Nobody really knows the size of the global GSE parts provisioning market, but as Keith Mwanalushi discovered in an exclusive interview with Sage Parts, there are very good reasons for that, and as the New York-based company expands its geographical reach, it’s also taking its proven formula with it.
Pre-Internet, the only way to buy parts for ground support equipment (GSE) was to be either keen enough to know how to source an item that was listed in the manual from the equipment manufacturer or to go directly to the manufacturer, and usually the buyer would be relegated to what the manufacturer had in stock. The buyer would then look at what the pick, pack and post promptness was, and if fortunate, the buyer would get a decent price and a decent delivery in exchange.
In 1998 Michael Bloomfield, the current executive vice president and his business partner Mark Pollack bought a small company in New York called Sage. “It was a very small company at the time and we had the idea that we could recreate the business and recreate the method in which parts are traded or supplied for GSE’s worldwide,” says Bloomfield.
Back in 1998, Sage only had about four employees with a turnover at the time of about $2 million and today the company is approaching 400 employees located in 34 stocking stations at global sites. “We have massive amounts of GSE specific inventories,” he declares. “We also have several different models in which we trade with the end-user all of which carry with it very high value-add that comes along with the transaction.”
He explains that the value comes in various different circumstances whether it’s instantaneous inventory, or at the point of use or whether it’s a product improvement and several other different combinations. “We knew going into it that there were no other companies providing this, and I think we had a pretty good indication, that it would be a very successful formula for us because as good as the manufactures of the equipment could ever be, there are always limited by the fact that they only supply parts for the equipment that they manufacture. All we had to do is execute the vision that Mark and I shared, which in itself is no easy task
Secondly, he says the manufacturers are limited to buying in volumes that are commensurate with the amount of equipment they manufacture, “which in the GSE industry is never large numbers therefore their economies of scale are always very limited. Also, they are limited geographically because most of the manufacturers are a single location or a single country manufacturer.” he says
With respect to the anticipation of need, meeting demands and reducing cost Sage then began to focus on putting parts at the point of use whether it would be by opening warehouses’ in and around airports or having contracts with customers where the company would open parts depots within their maintenance shops.
A classic example is a contract signed with Delta Air Lines in July last year. Sage Parts entered into a new contract with Delta whereby Sage dispenses replacement parts for GSE at major Delta airport hubs in Minneapolis, Memphis and Detroit. Those three locations join Sage’s presence at Delta’s Atlanta hub where Sage has been providing parts for use in Delta GSE since 2002.
“Many years prior to last year’s contract we had a contract with Delta where we were in their location in Atlanta dispensing parts to the workshop directly; actually, we were delivering parts right to the work bays. So the contract we signed last year with Delta moved that formula out to an additional three locations and the planning involved for that is something that we are very good at.”
The process works by what the company calls a “single source site location” where the parts provider is dispensing parts within the customer’s facility. The inventory is owned by Sage and therefore relives the airline of all the burdens associated with ownership and inventory planning and in return Sage is held to very high delivery and performance and cost saving standards.
“Having said that, the planning that goes behind all that is immense, we have some very sophisticated systems that manage the demand and track all the usage, not only by the end-user but also for our supply chain and keeps track of just what inventories are applied and kept on the shelf both at the point of use, as well as in our distribution centers at any given time.”
Sage have similar arrangements with American Airlines at eight of their hubs, Air Canada throughout Canada, KLM at Schiphol and interestingly a contract with a company called Ground Support Equipment Limited in Hong Kong – “In all those situations we have contract terms that vary in length, with slight variances to the same underlying model depending on the philosophy of the customer or necessity,” adds Bloomfield.
In order to grow its operations in the domestic market and beyond its borders, Sage has actively pursued a number of acquisitions. In the USA, the company acquired two companies that were engaged in distribution of GSE parts – “So that eliminated some competition there, but we did not acquire these companies for that reason but rather because they had a particular skill-set, knowledgebase and personnel that we desired.”
