Digital Commerce in the Aviation Industry with Jeffrey Jerge at PartsBase Inc.

Jeff Jerge: Thank you so much for having me on your podcast, and working with Oro, I'll say has been wonderful. My career, I've been in the aviation industry for almost 25 years. I started flying planes and have kept with that a little bit on the side. So I built up all my flight time and really spent my entire career in the aviation aftermarket working for OEM distributors. And then on the technology side, and on the marketplace side. I've been at PartsBase now for about seven months. And PartsBase has been known in the industry as leading in technology, bringing buyers and sellers together, it certainly is the number-one platform in our space. And so, I am pleased to be here and share our experiences with you.

Daphna Andrews: Excellent, thank you. So I'm very curious about your path and how you pursued a journey into a digital transformation advocacy role. And I know that's something you're very passionate about, and you're leading that at PartsBase, which I understand, in the aviation industry, might be slower to adopt digital transformation.

Jeff Jerge: Sure. If I could point to one area, I started in the industry with flying. And when you look at the flight operation side, technology in the last 20 years has just completely taken over. Airplanes are sending data like never before, on what kind of maintenance items need to come up, flight planning, crew planning, and scheduling fuel. There's so much cool tech going into the flight operation side.

And then you go to the support side of it. People are in emails and on the phone and sending paper back and forth, and even document transfer has been an issue. And so, when you look at all these analog processes going on the $600 billion support side of the market compared to what happened on the flight operations side, for me, it's just a passion to try to bring that technology into their supply chain.

Daphna Andrews: So that's very interesting. You mentioned all the digital aspects on board and with the actual machinery. So are you seeing a progression into, say, for example, a plane needs a different part, something's maybe not critical, but that it transfers it to the crew? Say, when they land, they already have the information to get that part ready and get that servicing going.

Jeff Jerge: The OEM that is making airplanes today, I worked for Boeing for over 12 years, and they had a program called airplane health management, and the whole idea is that the airplane is monitoring the equipment, and in this space, you have scheduled maintenance, the aviation has a very regulatory environment. So a certain number of hours can happen before a plane has to go through an A, B, C, or D check. A D check is a complete overhaul of the plane. Everything's taken off and rebuilt or installed new, and then put back on.

But aviation business is a logistics business, and lots of things happen. And so you have a lot of unscheduled things that are going on. So really, the airplanes and the equipment are starting to tell stories as to, "Hey, this part isn't supposed to be replaced, but it looks like we're gonna have a problem with it in another couple hours." And so, the vision of the supply chain of the future is that an airplane flying from New York to Los Angeles, and something happens in the middle where the airplane says, "Hey, this part is gonna need to be replaced. We need to get it in LA by the time we land," and then the supply chain sort of acts around that. So if you look at the technology, it's really cool. And bringing the supply chain into that workflow is where the future's headed.

Daphna Andrews: That's the stuff I love to hear. That just makes me so excited to hear that. So when you look at PartsBase, and where they were at and where they're going, as a company, or sort of how are they embracing digital commerce? How are you guys making that a key component of your sales strategy?

Jeff Jerge: PartsBase has been leading the way now for 27 years. They were the first, I'll say, locater on the internet. And believe it or not, 1996-1997 timeframe, they built a platform that has 7400 companies, 25,000 users in over 130 countries. And it's really evolved over the years. So they've been bringing buyers and sellers together, where things can be quoted, people are brought together, where parts and material and repairs and data and all these things come together in this community.

The PartStore is really an extension of that. And it's the first transactional marketplace in the aviation industry. Let me go back a little bit. Suppliers are starting to develop eCommerce websites, and really, from a B2B world, if you're a buyer, and you go to a supplier and start going to this eCommerce site, the next one, the next one, the next one, it's really inconvenient for the buyer. So the vision behind the PartStore is let's go ahead and create a transactional marketplace where a buyer can come, shop multiple sellers at the same time, add to their basket, and checkout with a secure payment method and transaction right then and there. And so we launched this back during PBExpo in early March, a couple of weeks ago. And we've already had 10 participants on it. And we're forecasted to have over 100 participants by the end of the year.

