Procurement in the aviation industry
The global aviation industry has grown a lot over the last couple of decades. The most notable growth has been witnessed since the turn of the century, as airline companies strive to integrate the latest technology and management practices into their operations. Due to the effect of globalization, the process of procuring goods and services in the aviation industry has become very complex (Haseman 2013). This phenomenon is highly attributable to the concept of performance-based contracting, which has introduced new and exciting dynamics into the various methods of negotiation during the procurement process. According to the guiding principles of performance-based contracting, the procurement process should focus on securing goods and services that complement the objectives of the planned work (Gransberg 2009).
We will write a custom Report on Procurement Trends in the Aviation Industry specifically for you
301 certified writers online
The concept also applies in a manner that gives contractors and employees the freedom to establish the most effective approaches that would apply in meeting their goals. Elements of performance-based contracting that have changed the procurement trends in the aviation industry include the need to achieve maximum levels of quality during delivery, and the provision that remuneration applies only to goods and services that meet the preferred quality levels (Haseman 2013). For example, jet fuel is one of the most essential goods in the aviation industry. Managing a negotiation to buy such a product ought to be guided by the need to acquire a product of the highest quality that will enable the user to meet all the performance goals. Therefore, organizations need to develop effective policies and procedures for integrating performance-based contracting into the procurement processes (Gransberg 2009). This plays a crucial role in keeping up with emerging trends in the industry.
Performance-based contract and its associated advantages and disadvantages
The performance-based contract refers to a strategy that a business applies to promote its products and services to achieve quantifiable results (Kleemann 2014). Governments and businesses use the management approach to access services using contracts that identify and define the goals to be achieved. The strategy uses performance metrics that create a relation between payment and the level of performance. The effectiveness of the metrics determines the amount of money payable to the person responsible (Kleemann 2014). Some of the commonly used metrics in performance-based contracting include accessibility, consistency, total cost, ability to be supported by other elements, as well as ease of maintenance. The most important role of performance-based contracting in the procurement process is buying performance (Guth 2009). This means that a contractor holds the most responsible about meeting the set goals, while the business is left with the responsibility of identifying and defining the metrics for determining success (Haseman 2013). According to management experts, performance-based contracting is one of the crucial elements that drive the attainment of procurement goals in the aviation industry.
One of the main advantages of performance-based contracting is that it gives the players in the aviation industry the freedom to introduce new negotiation methods with the ability to meet the quality standards (Kleemann 2014). This means the approach makes the aviation industry a good opportunity for investment because the process of procuring goods and services will become more efficient and cost-effective. Over the last couple of years, the procurement trends in the industry have been shifting towards a technology-based system, which makes it easy for contractors to monitor the state of affairs in terms of the demand levels and quality parameters (Haseman 2013).
Another notable benefit of performance-based contracting is the fact that it helps to improve the stewardship of taxpayers’ money, especially on the part of the government. Government-owned aircraft often benefit a lot from this approach because the resources necessary for operations are readily available (Gransberg 2009). Also, there is a guarantee that there will be a good return on the value of investment because payment is only done based on the performance levels. This plays a crucial role in identifying and eliminating underperforming contractors, thus increasing the efficiency levels within the industry (Guth 2009).
Since the turn of the century, the aviation industry has become very competitive. This has created a need among contractors to be more innovative, result-oriented, and adaptive to the changing dynamics of procurement in the contemporary market (Kleemann 2014). Therefore, any contractor who fails to assure their client of top quality goods and services is finding it very hard surviving in the industry. One of the main disadvantages associated with performance-based contracting is the challenge of keeping biases out of the bidding process. Research has established that a biased bidding process can easily lead to serious repercussions for both the contractor and the client if their respective levels of satisfaction are not reached (Haseman 2013). A contractor can work and end up not being paid if the client is not happy, while the latter can experience delays in meeting his or her set goals if the former fails to honor their side of the bargain by providing substandard goods and services.
Competencies required for a successful negotiator
Negotiation is one of the most important steps in the procurement process. Effective negotiation ensures the acquisition of top quality goods and services capable of helping the user meet their objectives (Downs 2009). Management experts argue that there are certain competencies that a successful negotiator should possess to procure quality goods and services. One of the most important competencies is effective problem analysis (Downs 2009). This entails the ability of a negotiator to establish and understand the interests of all the involved parties.
