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THE BOEING COMPANY

Service Rate/Order Arrival Rate

GE

General Electric GEnx engine

Manufacturers 100 engines per year for the Boeing 747, averaging 8 engines per month.

ROLLS-ROYCE

Rolls-Royce Trent 1000 Engine

Manufacturers 67 engines per year for the Boeing 747, averaging 6 engines per month.

Customers have the choice of two engines, General Electric GEnx or Rolls-Royce Trent 1000. 60% of the initial 895 orders selected the GE engine. Today, Boeing produces around 167 Dreamliners each year, with a total of 702 produced as of the end of April 2016. Today, the 60/40 ratio still exists, as GE continues to be the preferred engine for the 787. GE consistently out delivers on customer orders, compared to Rolls-Royce.

Upstream Suppliers Vs. Downstream Suppliers

SUPPLY CHAIN ISSUES

CONTD.

Upstream

Kawasaki Heavy Industries: Midfuselage Section

Alenia: Midfuselage Section and Horizontal Stabilizer

Vought: Rear Fuselage Sections

Spirit Aerosystems: Nose Sections, Engine Pylons, Fixed Leading Edges, Movable Leading Edges

Downstream

Mitsubishi Heavy Industries: Wing Box

Saab: Aft Cargo Door and Forward Cargo Door

Latecoere: Aft Cargo Door and Forward Cargo Door

Messier-Dowty: Main Landing Gear Parts and Nose Landing Gear Parts

Boeing: Vertical Fin

Boeing Canada: Main Landing Gear Doors (Body and Wing)

Korean Air: Wing Tips and Tail Cone

Fuji Heavy Industries: Center "wing box" fuselage section

Supplier Selection

  • Opaque and inefficient.

  • Suspicious supplier selection and vetting processes.

  • Some suppliers did not posess technical know-how and capacity.

Visibility

  • Communication and coordination became critical.

  • Boeing implemented EXOSTAR for better control,

increase visibility on development process, and

integrate critical business processes.

  • Exostar did not work as expected.

- Unavailability of correct and timely information.

- Cultural differences among suppliers

SUPPLY CHAIN ISSUES

CONTD.

SUPPLY CHAIN ISSUES

CONTD.

On-Time

Risk Sharing Contract

  • To have right alignment of incentives and coordination in joint development projects.

  • Partners to bear the up-front non-recurring R&D investments.

  • Partners needed to wait until the plane is certified and delivered to get paid.

  • Suppliers had to share the risk of program delays.

  • Entire development was pushed back, if some suppliers were not able to develop their sections as per schedule.

WIN/WIN

WIN/LOSE

PRIS0NER'S DILEMMA

Delay

What Does Boeing Procure?

LOSE/WIN

LOSE/LOSE

Supplier Y

On-Time

Delay

787 Dreamliner Supply Chain Disaster

Supplier X

Outsourcing

Capacity

Boeing is known for its engineering and manufacturing, so when those were both outsourced, the company became fully reliant on its suppliers.

Delays in production and execution of the 787 were a direct result of Boeing’s full reliance on its suppliers. Any break in the supply chain caused significant delays in the overall production. Delays were caused because efficiency was dependent on the synchronized just-in-time deliveries of all major sections from Boeing’s tier-1 strategic partners. If the delivery of a section is delayed, the delivery schedule of the whole aircraft is delayed.

While Boeing has always outsourced a portion of its production, structure of the outsourcing was very different with the 787. With the Dreamliner, Boeing contracted with a top tier of about 50 suppliers, handing them complete control of the design of their piece of the plane.

Those major partners had to make the upfront investment, share the risk and own their design. Each was responsible for managing its own subcontractors. Boeing had no real understanding of how all the pieces fit together.

The Boeing Company buys many products and services each year which fall into ten general categories.

Capacity

Engagement

Contract Highlights:

Rolls Royce

Contract Value: $2.7 billion dollars

Scope of Work: Provide 19 engines for Norwegian Air's Boeing 787 Dreamliners

Additional Value: Trent 1,000 jet engines and "Total Care Package" - long term maintenance plan

GE Aviation Systems

Contract Value: $1 billion dollars

Scope of Work: Developed the GEnx for the Boeing 787 Dreamliner and Boeing 747-8, the GEnx provides new levels of operating efficiencies, using a composite fan case and blades, and a unique combustion system for vastly lower emissions.

