A Constructive Approach to the Interaction between Risk and Logistics - A Study of Total Offers in the Aerospace Industry

Abstract: Total offers have become increasingly common in the aircraft industry during recent years. The total offers bring on challenges as well as possibilities for the providers of engine maintenance. The possibilities, increased profitability and efficiency, are depending on how the organisation copes with the challenges. An important challenge is the transfer of risk that occurs in a fixed price situation; an available engine in the wing is guaranteed to a fixed price, allowing for the customer to shift some of the business risks towards the maintenance provider. Logistic activities play an important role in this business, and the industrial setting described above is a suitable base for exploring the interaction between risk management and logistics. Logistics and supply chain risk management have previously been somewhat neglected, but recently have attracted the attention of researchers and practitioners. The work in this thesis aim to explore and develop the interaction between risk theory and logistics, and the research is applied in its nature. The research pinpoints a specific part of the risk-logistic field; the total offer situations and the risks due to logistics in these situations. The application is within the aircraft industry, a suitable base due to its pressured situation worldwide and its capital intense operations with the providers of engine maintenance being forced into total offer-deals by customers well aware of the market situation. The results from the research presented in this thesis proves the importance of logistics in the total offer situation regarding engine maintenance. A methodology to create a model for analysing the risks is presented; a model that allows for an analysis including stochastic events, and including the effects of uncertain variables on the result. The analysis identified logistic activities as being the most important sources of risk, affecting the business risk to a great extent. The main theoretical contribution of this thesis is the use of the interaction between two fields of theory and research; applying the ideas from risk management to a logistic setting, and using risk methods to explore the importance of logistics in a particular environment; the aircraft industry. The industrial contribution is mainly the methodology to build and use a model which can be used as a decision support tool and assist in identifying critical areas together with providing useful information as to where improvement in the companys´processes is most needed, and what should be focused on.