Nobody really knows the size of the global GSE parts provisioning market, but there are very good reasons for that. Airside’s Keith Mwanalushi talks with Sage Parts, a New York-based company that is expanding its geographical reach and 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 worldwide,” says Bloomfield.
Back in 1998, Sage only had about four employees and a turnover of about US$2 million. Today, the company is approaching 400 employees located in 34 stocking stations at sites around the world. “We have massive amounts of GSE specific inventories,” Bloomfield 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 forms, whether it’s instantaneous inventory, at the point of use or whether it’s a product improvement. “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, they are always limited by the fact that they only supply parts for the equipment that they manufacture. All we had to do was execute the vision that Mark and I shared, although that was no easy task.”
Secondly, Bloomfield observes that 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”. Plus, they are limited geographically because most manufacturers occupy only a single location or a single country, he points out.
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 this would be by opening warehouses in and around airports or by arranging contracts with customers according to which the company would open parts depots within their maintenance shops.
An illustrative example is a deal signed with Delta Air Lines in July last year. Sage Parts entered into a new contract with Delta whereby the former 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 it 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,” Bloomfield states.
The process works through 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 relieves the airline of all the burdens associated with ownership and inventory planning; in return, Sage is held to very high delivery, 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. They keep track of just what inventories are applied and kept on the shelf both at the point of use and in our distribution centres at any given time.”
Sage has similar arrangements with American Airlines at eight of its hubs, Air Canada throughout Canada and KLM at Schiphol, as well as 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 variations to the same underlying model depending on the philosophy of the customer or necessity,” he adds.
In order to grow its operations in both the domestic market and beyond its borders, Sage has actively pursued a number of acquisitions. In the US, the company acquired two firms that were engaged in the distribution of GSE parts – “So that eliminated some competition there, although we did not acquire these companies for that reason but rather because they had a particular skill-set, knowledge base and personnel that we desired.”
The most recent high profile acquisition was that of the UK-based T123 last year. The acquisition was instrumental in the implementation of Sage’s 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 – that includes Sage airport locations in Amsterdam, Paris and Hong Kong – with T123’s long-established presence throughout the UK and Ireland.
Bloomfield says that the particular attractions of T123 were because its acquisition increased Sage’s ability to source parts for European-made equipment and gained Sage a larger footprint in the UK and Europe. It had bought a similar company in France a few years ago for the same reasons. “Having larger volumes in any specific region allows us to perform better and bring more value to our customer base,” he considers.
It’s been over a year since the T123 acquisition and Bloomfield highlights a number of other specific benefits accruing 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,” Bloomfield admits.
The integration of the T123 business was the culmination of 14 years of strategy at Sage to expand its geographical footprint in order to get the GSE part as close to the operator as conveniently possible. And to support 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 – particularly important, for instance, for such items as de-icer parts.
“We also engage in a lot of engineering,” he says, describing how the company takes items that have very high usage and re-engineers them to encourage lower usages of 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 the repair and maintenance of GSE parts, Sage performs these services on some select items. In this regard: “We have some very good, notable programmes, particularly with engines and drivetrain parts, as well as certain other programmes where we take parts in and rotate them back out. Having said that, this 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.”
Bloomfield further stresses that the value of design work should not be underestimated, citing a few examples of parts that have been improved to lengthen their productive life. Since various parts come from different sources and are not necessarily intended for use in GSE, 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.”
When asked about the global size of the GSE parts market, he 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 GSE are extremely broad in terms of their origins. GSE is 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, although of course some parts will be specifically for GSE.”
Furthermore, Bloomfield 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 its ground equipment and it could be ordered from any one of 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,” Bloomfield concludes.