Additional Value: engine technology alone will contribute as much as 8 percent to the increased fuel efficiency of the new airplane

Saab Aerostructures

Contract Value: Initial Estimate $100 Million, revenues are expected to reach a multi-million dollar level

Scope of Work: Design, development and manufacturing of Large Cargo Doors, Bulk Cargo Door and Access Doors for the Boeing 787 Dreamliner

Additional Value: Doors will mainly be made of composite materials

Alcoa

Contract Value: $2.5 billion dollars

Scope of Work: Alcoa will supply fastening systems for every Boeing platform and ready-to-install titanium seat track assemblies for the entire 787 Dreamliner

Additional Value: Advanced titanium and other specialty light weight metals products, 3D-printed parts

Eaton Aerospace

Contract Value: $88 million dollars

Scope of Work: Eaton provided quick-disconnect coupling and hoses to support the new aircraft’s Integrated Cooling System (ICS) and Power Equipment Cooling System (PECS)

Additional Value: These systems provide efficient liquid cooled thermal management across an array of electrical systems and instruments within the platform

Boeing was scheduled to debut the 787 Dreamliner in a test flight in August 2007 and then achieve first delivery in May 2008. The dates were pushed back numerous times, and did not get the Dreamliner in the air for a test flight until November 2010, a 3 year delay. Boeing delivered its first 787 in the fall of 2011. The plane entered production almost 4 years late and cost the company about 5x the original $6 billion estimate.

Reasons for the delays ranged from a shortage of bolts to inadequacies in flight control software. Components were also of poor quality. Traditionally, Boeing’s in-house experts created detailed specifications for every part of the plane made by suppliers, and had the in-house technical capability to closely monitor whether the work came up to spec. Due to all the outsourcing, Boeing was unable to do so.

• Aerospace support

• Avionics and avionics components

• Common aerospace commodities

• Electrical, hydraulic and mechanical systems

• Interiors

• Major structures

• Non-production goods and services

• Propulsion systems

• Purchased outside production

• Technology

MANAGEMENT ISSUES

  • Lack of supply chain expertise in top management.

  • Management was not able to prevent or anticipate risks or develop backup plans to mitigate the different types of risks the project was facing.

  • Management did not properly communicate the impact of new developement plan with labor union.

Supplier Partnerships

CONSUMER SAFETY AND MALFUNCTION ISSUES

  • Battery caught fire while parked.

  • Design and component quality flaws led to short circuiting.

  • Engineers failed to identify the possibility that a short circuit in one cell could spread.

  • Defects in power distribution channels.

  • Suppliers made changes without proper approval from Boeing.

DEMAND ISSUES

  • Customers lost their confidence.

  • Started either cancelling their orders or leasing contracts instead of purchasing.

- Due to delays in delivery

- Concern about the increased weight.

Background

Engagement

Supplier Selection

Boeing is the world's largest aerospace company and leading manufacturer of commercial jetliners and defense, space and security systems.

Boeing employs approximately 160,000 people across the United States and in more than 65 countries.

Boeing leverages the talents of hundreds of thousands of skilled people who work for Boeing suppliers worldwide.

Convenient Travel

Boeing 787 Dreamliner

The Game Changer

As of June 30,2014

Weight Reduction: A Goal of the Dreamliner

  • Light Weight
  • More Durable
  • Reduced Scheduled Maintenance

787 has lower operating costs

U.S. Major carriers operating expenses 2012

The Boeing 787 Dreamliner is a long-range, mid-size wide-body,

twin-engine jet airliner. It seats between 242 to 335 passengers

in typically 3-class seating configurations.

Benefits

Customers:

- improve flight operational efficiency by providing big-jet ranges to midsize airplanes, while flying at approximately the same speed

- allow airlines to offer nonstop flight to and from more and smaller cities

- designed to use 20% less fuel, compared to similarly sized planes

- 10% lower cost-per-seat mile

Passengers:

- redesign aircraft, improving travel experience and comfort

- Dreamliner made of composite materials vs traditional aluminum, allowing for increased humidity and pressure to be maintained in passenger cabin

Potential suppliers are evaluated on a range of criteria, including commercial offerings, ability, capacity, integrity, financial health, geographic location, performance, reliability, quality of product, on-time delivery and overall customer-supplier relations. A key criterion is a proven ability to manage a subtier supply chain. Subtier suppliers are the suppliers who provide raw materials and other items to first-tier Boeing suppliers.

