Southwest Airlines is all about connecting people to what’s important in their lives at the lowest cost possible, and that philosophy has served the company well for more than 40 years. It’s also a philosophy that the company is working hard to apply to its own internal processes, especially when it comes to its supply chain. Over the last few years, Southwest has been undergoing a substantial evolution within its supply chain operations. Director of Supply Chain Management Garry Cullinane says the airline’s leadership is focused on making the procurement as affordable and hassle-free as its fares are for its passengers.
Seeing an opportunity to affect some positive changes throughout the company, Supply Chain leadership started looking introspectively to identify opportunities to leverage their sourcing expertise and talents more broadly across the organization. This led to some realigning of activities and teams across the Supply Chain Management department. The company has made some major changes, and even though there have been challenges along the way, Southwest is cultivating the benefits of its more streamlined Supply Chain, including better support for internal customer departments, better communication, and more structured and strategic management of spend.
Director of Supply Chain Operations Stacy Malphurs says Southwest has spent the past year realigning many of its procurement operations with the intent to instill consistent, best-in-class methodologies to all areas of procurement activity. Malphurs says applying a broader supply chain perspective to all areas of the company’s spending is the best way to bring positive change. “We identified the need to take a more holistic supply chain view,” she says.
Fuel purchasing was historically managed outside of Southwest’s supply chain department, but has since been incorporated into the department. Malphurs states, “As an airline, fuel is a massive portion of our overall spend,” adding that the company spent approximately $5.5 billion on fuel last year alone, therefore, fuel has made up the most substantial portion of this transformation.
Malphurs says Southwest’s new perspective on fuel spending involves making sure the company is not being too conservative about inventory. Previously, Southwest carried excessive inventory as a result of a more cautious approach, however, by examining fuel spending from a total cost and risk standpoint, the company has optimized fuel purchasing down to the station level. This broader perspective drives inventory from the system while still protecting the operation by utilizing more analytically rigorous and dynamic approaches.
In addition to other areas, Malphurs has responsibility for teams that manage supply chain technologies. These teams are focused on optimizing and streamlining business processes and implementing technology tools to enable those processes. Malphurs explains that much of the teams’ work has been focused on eProcurement and fuel management.
“I think that we started from a place of not fully utilizing technology, and we’re looking to implement opportunities to streamline and automate as many of our business activities as possible,” Malphurs says. “We’re beginning to introduce technologies that can replace some of the manual processes that we’ve been dealing with for so long.” Malphurs says that by working together with Supply Chain’s internal customers and technology department, technology solutions have the potential to revolutionize Supply Chain Management as a function within the company.
With any organizational change as large-scale as the one Supply Chain is undergoing, Malphurs says making sure everyone involved understands and accepts the changes has been a high priority for the company. “We’re a very people-centric company,” she says. “When trying to craft and sell a vision internally to bring people along, it warrants a lot of time and diligence.”
Cullinane says he and others enacting the changes are partnering with Southwest’s internal customers to let them know the changes to the supply chain are for the entire company’s benefit and won’t have a negative impact on their day-to-day operations. “It’s a new partnership to leverage our customers’ subject matter expertise with our sourcing, negotiating strengths and supplier performance management, ultimately yielding a better outcome for Southwest,” he says.
“We want to make sure we’re bringing significant value to the operation,” Malphurs says. “We really seek to be trusted advisors to the organization.”
The Next Steps
Southwest has seen significant benefits from the change it has undergone, but Malphurs says there’s still a lot of work to be done. For example, she says, the company is working to improve its back-end data collection and utilization. “We have to be guided by the data,” she says.
“Whatever it takes to be successful, that’s what we’re going to do,” Cullinane says.