Daphna Andrews: Wow, that is excellent. And so, as far as the benefits, then also that you are seeing from maybe an internal operational perspective, or things that you've mentioned a couple of the benefits to your end users. But I'm curious if you see additional ones.

Jeff Jerge: Any online transaction is going to provide several benefits. First off, we already know the demand signal coming out, meaning somebody already knows that there's a maintenance event, and they don't have equipment in stock to solve the event. Today, they have to either go on a locator and wait for quotes and/or pick up the phone if they don't get those quotes back in time. Pretty much from a logistics standpoint, somebody can log in, have the transaction complete without talking to anybody.

In our environment in the B2B world where you might have American Airlines in Dallas, but you have a plane in Singapore that needs this unscheduled maintenance. So the ability to be 24/7 online, around the clock, in a marketplace environment, to be able to secure transactions, is really important for the sustainability to the industry. So I think the benefits, really, if you look at our purpose and why we support airplane flying for both commercial, defense, business aviation, general aviation, and when that plane takes off on time, PartsBase is one of the players that make that happen out of all the logistical things that need to come together.

Daphna Andrews: It's amazing to hear that because, from the perspective of all the supply chain issues, it's become an everyday term to hear about supply chain issues, delays in manufacturing. I think you guys are closing that gap, minimizing those risks, and making sure that you can do everything possible to get the parts where they need to go as soon as possible, effectively, and successfully. So, that's amazing.

Jeff Jerge: And also, if you think about aircraft parts, I mean, they range, a typical airplane can have as many as 10,000 OEMs on it, 10,000 manufacturers that make up the parts of an airplane. As a passenger, everything from a light bulb and a seatbelt, to landing gears and engines—all those components are made by different manufacturers. And the ability for the supply chain to come together and provide visibility as to not only who has what, but where parts are is amazing.

On the PartStore in the marketplace that we created, we allow people to list the location of their inventory, future enhancements are going to be, you'll be able to get products from multiple locations, payment services, shipping options, a lot of aviation parts, believe it or not, are shipped overnight, or at least same day/next day. Because of that unscheduled maintenance. It's really expensive to have an airplane sitting at the gate. There are some estimates upwards of up to 60,000 dollars for an hour to have an airplane sitting at the gate, because it's not drawing any revenue. So when something happens in the maintenance world, there's a lot of, I'll say scrambling, to be able to get an airplane back in the air.

Daphna Andrews: Yes, especially since the aviation industry is under scrutiny with their on-time, and delays, and things like that, it just makes your business even more critical.

Jeff Jerge: Correct.

Daphna Andrews: So how do you think that your digital commerce component has really facilitated PartsBase’s digital transformation overall? Is it something that has helped move the needle to make people understand the importance of transformation?

Jeff Jerge: COVID introduced people to transformation in every supply chain. But aviation is one of those industries where because of the requirements and that you have to be able to rely on somebody, it can be really scary to bring on a new vendor.

If you're used to getting this part from this OEM, there might be alternatives to it. And the more expensive the parts, the more they get contracted and shop in an RFQ RFI format. But that being said, once you have a vendor that can deliver to your standards, then not much disruption happens to that.

COVID kind of took a chance for the end users to go, "Wait a minute, I need to have multiple sources that I can rely on in case something happens with one of my sources." So not only does the PartStore help you transact with vendors that you know, but it also gives both suppliers and buyers a chance to make a new connection, just to be able to have these approved suppliers in your system. And I will say that in this regulated environment, even getting approval to sell to an airline can take a while. And so being able to get introduced to those people and be able to have a transaction so that you can pretty much buy on the spot has been, believe it or not, revolutionary on the support side of the aircraft.

Daphna Andrews: Absolutely. And so do you have input here on why PartsBase chose OroCommerce to be a trusted vendor in enabling this transformation for you?

Jeff Jerge: Marketplaces are the future, and in aviation, I'll say we're happy to lead the pack. And I think one of the reasons that we chose Oro is because you have that solid framework and solid marketplace experience, quite frankly. We didn't want to bet on anybody new that was unproven. And I think Oro has the proven platform to be able to handle the scalability at which we expect this to take off.

