Boeing Dreamliner: Managing New Product Development and Supply
Chain Risks Slide 2 Agenda 1.Supply Chain Transformation Process
1.1 Vision 1.2 Transformation 1.3 Problem Diagnosis 1.4 Supply
Chain Redesign 2.Deriving Competitive Advantage 2.1 Porter Market
Analysis 2.2 Model 2.3 Maintaining Competitive Advantage Slide 3
Agenda 1.Supply Chain Transformation Process 1.1 Vision 1.2
Transformation 1.3 Problem Diagnosis 1.4 Supply Chain Redesign
2.Deriving Competitive Advantage 2.1 Porter Market Analysis 2.2
Model 2.3 Maintaining Competitive Advantage Slide 4 Dreamliner
Supply-Chain Transformation Process VisionTranformation Problem
Diagnosis Redesign / Reconstruction Monitoring Slide 5 Vision 2016
Change Boeing from a wrench-turning manufacturer to a master
planner, marketer and snap-together assembler of high-tech
airplanes. Created bevor the Boeing-McDonnell Merger in 1997 Slide
6 Transformation Vision Expected Benefits SuppliersMeans From
Manufacturer to coordinator Increase Supplier Responsibilities
Strategic Partnership Technological Innovation Air Transportation
Reduce development time Reduction of financial risk Increase
Production Capacity Exploit suppliers knowledge Construction of
entire parts Outsourcing Reduce financial investment Slide 7
Problem Diagnosis Delay TechnologySupplyProcessManagementLabor
Slide 8 Problem Diagnosis Composite fuselage safety issues Engine
interchangebility issues (15 days) Computer network security issues
Technology Some tier-1 suppliers lack know-how to develop parts and
select tier-2 suppliers Risk-sharing contract, incentives to
produce slower Supply Overreliance on tier-1 partners
(JIT-delivery) Lack of coordination of suppliers activities Process
Invisible to Boeing Slide 9 Problem Diagnosis Inexperienced
management team without supply chain expertise led to management
failure Management Union strike in 2008, resulted in delays and
costs Incentive Problems Labor Delay caused by the encountered
problems costs Boeing penalties of $500m per month of delay Slide
10 Supply Chain Redesign: Implemented Technology Modified design
Supply Purchased companies at bottleneck stage (e.g Vought Aircraft
Industries) Limited roles of suppliers (e.g. Israel Industries)
Process Put pressure on suppliers, stationed Boeing employees in
every major supplier factory Management Reorganization of top
management (Shanahan replaced Blair) Labor Conceded to unions (15%
pay raise over 4 years and reduction of outsourcing, compete for
work) Boeing took the following measures to adress the problems and
risks encountered: Redraw area of responsibilities Ended the
strike, withdrawal of charges Supply chain expertise More control
Slide 11 Supply Chain Redesign: Recommendations Our recommendation:
Proactive Risk Reduction/Elimination Risks Proactive Measures Slide
12 Supply Chain Redesign All suppliers have to use IT integration
systems Penalties as incentives to use Exostar timely and
accurately Improve Supply Chain Visibility No accurate use of
planning system: Little knowledge about progress of suppliers (esp.
Tier-2) and late detection of delays Supply Chain GoalActivityRisk
Adressed Slide 13 Supply Chain Redesign Put more effort in
evaluating technical capabilities and supply chain expertise of
potential suppliers (e.g. scorecard) Help tier-1 suppliers to
select tier-2 or -3 suppliers Increase communication and
cooperation with suppliers Improve Strategic Supplier Selection
Process and Relationships Overburdened or inexperienced suppliers
delays Supplier GoalActivityRisk Adressed Slide 14 Supply Chain
Redesign Provide proper incentives for tier-1 suppliers to complete
their tasks early Penalties for late deliveries Rewards for
delivery on-time Modify the Risk- Sharing Contract Tendency for
suppliers to deliver late in order to avoid unfair punishment
Supplier GoalActivityRisk Adressed Slide 15 Implement Management
Audits for current and prospective managers Identify the right
executive for this challenging situation Establish proper
management team with expertise in supply chain management Lack of
supply-chain know-how of the management team Management Team
GoalActivityRisk Adressed Slide 16 Incentive system: Pay for
performance/ job security Link to company performance: success
participation Align company and union/ employee objectives Discuss
strategies before implementing them Enhance internal Communication
Labor Strikes $100m/day Labor Relationship Management
GoalActivityRisk Adressed Slide 17 Give accurate information about
delay in delivery times Enhance external communication throughout
development process Help customer to set proper expectations by
giving proper predictions Offer alternative solutions Bargaining
possible via finance? Help customers with a replacement schedule
Loss of customers trust + Contractual Penalties Customer
Relationship Management GoalActivityRisk Adressed Slide 18 Agenda
1.Supply Chain Transformation Process 1.1 Vision 1.2 Transformation
1.3 Problem Diagnosis 1.4 Supply Chain Redesign 2.Deriving
Competitive Advantage 2.1 Porter Market Analysis 2.2 Model 2.3
Maintaining Competitive Advantage Slide 19 Industry Overview
Competi- tion Potential entrants BuyersSubstitutesSuppliers Slide
20 Industry Overview Competition Aerospace manufacturing industry
is highly concentrated Top competitors: EADS (and its subsidiary
Airbus) Lockheed Martin Northrop Grumman Slide 21 Industry Overview
Substitutes Airbus is developing the A350 (late-2014) Boeing 787-9A
