Boeing- a 101 year old public listed company operating in the industry space of Aerospace and Defence is the world’s largest company of aerospace and leading manufacturer of commercial jets, space, defence and security systems. It is also one of the largest service providers for the aftermarket support of sales. It is America’s largest manufacturing exporter and supports different airlines, countries, government bodies in more than 150 countries (Boeing, 2017) Over 200,000 employees are currently employed by Boeing. The company has 5 primary business through which it takes care of all its activities, the division are; Boeing Commercial Airplanes, Boeing Capital, Boeing Shared Service group, Boeing defence, space & security (Boeing, 2017). The company made revenue of US $ 94.57 Billion with a net income of US $ 4.895 Billion. The company has been at the helm of manufacturing premier Airplanes, 737,747,767,777 & 787 and the Boeing jet range. Some of the new product offering include the Boeing 787-10 Dreamliner, the 737 MAX and the 777X (Boeing, 2017)
The company is keen on its newly executed project 787 owing to its advanced technology and the remarkable opportunities it is creating across the globe and stupendously enhances the air travel experience; the company has coined it as Dreamliner effect. The 787’s is coupled with enhanced fuel efficiency and range flexibility which enables carriers to profitability and also helps to optimize fleet and improve the performance of the network(Griffin & Granger, 2015). The USP of the Boeing 787 is the Dreamliner effect it provides to its flyers and provides an experience with filled with less fatigue and more comfort. The B787 offers its customers with the best flying experience, better in built facilities, less fatigue, more comfort, in all it’s a journey that a customer will never forget(Osborne, 2015)
Boeing leverages its deep rooted experience in supply chain planning and execution, the extensive supplier chain network and the advanced analytics it uses to understand all the aspects of parts, fleet and the overall service experience (Russo, 2016)
Another important change caused in the supply chain management of the commercial aircraft is an increase in its logistics outsourcing. Supply chains of Boeing are different across its different business units and are quite complex which makes it difficult for its competitors to copy, thus giving a competitive advantage to Boeing (Schmit, 2017)
The supply chain network of Boeing is bifurcated into 5 areas, these are; orders by channel, order fulfilment, facilities, customers and suppliers. All these areas are applied to its entire product line (Kao, 2016)
The orders the company gets from the leasing companies and huge national and commercial airlines are part of its long term supply chain agreements. Big airlines companies do a need assessment periodically, the fleet planning process is between 4-10 years and hence the order period for these kind of big airlines is different in comparison to small players (Norris, 2017)
Lessors on the other hand have a high degree of power owing to its huge amount of order. At present, 25% of all the orders the company receives are from the lessors. Some of the prime lessors operating in the market are IFLC, GECAS, and Ansett & CIT (Poirier, 2016)
Boeing has a strategy of its own, it manufactures only on order, and hence the lead time to deliver the product is between 12-18 months depending on the size of the product and the functionalities required in the aircraft. The company has 4 main facilities in the US, long beach in California assembles 717 aircraft, Renton in Washington assembles 737 and 757, and Everest in Washington assembles 746,767 and 777 aircraft (Wang & Li, 2016)
The customer base of Boeing is Airlines and the leasing companies. According to statistics there are over 500 airlines in the world out of which approximately 300 buy new aircrafts (Sheppard, 2016)
The large commercial aircraft supply chain is broken into 3 main components which are aero structures, engines & avionics. Let’s treat each of them separately to understand the process (Tang & Zimmerman, 2013)
These are the structural assemblies which make up the visible part of the aircraft; aluminium, titanium and composite materials are used in construction of aero structures. Boeing contract a portion of its aero structures needs to the suppliers, and to win an order from Boeing, the supplier needs to have adequate capital, design, manufacturing expertise, adequate labour force and government approval to produce the parts (Khajavi, Partanen & Holmstrom, 2014) The majority of the decision for Boeing to “make or buy” is based on aero structures, as it is the most important constituent of the Aircraft. Boeing has substantial avionics and engine manufacturing capabilities of its own. Some of the strong suppliers in the sub-segment are Honeywell, Rockwell Collins and Thales SA. Boeing is able to supply 50 % of the avionics on its commercial aircraft and the remaining 50 are provided by the customer selected suppliers (Cohen, 2016)
The US aero structures industry segment is dominated by the Boeing, leaving aside Boeing there are 14 aero structures manufacturers; some of the prominent ones include Aersostructures corp, Vought aircraft industries Inc. and Godrich Corporation. The greater the complexity of the component, higher is the bargaining power of the aero structures supplier (United States International Trade Commission, 2001). Boeing has been active in outsourcing its Aersostructures from Asia, and Boeing does this exercise to have an advantage from better technology along with access to Asian airlines. Some of its suppliers are from Canadian firms as well (Souza, 2014)
Rolls-Royce, Pratt & Whitney, CFMI & General electric are the premier suppliers of engine to Boeing. The suppliers have to comply with the certification of Boeing; Boeing has several engine certificates for most of its aircrafts. In the ideal scenario, the manufacturer of the engine does not have to dual source for the costly equipment until and unless the type of aircraft sales is strong (Wisner, 2016)
Boeing Commercial Aircraft Engine |
|
Series |
Manufacturer |
717 Rolls-Royce |
|
737 CFM |
|
747 Pratt & Whitney Rolls –Royce GE |
|
757 Rolls Royce Pratt & Whitney |
|
767 Pratt & Whitney GE |
|
777 Pratt & Whitney Rolls-Royce GE |
The figure shows the manufacturer of engines for different aircrafts of Boeing.