Daphna Andrews: That was a good one. Okay. Can you talk about the general level of digital maturity of companies in the aviation industry? Not necessarily the ones that are making sure the plane is running, because those are obviously transformed and very digitized. But my question really is for the people that are listening. It's hard to change a company that's been offline and for the most part not digitized, and definitely not transformed. Can you speak a little bit about the challenges you've encountered in this space?

Jeff Jerge: Some of the resistance to digital transformation has been through a couple of factors. First off, data sharing. A lot of sellers and suppliers were a little uncomfortable putting their pricing out and putting some of their data out because they feel like it's a competitive nature that they'll just get shopped, and somebody will move on to the next order. There has been resistance to that.

And then also, one of the biggest factors, when you deal with a sales team at a seller is, I don't want anybody between me and my customer. And the chance that I can quote them a 50-cent light bulb, give me a chance to talk to them and ask how their business is going. And you'd be surprised where somebody wants to have an engagement over a 50-cent light bulb. And so what we're really seeing is that you have a little bit of a generational shift also coming into the industry, we're all carrying these iPhones around and ordering on Amazon, and then you get to work and the experience is much more analog.

And so what we're finding is that there is a shift in the industry right now where people are going, "Look, my own sales team needs to be redeployed to those relationships on a contractual level, and things that are bigger and better than fulfilling a 50-cent order." So, like in other industries, I mean, I can't buy a house online just yet, because it's such a large purchase. So some of these bigger aircraft components, like a landing gear can be $2 million, or an auxiliary power unit could be $700,000, those probably aren't going to digitize out on Google just yet.

But what I'm finding is that there are price points that are driving behavior, and that I can automate the transaction at a certain price point and focus on my customer and their real needs, not these light bulbs. And then also, I talked about the criticality of these parts. So by having a marketplace, you're on 24/7, worldwide. So that whole emergency maintenance logistics standpoint tends to come into play. And that's where a lot of people are starting to move online as well.

Daphna Andrews: So you're saying that you're alleviating these tasks. Correct me if I'm wrong, but I'm seeming to understand that your sales reps are now empowered to be building more consultative and trusting relationships where they're selling solutions, they are selling that house versus say the door. And that house is where they're gonna live, and it means something to those people. It sounds like that's how your sales reps are being able to transform into not just larger sales, but trusted relationships.

Jeff Jerge: Correct. And believe it or not, we've seen it on the buyer side as well. I've had lots of conversations where, quite frankly, there's some job security from a buyer and saying, "Hey, I'm the only one that knows how to push these buttons. And if it's automated, maybe I'll lose some of that." And I just think everyone going through COVID had this moment where they said "We understand the importance of digitizing and upgrading systems." And even that example that we all see, as consumers, that mindset of, "Look, we cannot run this on antiquated systems anymore. It's time to digitize; it's time to invest in technology across the industry." And so you're really seeing a push towards that.

Daphna Andrews: Yeah, that is actually interesting. Everybody knows digital transformation is a buzzword, but the true sense of the word means challenging your existing processes, structures, and capabilities in the organization, and really requiring people to find new ways of working. And then externally, it’s about how it parlays into revenue growth and innovation.

You're monetizing the technology, and that's requiring the business to create new business models, looking at ways to penetrate new markets or gain existing market share in the markets they're in, and one of the things I love to use as an example is you see a lot of times in vehicles where heated seats were just something you would purchase as part of a tier, whatever the level of vehicle you're buying.

Then some of the companies decided to monetize that feature where It became a subscription. So you can see they're using technology, that they have this ability to turn on and off the heated seats through this technology. They're monetizing it by now saying, "Okay, you may not have to buy this tier of car. But you know what, if you want heated seats in the winter, it'll be a little more expensive if you want it than if you want it in the summertime."

So I'm just curious, how do you see some of these innovations that have modernized procurement in your space?

Jeff Jerge: I probably don't have an example close to that heated seat. But I will say the airline industry or the parts industry is gotten very creative over the years in the sense of parts leasing, as opposed to acquisition.

But there's a saying that you're not buying the part, you're buying the paperwork. And the reason is, in that regulatory environment, parts change hands, and aircraft get torn down. And then there's also alternatives to the OEM. And really, a lot of the technology that PartsBase has invested in over the years has been pulling in as much data around these transactions as possible.