Architecture

REDESIGNED SUPPLY CHAIN FOR THE 787 DREAMLINER

Architecture

TRADITIONAL SUPPLY CHAIN FOR AIRCRAFT MANUFACTURING

Outsourcing

Boeing began production of the 787 with more than 30,000 suppliers. By 2005, the company reduced its supply base to 6,450 suppliers in more than 100 countries. Today, that number has been reduced even further to 5,400 supplier factories. Sources from South Korea, Italy, Japan, Australia, China, Sweden, France, and Canada all had significant roles in the production of the 787 Dreamliner.

What Lead to the 787 Dreamliner

Supplier Presence

1977

U.S. government deregulated air travel. As a result, more airlines entered the market, creating fierce price competition. The U.S. commercial aircraft manufacturers were also faced with major competition from European companies.

Late 1990s

Boeing began losing market share to French manufacturer, Airbus. As a result, Boeing was under pressure to decide between 2 basic competitive strategies:

1) reduce costs and selling prices of existing types of aircrafts

2) develop a new aircraft to raise revenues through value creation

2003

Boeing chose to focus on creating additional value for its customers (the airline companies) and the passengers, by developing the 787 Dreamliner.

INTRODUCTION

  • September 2011 - first delivery
  • Original budget $40 Billion
  • Ending cost was over $80 Billion
  • Loss of oversight

Thank you for your attention

Conclusion

  • Boeing suffered enormously by shifting their supply chain strategy from the traditional airplane supply chain.

  • Overpromised on delivery dates, whereas actual lead time increased.

  • Relied heavily on suppliers and outsourced most of the production which caused Boeing to lose control over their operations.

  • Poor supplier selection and inefficient management of suppliers outside the first tier suppliers.

  • Risk Sharing contracts which further delayed production.

  • Leadership's inefficiency to alleviate supply chain issues and challenges.

  • Lost profits due to poor performance in managing supply chain.

LEADERSHIP

OUTSOURCING STRATEGY

  • To Outsource or Not to Outsource

- Optimize Outsourcing

-70% > x > 40%

  • Utilize the ‘Strategic Importance & Criticality Matrix’

  • Assemble Multidisciplinary Team

  • Proactive approach versus Reactive approach to Risk mitigation.

  • Increase ability to manage and overcome cultural, professional, and communication barriers.

RECOMMENDATIONS

SUPPLIER SELECTION

COMMUNICATIONS

Financial Impact

  • Develop protocols by which to Vet

potential suppliers.

  • Increase involvement in selection &

management of suppliers.

  • Implement Penalty/Incentive system for

deliverables.

- Increase Accountability

- Reduce controllable delays

  • Provide Exostar Training, Support,

Maintenance.

  • Develop incentive program.

  • Involve Project Managers and Liaisons

at key suppliers within supply chain:

- Prevent miscommunications

- Increase accountability

- Ensure stronger responsiveness

  • Fundamental Principle: Manage the Supply Chain to Make More Money

  • Jim McNerney, Boeing's chairman and CEO, and Alan Mulally, oversaw the early development of the Dreamliner Project.

  • Boeing lost 4 to 5 billion dollars a year up on the Dreamliner Project until 2014 and that Boeing will not turn a profit on this project until 2021.

  • Losses of the Dreamliner are Being offset by sales of the 737 and 777 which are the key cash generators.

  • Although The Dreamliner 787 is a “Cash Bleeder” the markets are still bullish on the Dreamliner.

  • Key is in the Deferred production costs.

FINANCIAL IMPACT

  • Fair Sharing v. Risk Sharing

- Identify controllable and uncontrollable

delays and assign accordingly.

- Better manage the risk within Risk

Pooling

  • Selective with Tier-1 suppliers

-Focus on Buy in

-Increase accountability and quality

standards upstream

**Graph Courtesy of http://theblogbyjavier.com/2011/10/28/will-boeing-787-ever-break-even/

Noelle Cole

Julia Park-Charlton

**Graph Courtesy of CBS News Moneywatch

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