officer. "And," he adds, "the supply chain team has been right in the middle of every one of them."
For MacLean's leadership of the airline's superb supply chain team effort in the aftermath of 9/11, the four other crises that have plagued the industry since then and for his aggressive expansion of the reach and influence of the purchasing organization at American, the editors of Purchasing have named him Supply Chain Manager of the Year.
There are numerous adjectives that MacLean's superiors, subordinates and peers use to describe him. The most common are: "steady," "visionary," "creative," "data driven" and "knowledgeable." Brent Shinall, vice president of the global supply chain for Houston-based Helix Energy Solutions, previously worked for MacLean and calls him a "brilliant strategist."
But the term MacLean himself would like most is the description Bob Reding, American's executive vice president of operations, uses. One of MacLean's principal internal customers, Reding says, simply, "he is a team player."
That characteristic, coupled with his reported habit of thinking about the future, has been critical in MacLean's efforts to broaden the value purchasing and supply chain bring to American, including revenue creation, faster time to market, better-quality products and other metrics.
Those traits have also contributed to the resolution of numerous supply chain issues before they became problems. One example involved the overhaul of landing gear for the Boeing 777. "We took early delivery of those planes, and bunched our orders close together," says Reding. Twelve years later, American had a real issue managing the capacity to overhaul those landing gears in house. The airline needed another source to help overhaul the gears and only a few companies in the world have that capability. So MacLean developed a risk management process that involved qualifying a third-party supplier long in advance of the need. "He and his team solved our capacity problem so we did not have to ground airplanes," Reding says.
Likewise, says Horton, MacLean developed a strategy to cut the cost of maintaining the jet engine that powers a big portion of American's fleet. "Engine manufacturers make money on the parts they sell," says Horton, "but John wouldn't accept the idea that the parts costs for the engines could be so high." To avoid those costs, he found and qualified alternative parts suppliers, saving more than 50% on the parts costs of that engine.
"Because of numerous such examples, he has credibility with people on the operations team as well as in other departments, and everyone respects his judgment," Horton says.
That level of credibility has resulted in invitations to MacLean and his purchasing team to expand their portfolio over the last several years and take control of an increasing number of general supply chain activities. For example, operations personnel asked the team to lead the purchasing of flight simulators and related software and flight charts. Other parts of the organization drafted MacLean and his team to purchase all the company's energy sources.
Team player
"Team" is a word MacLean uses often. In fact, he shrugs off any praise for himself and refers to the work of his supply chain staff as critical to the airline's success and survival. And that organization is certainly filled with experienced professionals. Among them:
-
John Rau, who, with his other duties, manages the purchasing of jet fuel. At a usage rate of 3 billion gallons per year, jet fuel takes a significant slice of American's $11 billion spend.
-
Miguel Carrasco, who manages airport and customer service purchasing, as well as the buying of interior components such as seats and in-flight entertainment systems.
-
Jaime Bustos, in charge of the purchase of maintenance parts and services for airplanes and engines.
-
Chris Knight, who does financial analysis and systems support.
-
Nancy Lichtenwalter, who researches best practices and coordinates staff training in those practices.
In all there are 130 purchasing staffers who work under MacLean, including personnel who buy food, beverages and other airport services.
"He expects us to come up with our own solutions to our problems," says Carrasco, "but he provides us guidance too."
Adds Rau: "At staff meetings, he listens carefully to what everyone says and takes it all in. He doesn't immediately voice his opinion."
That can be a little intimidating, says Lichtenwalter. "But, he sifts through the ideas to see what we can implement."
"And," says Rau, "when he starts to talk, everyone listens."
That's because, says Carrasco, "even though we think we have all the angles covered, he comes up with another one we hadn't thought of."
Case in point: When the team was analyzing the possibilities of incorporating Wifi capabilities into airplanes, MacLean urged team members to think beyond laptop computers and work with their marketing and engineering counterparts to include provisions for the Wifi demand likely to come from handheld devices. "He was thinking way down the road and urging us to take the then-emerging technology into account when negotiating the economics of the deal in any long-term contracts with potential suppliers," says Carrasco.
A personal attack
But thoughts about PDAs and other emerging technologies were far from the minds of MacLean and his staff on September 11, 2001. When American Flight 11 from Boston crashed into one of the World Trade Center towers in New York, MacLean was at the Tulsa, Oklahoma airport and watched the news with hundreds of others on a TV in the terminal. It was as if the plane had hit him and, like most Americans and most of the airline's employees, he took it personally. But beyond the personal feelings, he also knew the impact would have a devastating effect on the company. "People outside the industry don't appreciate that the airline faced the prospect of filing Chapter 11 or even Chapter 7," he says.
The U.S. government rushed in to indemnify American and United Airlines (the other carrier whose planes were hijacked by terrorists that day) from lawsuits. MacLean and his team went to American's constituents—particularly suppliers—seeking help as the airline struggled to survive financially when air travel declined dramatically. "Ninety-eight percent of our suppliers gave us price reductions when we asked or better payment terms," says MacLean. "In turn, we agreed to give them more business."
Certainly, the spirit of patriotism and cooperation for the common good that prevailed shortly after 9/11 played a part in the suppliers' decisions to help the airline. But also a factor was the airline's long history of dealing fairly with suppliers and, indeed, nurturing many of them as they developed their businesses.
The supply base had remembered that MacLean and his team had put some of them in business. Later in the decade, suppliers would learn that the team would keep them in business.