So PartsBase will tell you when you put in a part number in their main locator product anything that the government might be buying under some sort of alternate part number. So data is where I see the future.

So when you see a logistical problem, the first thing that comes up is, All right, how do I make sure that this doesn't happen again, so you start to get a lot of failure rate from an operation standpoint, but then also, how many sources of supply? How much competition is out there? What is the average pricing point? PartsBase sells market data, basically, to help assist anything with a transaction. On the supplier side, outside of leasing or anything on recurring revenue streams, it's still a very transactional-oriented business. I think probably because of the complex nature, and quite frankly, the cost involved in those components. But as far as incremental monetization, I think data is probably the next wave in the equation as to where the industry is looking and hungry to obtain information. So data would certainly be it.

Daphna Andrews: That is fascinating. But is there a way that you can almost monetize the certification that PartsBase does?

Jeff Jerge: We're a marketplace facilitator, so we don't own the parts. We don't own the data trace. But I'll give you an example. Several years ago, we expanded our data fields. So where a typical marketplace might have four or five or six fields that are mandatory, to be able to transact, we opened that up and created many more fields that would be able to help capture data elements along with ultimately leading to the transaction.

So we can take an image of a certificate, which is required for every part, and we can capture the serialization of it. We can capture the traceability in our industry that's really big, where a part can be traced back to a certain last certifying event.

In the future, I think blockchain will start to take off in the industry a little bit. And I would say that in the next couple of years PartsBase will more than likely be partaking in the blockchain side.

Another reason that we chose Oro is your integrations with so many different transactional parties. I mean, we started with a credit card, we're working with an alternative credit line company, but just being able to access secure payment methods, you have some traceability to the transaction that's been captured at that point. And so ultimately, that'll lead into the blockchain, we think, and be a stamp in that ledger, that the transaction happened.

As you start to think about data, and you start to think about visibility and transparency of the supply chain, we already have plans and have built out some of the necessary fields to be able to support where the industry is heading, which is going to be full transparency from the birth of an airplane to the teardown to the redeployment of those assets.

Daphna Andrews: As a leader in your space, how do you approach people? And that could be anyone from your peers to somebody who's say managing finance, or whatever the case may be, how do you approach people and try to make them change agents, bring them on board, drink the Kool-Aid, if you will?

Jeff Jerge: Sure. I've had the pleasure of the last 25 years or so in the industry, and very common to have this resistance. But I think everybody's starting to get it. And because when you look at the use of our phones, and all the apps and everything, I think our daily lives, technology is becoming a huge part of it.

I was in the grocery store line, and somebody wrote a check the other day, and I just couldn't believe it. I was, "Really, you're still writing checks?" You're still gonna have those folks in any industry or anywhere. But I think the thing that is starting to resonate is one, the conversation is coming anyway.

So you can either be ahead of it or resistant to it, but it's coming. And then secondly, I think when you try to really uncover the true resistance, it's generally either, "I'm set in my ways," or "I will need to protect myself in some way, where if I keep it analog, I can protect myself."

Honestly, there are a lot of people in the aviation industry that make money off of inefficiencies in the supply chain, because I'll have stock, I'll have a relationship with you. And because you can't see who else has that stock, we work together. So that's how I get the sale. And I think the tolerance for that, when you look at the working capital tied up in inventory for an airline maintenance is the third largest expense in an airline. And a lot of that's tied up in working capital and inventory. And so what happens is, you'll get somebody, say, or you'll get an airline environment where they're like, "Okay, we're gonna do just in time. We can't stock up on extra inventory." And then something happened, and then the whole supply chain breaks.

I always try to uncover what the resistance really is for, and then just try to bring them along on the benefits. And it's been a challenge. It is in every industry, we have those people that still like to write checks. But I think more and more, we're finding comfort level amongst suppliers and buyers with going, "You know, I just want to hop online and buy this, I don't need to talk to you about this particular transaction, because we already know each other." I tend to look at it honestly, like when you have a close relationship, it could be a spouse, or a good friend or whatever, you already know each other. So just send a quick text and then it's done. You don't have to talk and make it complicated. You're already past that phase.

