Boeing Learns
Boeing Learns From 787 Mistakes: Using Technology to Create Supply Chain Success Introduction The Boeing Company is one of the largest Aerospace and Defense enterprises in the world. Presently headquartered in Chicago, Illinois; they have contributed to some of the largest breakthroughs in aviation technology ” breakthroughs that greatly enhance the lives of the world's people. Boeing began as a small startup in 1916; but by the Korean War, defense efforts had grown Boeing to one of only 23 companies with $1 Billion in annual revenue.
Boeing parlayed this growth into being ne of the premier designers and manufacturers of commercial aircraft. Designs such as the 707, 737, and 747 cemented their role as the leader in the industry until 2003 when Airbus first surpassed Boeing in annual sales and order backlog. (Nolan 2012) CEO Phil Condit saw Airbus making progress well prior to 2003, however. In 1996 Condit determined that the Boeing Company needed to be refocused in order to compete with the European conglomerate.
Airbus had an advantage in innovation and manufacturing because it used collaboration amongst many suppliers to roduce quality aircraft in the most cost effective way possible. In order to continue in its global leadership position, Condit set Boeing along a path to leverage their core competencies, "with detailed customer knowledge and focus on operating lean and efficient systems. " This plan would be called the "2016 Strategy' and it would see Boeing change its relationship with suppliers from third-party contract-based to close, strategic partners. Nolan 2012) In future designs, Boeing would rely on these partners to not only build, but also design subcomponents for aircraft. Boeing knew hat it must have a way of coordinating the design process among all suppliers, which cleared the way for a powerful Enterprise Resource Management (ERP) tool. Boeing selected Exostar's Supply Chain Management Solution to coordinate the design and supply chain for the first project under the 2016 Strategy, the 787. (PRNewswire 2013) The 787 was conceived as a revolutionary design that would be a replacement for the aging 767, cost about the same, but be 2 more tuel efficient.
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It would accomplish this by utilizing a construction of 50% composite - something never before attempted in the commercial aviation arena. In summary, Boeing was endeavoring to build a brand new clean-sheet aircraft from materials never used, using methods never attempted, and using a supply chain more far reaching than ever experienced by the plane maker. In retrospect, it may be easy to see why the 787 has had so many problems. The problems are so large that Forbes was prompted to publish an article titled, "What Went Wrong at Boeing. (Denning 2013) Boeing has worked through most of its supply chain woes and has delivered over 60 787s to date. Boeing is now designing a next generation version of its supremely popular 777, the 777-8/9. Boeings desire to reduce costs and production time by relying risk-taking suppliers to design and produce major aircraft components has led to many failures and cost overruns in the 787 program. In order for Boeing to avoid the pitfalls of the 787 program, Boeing must take the lessons of the past in concert with good technology to ensure good management of the new 777 supply chain.
Literature Review Boeing's move toward a supply chain that relied on utilizing risk-taking suppliers for the 787 was meant to reduce the design timeframe and shorten the production cycle, owever it actually placed the future competitive ability of Boeing in peril. The present paper specifically focuses on the practice of outsourcing design of the aircraft to the aforementioned suppliers and how improper oversight of the process led to delay, cost overruns, and the loss of intellectual property. The literature reviewed during this investigation is both peer-reviewed and Journalistic in nature.
The following review is presented in a logical flow to show why Boeing chose this new strategy, some select major problems that occurred, and finally the actions that were taken to rectify those problems. Christopher S. Tang and Joshua D. Zimmerman (2009) begin their Journal article, Managing New Product Development and Supply Chain Risks: The Boeing 787 Case, by laying out the drivers for the 787 design strategy. In the 1990s, Boeing had decided that it must offer more customer value to compete with EADS' Airbus in the commercial aircraft industry.
Ultimately, Boeing settled on designing a new mid-size, wide body Jet that would offer a superior passenger experience and burn 20% less fuel. To bring the Jet to market faster and cheaper, Boeing wanted to move away from its role as a manufacturer and become ore of a systems integrator. Tang, et al. say this strategy intended to save $4 billion in development cost and shave 2 years off the design period. (Tang, Zimmerman, ; Nelson, 2009) Boeing refers to these risk-sharing partners as "Global Supply Partners" (6SP).
During an interview with World Trade; Steven Schaffer, then vice president of Boeing Commercial Airplanes' Global Partners, said the name change "reflect[ed] a deeper business relationship. " (Bernstein, 2006) In Chapter 8 of Cases on Supply Chain and Distribution Management: Issues and Principals, the nature of he relationship is further discussed. The suppliers are called "risk-sharing", because they invest much of their own money into the success of the final assembled product. In fact, Boeing was able to get $4. billion of the $10 billion design budget from 6SPs around the world. These suppliers nave significant risk since they don't see any income until the aircraft are delivered. (Garg ; Gupta, 2012) In a seminal ex post analysis of the 787 outsourcing plan, Ehsan Elahi (2012) of the University of Massachusetts Boston asserts that improper monitoring and suboptimal supplier election led to the appearance of many "hidden costs" and that Boeing didn't have an adequate understanding of the operational risks associated with outsourcing new product development.
He concludes that these oversights led to poor stock performance, a drop it Boeings credit rating, and late delivery penalty payments for customers. The research by Elahi in the UMASS paper, along with his contribution to the Chapter in Miti Garg and Sumeet Gupta's book, lays out a great case for how too much reliance on outside design can lead to a loss of intellectual property. On pages 67-169 of the book, Elahi discusses how these partners were given the opportunity to learn how to build aircraft from composites without Boeing retaining any exclusivity rights.
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