The most recent high profile acquisition is that of the UK-based T123 last year. The acquisition was instrumental in the implementation of Sage Parts’ business strategy of bringing parts and parts-related services closer to their point of use worldwide. The purchase of T123, according to Sage, combined the company’s intercontinental capabilities which include Sage airport locations in Amsterdam, Paris and Hong Kong as with T123’s long-established presence throughout the United Kingdom and Ireland.
Bloomfield says the particular attraction to T123 was to get more entrenched in the ability to source parts for European made equipment and to have a larger footprint in the UK and Europe in addition to buying a similar company in France a few years ago also for the same reason. Having larger volumes in any specific region as well as globally, allows us to perform better and bring more value to our customer base.
It’s been over a year since the T123 acquisition and Bloomfield highlights a number of benefits from the investment. Firstly T123 had similar contracts, dispensing parts to companies such as TCR and Servisair in the UK. “In this case we desired to gain more familiarity with the way onsite contracts function outside our current marketplace and also to push our formula deeper into the UK and Europe.
“Another benefit is that everything that we do in terms of our method of operating requires massive amounts of parts information, parts databases, cross referencing, sources of supply and anything related to the efficient acquisition of a part that we can put in the hands of an end-user – T123 had some very good data that we were anxious to get,” admits Bloomfield.
With the integration of the T123 business, this brings together 14 years of strategy at Sage to expand the geographical footprint in order to get the part as close to the operator as conveniently possible. And with that, the company has designed, according to Bloomfield, some very aggressive inventory and demand algorithms that calculate inventory needs for specific customers or inventory needs by type of equipment or specific seasonality’s, for instance de-icer parts.
“We also engage in a lot of engineering,” he says, describing that the company takes items that have very high usage, reengineer them to create very lower usage for that item. “In other words, we are focusing on total cost of ownership reduction, basically focusing on things that will allow the part to last a lot longer and we have been successful with all of that.”
When it comes to repair and maintenance of GSE parts, Sage performs these services on some select items. “We have some very good rotable programmes particularly with engines and drivetrain parts and certain other programmes where we take parts in and rotate them back out on a rotable basis. Having said that, that is an area we would like to expand on, we think it’s a very wonderful way of providing a service to the customer and it’s a wonderful way of providing cost savings and overall benefits.”
When asked about the global size of the GSE parts market, Bloomfield grins and says that’s the billion dollar question. “Nobody really knows the true figure, and there are very good reason for that. The parts that go on GSEs are extremely broad in terms of their origins. GSEs are typically made up of many parts coming from various industries, there are very few parts that go on ground equipment that’s made specifically for ground equipment but of course some parts will be specifically for GSEs.”
He points out that when considering the total number of items that go into the total world’s fleet, very few of the items originate for ground equipment in general – “So what happens is, the world competition, if you want to call it that, of parts that go on ground equipment are equally vast, parts come from heavy duty trucking, parts from the construction industry equipment and anything that is mobile, hydraulic or electronic.”
He further stresses not to underestimate the value of the design work, citing a few examples of parts that have been improved to lengthen their productive life. Since various parts come from different sources and not necessarily intended for use in GSE’s, these parts are subject to premature failure. “So these are subject to lots of improvement and we are able to recognise that and facilitate many improvements.”
He cites the difficulty in defining the total market size because at any given time an end-user somewhere in the world will order a part for their ground equipment and it could be ordered from any one to a million different places. “So it’s hard to contain and understand the size of that total market because of that,” he says.
Despite these market uncertainties, Sage sits in a pretty good position. Unsubstantiated estimates reveal that the company’s parts business is about ten times larger than similar providers with $27 million worth of inventory. “Our total turnover is about $120 million so at 25 we are turning close to five times, which is really a phenomenal turn rate for inventory of this nature given the extreme diversity and high service levels we provide,” says Bloomfield.