The supply chain of Boeing had to be transformed in order to accommodate management of suppliers through 4 continents. Timing is critical in this and hence the technical coordination, tolerances up to the size of 1/5000 inch is tolerated (Aheme, 2014)
The company moved from integrating the separate design to work alongside suppliers and design with them, this was done because the parts have to be made from scratch and hence the compatibility had to be gained from the design stage. The company also moved away from manufacturing for customers to manufacturing with customers in order to get a better service designing (Denning, 2013)
The company has developed a web portal exclusively for its suppliers to provide them with consistent access to the new evolving standards and developments, Boeing in order to motivate its supplier’s holds and all suppliers meet and reward the best performers (Sanders, 2009)
The figure here shows the geographical location of the infrastructural dimensions of Boeing supply chain.
Boeing have implemented infrastructure which guarantees the highest standards through its entire supply chain. The company has kept some parameters on which the supplier has to rank in order to fall into supplier network of Boeing:
In a bid to grow the revenue, Boeing decided to develop and work on the famously known Boeing 787 the Dreamliner. The product is not only magnificent and great but at the same time it utilizes an unconventional supply chain mechanism which significantly reduced the development cost and time went in creating the aircraft. Hence it can be said without two doubts that the Dreamliner is one of the most ambitious project of Boeing and also exemplary in supply chain management (Meredig, 2017)
Feature |
Value to Airline |
Value to Passenger |
Composite Material |
· Higher speed · Better fuel efficiency · Resistance to corrosion. · Toughened components requiring fewer fasteners. |
· High speed enabled nonstop flights. · Comfort level was increased due to high humidity level in the cabin |
Modular Design that allows for two types of engines (GE & Rolls Royce) |
· The company adopted the design which had flexibility to adapt to changing future circumstances. · The design was kept simple with less complexity to provision for quick engine changeover. |
· The cost saved in cheaper and faster engine changeover would be passed to the passengers. |
Large & Light sensitive windows |
· The operating cost came down due to less night required in the interior of aircraft. |
· Boeing deployed “Smart glass” technology which reduced the glare and hence increased the comfort level for the passengers. |
Easy preventive maintenance |
· Boeing service contract lasts longer for its aircrafts. |
· The planes had fewer delays due to less mechanical troubles. |
Dreamliner uses composite material instead of aluminium to take care of the humidity and pressure in the passenger cabin, it offer mid-size to large jets and also the seat per mile is reduced by 10% in comparison to other aircraft. Dreamliner also reduces the fuel wastage and prevents rusting, a truly remarkable and unique product. By 2008 Boeing had already received orders from almost 50 airlines demanding for more than 850 Dreamliner’s; such was the impact of the Dreamliner on the aviation industry. However, there were some problems in delivery of the aircraft pointing towards the problem with the supply chain of Boeing (Crown, 2008)
The company wanted to reduce the development time of its aircraft from six to 4 years and the cost from $10 to $ 6Bn; hence Boeing went with an unconventional supply chain completely new to the aircraft manufacturing industry (Thorne & Quinn, 2016). Boeing envisioned to keep manufacturing and assembly costs low and at the same time move the financial risks to the Boeing’s suppliers. Earlier aircrafts of Boeing had Boeing being the manufacturer whose job was to assemble the parts produced by thousands of suppliers (Tsay, 2014)
The new model which Boeing adopted for Dreamliner was based on a tiered structure which allowed Boeing to make relationship with almost 50 tier-1 strategic partners. The strategic partners served as “integrators” who assembles different parts produced by tier-2 suppliers. The supply chain of the Dreamliner is inspired by Toyota supply chain, which enabled Toyota to develop new cars with shorter development cycle times and lower development costs (Tang & Zimmerman, 2009)
Under the new supply chain mechanism tier 1 integrators have the responsibility of delivering the complete section to Boeing which then can be assembled in Boeing plants in a maximum duration of three days. This way Boeing was able to mitigate the financial risk and push it to the tier 1 integrators, this also allowed for faster delivery and lower developmental costs (Zhao, 2016)
Outsource More
Boeing outsourced as much as 70% of its development and production activity to the suppliers and in this way it can leverage on the suppliers ability to develop different parts at the same time and reduce the time, at the same time the suppliers expertise can be used to reduce the time in making the aircraft. Boeing quickly realized that outsourcing more would require a good deal of communication between the suppliers and Boeing and hence it came up with an exclusive web based tool called Exostar to increase the visibility of the supply chain, certainly a futuristic thinking by Boeing(Denning, 2013)
