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A Supply Chain/Strategic Sourcing learning community devoted to ideas you can use in your work or daily life.

Safety vs. Cost Savings – What am I missing?

Posted by annekohler on July 1, 2010

There was an article in the Chicago Tribune on Sunday,  American Airlines fuels a debate by Jon Hilkevitch and Julie Johnson, discussing American Airlines aggressive move to cut costs by reducing the amount of reserve fuel carried on commercial flights.  Traditionally, this is a decision made by the flight’s captain and the dispatcher.  American, however, is proposing to rely on a sophisticated database to make that decision which will result in significant cost savings for the airline BUT at increased risk.   Pilots are both furious and concerned.

There is an ongoing debate between the pilots and American as to how much reserve fuel is really necessary.  No one is concerned that the fuel conservation effort will cause an aircraft to run out of fuel mid-air but it could require tapping into the reserve which pilots feel should never be touched (except in emergencies).  While an aircraft will not run out of fuel, it may need to divert a flight which is both inconvenient and increases the safety concerns for the flight. “With diversions, the complexity of operations goes through the roof.”

With all the negative press both Toyota (haven’t heard much about them since BP stepped into the limelight) and BP received because of speculation that cost cutting was valued over safety, you would hope that American would be smarter.   What am I missing?

This case is yet another example of “faulty regulation” – see Why Risk Assessment Matters by Lowell Yarusso, PhD, in Risk & Insurance Magazine, whereby American Airlines  is willing to relax it’s own prudent internal controls to save a few dollars.  As BP learned – the hard way, it will take only one accident that can be attributed to American’s fuel conservation effort for any cost savings and even their entire Market Cap to be wiped out in an instant.

In addition, we have been discussing in previous blogs the need for companies to refocus on value to the customer.  As a frequent flier, I can live with no blankets, paying for food and even paying for my carry-on luggage.  But saving a few pennies on airfare because less emergency fuel is available for an “emergency” seems crazy to me.

Whoever is in charge of “cost costing” at American Airlines (and I hope in this case it is NOT the Strategic Sourcing organization) really needs to listen to their most critical stakeholders – the flight captain and the passengers who will always trade cost savings for safety.  As a passenger, while I value an on-time flight at a reasonable price, I place more value on getting there in one piece.

A refocus on value, as opposed to cost, can actually help companies redefine the market they are a part of, BUT more importantly redefine their place in that market.  Go Value!!!!!

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