And so in the digital phase in the B2B world is, look, one, it gives me a chance to meet somebody new, but two, once we know each other, why don't we want to be dealing with paperwork, like let's just send a text and be done with it. And we know that the transaction happened. So I think it's pretty exciting to see that unfold live.

We had at our PBExpo Michael Collett with Air Canada, who's the managing director there and we had Freddie Robaina with United, and I asked them, "How does digital enablement affect your relationships with suppliers?" And really, the answer was, the relationships are getting better, because one, we're focused more on the strategic initiatives like I mentioned. And two, it's much more clear that the supplier understands the expectations of the performance. And we can have visibility into that.

So I find that digital enablement is improving relationships rather than threatening them, which is sort of an initial reaction.

Daphna Andrews: That's a very good point. Digital enablement provides so much more data that helps you make these data-driven decisions. People are seeing the benefits of that versus having to make a gut-instinct decision that can go either way. But as far as providing anyone out there that's listening, that might be in your shoes that might be getting pushed back internally, and there are challenges getting people on board and support for their initiatives transformationally, what would be a couple of things that you would advise them to try to get their teams or their CEO, or whomever on board?

Jeff Jerge: So I think one of my questions that I asked at our expo was, "What's your advice to these companies that haven't taken the digital shift yet and bought into the digital strategy?" Everybody said, "Just start."

It's like any kind of habit, just start somewhere. So pick an area where you're comfortable with. Maybe, if you're a seller, and you're wondering what to put out there, I always say, put two or three things out there. One, you could put the slow-moving things that you're comfortable sharing your pricing with. Two, you could put a dollar threshold. Say, "Okay, right now, I'm only comfortable with anything under $5,000 or $10,000."

And next, you really need to look at the benefits of moving online into that environment. One, you're gonna get a cost of sale that decreases because you're not having someone quote, and follow up, and email. You're doing all of that automatically. Next, by taking a payment right away in the transaction, you don't have accounts, AR to go chase, you have accounts receivable to go chase. You don't have bad debt, because you get paid right away.

And so when I talk to sellers that are maybe a little bit on the fence, I say, let's start with something that's comfortable for you. Maybe it's a dollar threshold or type of inventory. And then by pointing out these benefits, where you really see that cost of sale decline, and you're counting costs and your bad debt, your balance sheet, all that stuff that gets impacted by transactions that go poorly, you'll see improvements on right away. It's like your ROI is immediately captured.

Daphna Andrews: It's amazing. It's the “aha!” moments that it brings. It is. You spoke a little bit about the future of PartsBase, where you're going with your marketplace. Are there any other things you'd like to just mention as little teasers for the audience?

Jeff Jerge: We're really excited about the PartStore. It is the future of the industry. I think the teaser is there'll be many more versions that come out with enhancements in what services are offered to clients.

So when you think about a transaction, much like an airplane taking off, you have all these moving pieces. Not only is a part for sale and somebody bought it, but you also have a payment service area, you have shipping and logistics, you have insurance, and you have different shipping options that you can choose. You can have different locations that things move from, so I would say enhancements in all those areas.

I talked a little bit about blockchain, PartsBase is ready for blockchain. It's just the industry hasn't quite come up with a standard yet. And so that'll be in future work when we feel like the industry is there and ready in the supply chain. And then, of course, our other PartsBase initiative. I mean, we try to tell people that the company is founded on building a community. And so we have these 25,000 users that we connect every day, for the last 26 years. For us, the PartStore and the expo, they're just really enhancements to our community. And once you're in one of those sections, it's really easy to expand and move into other parts of that aviation community.

Daphna Andrews: Awesome. Jeff, I want to thank you so much. In the future, I'd love to continue the conversation, see how things are growing and innovating there. And you definitely fight the good fight, and look forward to chatting with you in the future.

Jeff Jerge: Thank you so much. And I will say that our experience with Oro has been wonderful. The platform has been wonderful. You all are really thought leaders. And I've relied on you all to tell us some other industry initiatives that you've seen succeed versus fail. So we're definitely a partnership, and we're happy to be working with you. So thank you so much.