Air New Zealand saves AUS$7m with new catering contract

17 August 2016

Air New Zealand cut costs by more than AUS$7m by signing a AUS$170m contract for a new global catering service.

The project, which involved drawing up a new simplified contract covering nine airports and four continents, helped the airline win International Procurement Project of the Year in the CIPS Australasia Awards. Procurement’s role in its sustainability framework also helped it win Best Contribution to Corporate Responsibility.

Inflight catering is the airline’s fourth largest operational cost, but the previous contract with LSG Sky Chefs varied in scope and structure at each airport.

At some airports LSG would be accountable for delivering related services such as laundry and headsets, whereas at others Air New Zealand would contract these services directly.

Different ways of breaking down the end-to-end service meant it was impossible to benchmark airports against each other.

Negotiations for the new contract with LSG were complicated by cultural differences as the supplier’s negotiating team was composed mainly of Hong Kong Chinese, but this was overcome by training.

The contract, signed in 2015, will help mitigate the risks of disruption from catering capacity constraints at Los Angeles and San Francisco airports and save $7.3m over the five-year term.

Overall customer satisfaction for food has increased from 74% to 76%, while halving the number of global catering suppliers from 10 to five has led to simpler contract management and increased spend leverage.

Judges in the awards said of the project: “The cost model is a great way to leverage logic into negotiations and the consideration of cultural impacts was a creative touch.”

Meanwhile, procurement played a key role in the airline launching its sustainability framework and the release of its first sustainability report. The function is leading the drive to create an entirely electric fleet of light ground vehicles by 2017 or, where this is not operationally feasible, to use hybrid or best-in-class emissions efficient vehicles.

With the supplier code of conduct and compliance now extending to more than 80% of spend, the airline has also identified areas of high risk and implemented category strategies to mitigate that risk.

The company has also partnered with Virgin Australia to investigate options for locally-produced aviation biofuel.

Other initiatives include contracting New Zealand’s first major winery to gain BioGro Organic Certification, Villa Maria, as a major wine supplier.

Judges said: “Joint supplier-buyer business plans are a good idea. This is definitely a mature function (and leader) with regards to policy and governance.”

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