Aerospace eBusiness

Conflicts of Interest amongst Parts Locator Marketplaces June 14, 2011

In my recent blog post titled “The challenges of online aeronautical parts locator systems”, I asked if it is ethical for a parts locator marketplace to be affiliated with an actual part reseller. In this post I am analyzing this potential conflict of interest in more details.

For a parts distributor to be successful, they need to:

• Effectively manage the inventory they keep: Distributors must avoid stocking parts that will stay on the shelf for too long, tying up valuable capital. But they also
  want to have a large enough inventory to become a preferred “one stop shop” for customers. For example, they want to know when to get rid of OEM parts when an
  equivalent but more readily available PMA part becomes available. Or, they want to know when to hold on to that rare part that is impossible to find.
• Price the parts based on market pressures: Distributors want to know when to increase the price of parts that are hard to find and when to lower the prices of parts
  that are tying up shelf space unnecessarily. For example, if the FAA issues a mandatory service bulletin, distributors know that some parts will be in high
  demand and they might want to increase their margins.
• Stay ahead of the competition: Because the aviation aftermarket parts industry is so fragmented, it accounts for hundreds and hundreds of parts distributors
  or resellers. These companies range from a couple of employees to multi-national conglomerates. Competition is fierce and the pressure is on to surpass or eliminate competition at all costs.

The analytics required to achieve these goals are pretty straight forward:

• What are the parts most in demand: distributors want to know what parts buyers are looking for. More importantly, they want to find out which parts are not found.
• Who has the parts available: distributors want to know which of their competitors have the parts inventory. They want to know quantities and locations to be able
  to adjust their own inventory.
• What is the market price of the part: distributors want to know what others are charging for the parts they have in inventory to be able to adjust their own
  price to the market.

Online parts locator marketplaces often advertise that they process thousands of searches and RFQs per day, thus generating the exact data that a distributor would need to dominate the market. The data mining possibilities of such websites affords a unique vision into the key tendencies of the Aviation Aftermarket.

This is analogue to the data that credit cards company collect on the consumer side. However, credit card companies are regulated and are FORBIDDEN from using the personal information they collect. Such rules are outlined in their Data Privacy Statement. Supermarket chains like WALMART also collect such data to manage their operation and apply pressure on their suppliers. However, they keep that data for themselves and are not about to share it with any of their competitors.

In the Aviation industry, not only is there no regulations about this subject, but thousands of distributors VOLUNTARELY provide this information through online parts locator marketplaces directly owned by some competitors. This means that distributors, manufacturers or resellers using these systems indirectly provide their competitors with a view of their
inventory, availability, and pricing in a data format easily analyzed and interpreted. Also, buyers should be concerned about trusting the search results they receive when they are looking for a part that the marketplace owner actually has in inventory. Will the buyer receive independent results or will he be “guided” towards a specific answer?

So to make sure that you avoid these conflicts of interest, perform these two checks before deciding what marketplace to use either as a buyer or a seller:

• Be sure to research the background and affiliation of each marketplace. You will be surprised how some of these websites don’t provide you ANY information about
  their ownership or business background (Check out gemaviation.com as a good “mystery” business). The more transparent they are about whom they are the better. Make sure you know the actual business entity (e.g. Inc., LLC, GmbH) and who the key executives are before proceeding. Here is an affiliation list of the most common Parts Locator marketplaces:

• Check out the Terms & Conditions and Data Privacy documents. These documents should be readily available (usually linked at the bottom of the page). You
  will be shocked at what some of these sites will do with your data. Most of them bind you to these terms from the moment you log in. Be sure to read both documents as there is usually confidentiality and data usage clauses in both of them.

The aviation aftermarket industry is still one of the most immature industries when it comes to using the web efficiently. The large number of parts locator marketplace and their wide range of quality and professionalism are a good indication that things need to improve. Industries that have gain much efficiency through the use of internet and marketplaces have done so through transparency and quality.  In my opinion these are the two things that we should improve in the Aviation Aftermarket.

Full Disclosure: Although this blog represents his own personal opinions, Ludo Van Vooren is the VP of Customer Solutions for fipart.com, an independent parts locator marketplace.