A good negotiator should make good preparations before going to a meeting. This entails establishing the identities of the involved parties, their goals, the trade interests, as well as any available alternatives to these elements. Active listening is also a skill that makes one a good negotiator (Downs 2009). According to communication experts, active listening entails the ability to read the body language of others. A good negotiator should have high emotional intelligence (Downs 2009). It entails understanding one’s emotions and the way they can affect others. Other essential skills that make one a good negotiator include good interpersonal and communication skills, reliability, excellent decision-making, general practical intelligence, product knowledge, as well as ability to think clearly under stress (Downs 2009).
Steps and activities involved in the management of a negotiation to buy jet fuel
The negotiation process during the procurement of jet fuel takes three steps, namely pre-award, award, and post-award phases. The pre-award phase entails reviewing the submitted proposals, negotiating on the working terms, and approving the sources of funding (Kleemann 2014). In procuring a commodity as expensive as jet fuel, it is important to ensure that the contractor has reliable funding that will meet all the costs. This phase also entails notifying the successful contractors whose bids are within the competitive range. Contractors whose bids are excluded from being outside the required range also get their respective notifications (Defant 2013). In some cases, the unsuccessful bidders are often debriefed about their exclusion from the bidding process. The major activities undertaken by the buyer are procurement planning, soliciting funds, and placing the bid. On the other hand, the activities of the seller include presale activities, deciding on the state of the bids, and making notifications (Kleemann 2014).
The award phase is the second step in the procurement process. It entails active bidding between the contractors within the competitive range. The contracting firm often listens to all the proposals and then chooses to award the bidder who offers the most lucrative offer in terms of quality and total cost (Defant 2013). All the bidders have a chance to ask any question during this stage before placing their bids. Soon after the contract is awarded, activities designed towards managing the whole process of implementation often start immediately. Some of the activities at this stage include task authorization, resolving any disputes, making any necessary amendments to the contract, and a kick-off meeting that sets the delivery process rolling (Defant 2013).
The post-award phase is usually the last step in the procurement process. Once the successful bidder has been awarded the tender, they start delivering the product as soon as possible. This step mainly entails activities such as establishing proof of delivery, making payments, addressing any contractor claims, receiving the contractor’s performance documents, filing the necessary documents, and approving client satisfaction (Kleemann 2014).
Criteria used by a buyer when selecting a seller during the procurement
In procurement, the buyer refers to the party contracting out work to be done, while the seller refers to the party advertising their product, service, or outcome (Defant 2013). In the procurement process, the relationship between the buyer and the seller is very important. Their level of understanding shared interests, and mutual respect determines the efficiency of the whole process. These three elements play a crucial role in determining the criteria that a buyer uses to select a seller or a supplier. Some of the factors a buyer considers when choosing a seller include the type of contract to be used, procurement documents used, budget considerations, risk mitigation strategies, the performance measurement metrics to be used, as well as any pre-qualification (Kleemann 2014). The seller is chosen depending on the ability to meet the contractual demands set by the buyer. Anyone whose proposal does not align with the needs of the buyer is often excluded from the bidding process.
The seller also needs to use the right procurement documents that indicate all their details. The procurement process is very complex and can attract huge risks, especially if the information provided by the seller is false. Therefore, the buyer has to consider the possible mitigation measures for dealing with the risks that each seller can bring (Defant 2013). High-risk sellers are often excluded from the bidding process. Budget considerations are also very important because the buyer is always looking out for a seller who will offer the best quality at a competitive price. During the process of finding a seller, the buyer also considers if there are any pre-qualifications for the potential sellers before inviting them to send their bids (Gransberg 2009). This plays a crucial role in regulating the number of sellers sending their bids because only the qualified ones apply.
Defant, T A 2013, Procuring and Managing Professional Services for Airports, Transportation Research Board, New York.
Get your first paper with 15% OFF
Downs, L J 2009, Negotiation Skills Training, American Society for Training and Development, California.
Gransberg, D 2009, Performance Based Contractor Prequalification, Transportation Research Board, New York.
Guth, S 2009, Project Procurement Management: A guide to Structured Procurements, Lulu Enterprises Incorporated, Massachusetts.
Haseman, Z 2013, Integrating Environmental Sustainability into Airport Contracts, Transportation Research Board, New York.
Kleemann, F C 2014, Supplier Relationship Management in Performance Based Contracting, Springer-Verlag, New York.