By bringing in 50 Tier 1 strategic partners as integrators, Boeing got enough time at hand to focus more on the working with the integrators rather than giving a sizable attention to the procurement of the raw materials and the early stages of the development. This certainly had a drawback too, until and unless the supplier relationship is maintained reducing the supplier base can cause in increasing bargaining power of the supplier. Hence the rationale behind this is to develop a great relationship with the strategic manufacturers and let the suppliers make the components in parallel, thus reducing the developmental cost across the globe (Tallman & Koza, 2016)
The new supply chain mechanism provisioned for a contract between Boeing and the strategic suppliers, the terms of the contract were that they will receive the payment only when Boeing has delivered the aircraft to the airline. The contract was win win for both the strategic supplier and Boeing in 3 ways; Provide incentives for strategic partners to collaborate and coordinate the development efforts, another was increase in revenue because now the strategic suppliers were making big parts in comparison to the smaller ones, the third being if the suppliers missed the deadline they can be incentivised by giving Intellectual property rights and the suppliers can directly sell it to the manufacturers (Tang, 2009). All In all it was a favourable scenario enabling the reduction in financial risk and lower the developmental cost and time (Sodhi & Tang, 2009)
The purpose of decentralization was to outsource the non-critical process; the intention was to reduce the development cost for Dreamliner. Under the new supply chain mechanism Boeing required only 3 days to assemble and supply the aircraft without incurring any additional cost and at the same time enable the increasing production capacity (Gudmundsson, 2015)
Boeing 787 the Dreamliner was a much anticipated project and the anticipation in the market led to numerous orders in advance, the company’s inability to meet the deadline resulted in the company paying huge sum of money to the airlines, losing the basic purpose of its new supply chain strategy which was focussed on reducing the development cost and time. Boeing failed to comprehend that outsourcing is a tricky job; outsourcing is done for non-core activities and not for the core activities (Chatwin, 2017). Outsourcing verticals like manufacturing, engineering and design made people wonder what Boeing would be doing if everything is outsourced. The company faced numerous challenges which led to delay in delivery of the Aircrafts, some of the prominent ones are:
Risk Factor |
Potential Risk covered by the 787 Supply chain |
Risk Consequence |
Technology |
The material was infeasible for testing in the flight. |
Certain development issues with the integrators result in delay of the aircrafts |
Supply |
Outsourcing was from Tier 1 suppliers to tier 2 and hence the capability of tier 2 players was tough to determine. |
Boeing had no or little control over the suppliers selected by tier 1 suppliers, hence leading to potential risk of delay in manufacturing. |
Process |
The process was entirely dependent on the integrators, and hence too much dependency down the supply chain lead to |
Due to incresed number of supplier in the food chain and inablity to control the tier 1 suppliers lead to excess travel by Boeing personel to suppliers site. |
Management |
The management team at Boeing was inexpereince with little expertise in Boeing. |
It was a complete failure at the end of management to recognize difficulties at the highest levels. |
Labor |
The union at Boeing was dissatisfied due to Boeing strategy of outsocuricng more. |
Work was stopped due to union coming in together. |
Demand (Consumer) |
Problem of Boeing was out in the open creating trouble for the company and setting a bad image in the minds of its consumers. |
Multiple orders were cancelled and hefty penalties were imposed on Boeing owing to the delay in delivery. |
Boeing 787 Dreamliner was a highly anticipated project and the company strategically did everything right to make it a success and also deployed Toyota’s supply chain strategy in its Manufacturing process, however all this did not add up and lead to positive results. Dreamliner went into troubles due to late delivery, problem with installation, overheated batteries, product recall, order cancellation and many more. Boeing 787 is an important case study for companies to study and learn from the failure of Boeing. Based on the same, Hart-Smith has given certain recommendation for improvement. The recommendations are based on the challenges and issues the company faced with the supply chain and how to improve the operations for the supply chain management (Xing, 2015)
Conclusion
The company’s Dreamliner project was a paradigm shift in the airline industry and thus to execute it effectively the company went for an unconventional supply chain management, a model successfully deployed by Toyota in the past; however the same could not be applied successfully with Boeing. The reasons for it were many, a couple of prominent reasons were too many suppliers in the chain, inability to have a quality check, communication gap between the suppliers and the company which lead to late delivery and faulty parts being delivered to the airlines leading to customer dissatisfaction and losses for the company. The reason for the shift in its supply chain strategy was to lower the development cost and increase the delivery of the aircraft, based on that the company shifted to a new model. The company did not think of coherent strategy to mitigate the risk it could have encountered in the process, hence the earlier market leader Airbus dominated the market and took control of the business environment. It can be clearly said that the strategy Boeing employed to mitigate the financial risk, reducing the development cost led the company to a path of self-destruction.
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