When financial trauma hit again in September of 2008 and the overall economy went into a tailspin, MacLean and his team analyzed the supply base to see if key suppliers were in financial trouble. The airline helped where it could.
"We had given our commodity managers a list of things to watch for to determine the financial health of the supply base, including requests for shorter payment terms," MacLean says. "When suppliers made those requests, we did that." MacLean and his team also arranged to buy some raw materials for certain key suppliers and modify its order stream to help their operations.
"Suppliers know that helping us helps them," MacLean says. "We are not focused exclusively on reducing our supply base these days (the airline has 3,500 suppliers—down from 17,000 in the 1990s), but instead on optimizing it. We let them know that we want suppliers who bring innovation, and we have even helped some build their businesses and share them with other airlines if they are too dependent on American. We are also really focused on expanding the competitive landscape and reaching out to diverse-owned suppliers."
The close and trusting relationships MacLean and his team had built paid off in 2003 when the industry, still reeling from 9/11, experienced several bankruptcies. American stayed out of Chapter 11 because of employee concessions and because suppliers again came to the airline's assistance with $200 million in price reductions and other value. American gave them stock in the airline in return.
Since that time, MacLean's team has taken the lead for most of the purchasing of services at airports where it has gates. His rapport with the unions led to his appointment as co-chair, with the head of the mechanics union, of a project to redesign the system for getting spare parts to mechanics at airports.
Fuel for risk management strategies
The 2003 fiscal crisis for the industry was just fading into a bad memory when another disaster struck, this time in the form of a hurricane. Katrina slammed into the Gulf of Mexico between Florida and Texas on August 29, 2005, taking down nearly a quarter of the U.S. refining industry in its wake.
American buys jet fuel from 40 suppliers, two-thirds of them domestic, so the potential for company-busting financial damage to the airline was high. Without the jet fuel, the planes can't move. MacLean put Rau in charge of coordinating with airports and other airlines on fuel allocations that would keep the industry flying. "Every day, John Rau and his peers at the other airlines would have a conference call with representatives of the oil companies, pipelines, logistics coordinators and various airports to see what was available that day and which airports and airlines needed it the most," MacLean says. That cooperation, spearheaded in part by American, kept all airlines flying.
Rau says that MacLean's leadership before Katrina was an important reason why the airline was able to act fast when Katrina hit.
"Before John came here, we bought fuel at the airports," Rau recalls. "He said we should be managing the entire supply chain, from refineries to the airports. He said we needed to consider where the fuel was coming from and what the points of failure might be so we could devise a business-resumption planning process."
In other words, he preached moving from simply sourcing to managing risk all along the supply chain. Part of the new risk management effort involved getting involved in legislative issues and educating the political establishment on how the jet fuel supply chain works. Rau, with MacLean's guidance and support, maintains that responsibility today, and, in fact, is chairperson of the Airline Transport Association's fuel committee.
Jet fuel was again at the center of the next crisis to hit American and the rest of the industry. It rose in price to $180 per barrel in 2008, a price point that could easily have colored the airlines' balance sheets a permanent shade of red. "We had to bring focus to Congress and the marketplace, including employees and customers, that the rocketing price was not a supply and demand issue but instead the result of speculation," MacLean says. He tasked Rau to lead efforts to educate Congress and to plead for release of part of the strategic petroleum reserve, which Congress eventually did.
"John made us good crisis managers," Rau says, "and, because he is always looking for the next great thing, he got us thinking about alternative aviation fuels." The airline is now working with jet engine manufacturers on development of possible alternative fuels. MacLean says any actionable results from the development work are three to five years away.
Value beyond cost reductions
That three-to-five-year horizon factors into one other MacLean initiative: value reviews. Periodically, he has commodity managers—each of whom manages about five commodities—report on developments in their commodities and how they plan to adjust to those developments over the next three years. The reports cover such issues as cost structures, initiatives the suppliers are taking, what their marketing departments are doing and American's share of their business. "You can't just rely on cost reduction," MacLean says, "because eventually the opportunities for that run out." Commodity managers need a full understanding of what's going on in their suppliers' supply base to anticipate problems and spot new opportunities for alternative savings strategies and alternative materials, he says.
Those value reviews led to development of what he calls a fishbone chart, so called because of its shape, which lists all the ideas from the reviews plus other ideas for creating value. The team updates the fishbone chart yearly.
One of the categories on that chart is revenue ideas. Purchasing isn't normally thought of as a source of revenue, but under MacLean's leadership, purchasing at American Airlines has generated nearly $25 million in new revenue since the late 1990s. The revenue has come in many forms, from allowing suppliers to place ads on the napkins the flight attendants give passengers, to agreements with suppliers to allow them to test products with passengers, to purchasing's aggressiveness in making and collecting warranty claims on bad parts, to the ability—thanks to Rau's fuel-management efforts—to sell jet fuel to other airlines, and to royalties from suppliers that the airline helps to develop new products.
"Purchasing professionals have to realize that they are marketers," says MacLean. "Not in the traditional sense, but in the fact that they have to fully understand their supply chains, look for ways to add value and communicate."
Good advice for future purchasing and supply chain managers.
Snapshot of American's purchasing and supply chain operation
| Purchasing staff | 130 personnel |
| Purchasing department budget | $120 million |
| Number of suppliers | 3,500 |
| Total spend | $11 billion |
| Number of supplier catalogs | 250 |
| Number of part numbers | 400,000 |
| Revenue generated | $25 million in last 10 years |
Now Playing: 