350-800 Passengers280 (3-class)270 (3-class) Range8,000-8,500
nmi8,560 nmi Length206 ft.199 ft. Slide 22 Industry Overview
Potential Entrants highly regulated industry (Federal Aviation
Administration, EPA) Technical expertise is crucial
Capital-intensive industry These factors pose barriers to entry
However, due to Boeings order-to-performance the company risks
creating new future competitors. Slide 23 Industry Overview CS 100
and CS 300 Compete against Boeing 737-600 Bombardier C 919-200-ER
Competes against Boeing 737 and A320 Commercial Aircraft
Corporation of China (COMAC) Irkut MS-21 Competes against Boeing
737 and A320 United Aircraft Corporation 2013 2016 Slide 24
Industry Overview Supplier Not a traditional supplier-buyer
relationship Instead partners in the sense of mutual dependency
Minimum bargaining power Slide 25 Industry Overview Customer
Limited number of airline manufacturers Customers order aircraft
years before the aircraft is finished, are obligated to fulfill the
contract Furthermore, Boeing faces considerable demand: Backlog
Growing demand from Asia Defense spending Slide 26 Deriving
Competitive Advantage: Model Competitive Advantage Core
competencies Opportunities Value Chain Improved Value Chain Slide
27 Deriving Competitive Advantage: Model Core competencies
Opportunities Match Well-diversified business Market leadership
experience Know-how/expertise for building commercial aircrafts
Emerging trends in Asia (defence as well as comm. planes) Positive
long-term outlook in aviation industry High defense spending Slide
28 Deriving Competitive Advantage: Model Competitive Advantage Core
competencies Opportunities Impro ved Value Chain strategic
flexibility organizat. learning technology management Improved
Value Chain Slide 29 Deriving Competitive Advantage: Model
Competitive Advantage Core competencies Opportunities Improved
Value Chain Efficiency/Effectiveness Quality Responsiveness to
customers Innovation Slide 30 Maintaining Competitive Advantage
Current competitive advantage: unique experience in supply chain
process Apply to further projects and thus leverage the effect
Monitor and continually improve Supply Chain Process Future
Competitive Advantage Slide 31 Presented by Laura Kirsch Melina
Zurek Marcus Wigand Michael Combach Slide 32 Questions and Answers
Questions? Slide 33 Appendix: Boeings Suppliers for the Dreamliner
Slide 34 Appendix: Trends and Opportunities Industry Trends
Increasing importance of efficiency due to volatile fuel prices
Industry consolidation and formation of partnerships: Five major
companies dominate, and hundreds of other companies act as
suppliers Industry Opportunities Outsourcing of aircraft
maintainance through airlines as new business opportunity
Replacement of air force fleet Slide 35 Appendix: Future
competitors analysis Bombardier The Canadian company with
headquarters in Montreal produces aircrafts, business jets, mass
transportation equipment and also provides financial services. Its
new CSeries are equipped with new, more efficient engines and the
fuselage contains a high percentage of composite materials.
Furthermore, Bombardier stresses the airplanes eco-friendliness. In
these aspects, the Cseries are similar to the Boeing 787 and the
A350. Since the Boeing 737-600 is basically a smaller version of a
bigger airplane, it is rather inefficient and was sold only few
times. Slide 36 Appendix: Future competitors analysis CS 100CS
300Boeing 737-600 Passagers100-125120-145110-132 Range (nmi)2200
3050 Length114 ft. 6 in.124 ft. 10 in.102 ft. 6 in. Height37 ft. 9
in. 41 ft. 3 in. Wing Span115 ft. 1 in. 112 ft. 7 in. Slide 37
Appendix: Future competitors analysis Commercial Aircraft
Cooperation of China COMAC C 919-200- ER Boeing 737-600
Passagers156 (mixed-class)110-132 Range (nmi)30003050 Length124 ft.
8 in.102 ft. 6 in. Wing Span114 ft. 10 in.112 ft. 7 in. Slide 38
Appendix: Future competitors analysis United Aircraft corporation
Irkut MS-21-200Boeing 737-600 Passagers150 (1-class, standard)
110-132 Range (nmi)31003050 Length117 ft. 9 in.102 ft. 6 in.
Height37 ft. 9 in.41 ft. 3 in. Wing Span117 ft. 9 in.112 ft. 7 in.
Slide 39 Appendix: List of Competitors AgustaWestland Airbus BAE
System Bombardier Dassault Aviation Embraer EADS Finmeccanica GE
Aviation General Dynamics Goodrich Corp. Kaman Lockheed Martin
Northrop Grumman Raytheon Rockwell Collins Textron Thales United
Technologies Slide 40 Appendix: SWOT (1/2) Strong growth prospects
Sustained business due to strong order backlog Leading market
position Well-diversified and broad product range Strengths
Deteriorated liquidity position Declining operating margin
Declining market share Strikes Weaknesses Slide 41 Appendix: SWOT
(2/2) Development of Asia-Pacific Region Aircraft financing market
gradually improving Long-term outlook of aviation industry
Opportunities Dependence on U.S. budget spending Global economy
still fragile Intense competition Currency exchange rates Threats
Slide 42 Appendix: SWOT Strengths (1/3) Strong Growth Prospects:
P/E ratio of 12.2 exceeds S&P 500 companies average of 9.2 (at
the end of fiscal year) Sustained business due to strong order
backlog: Significant backlog increase in 2009 ($316B) and 2008
($323B) - compared to 2007 ($296,6B) New orders exceeded deliveries
(737 NG, 767, 777, 787) Slide 43 Appendix: SWOT Strengths (2/3)
Leading market position Commercial airline industry: one of the two
major manufacturers of airplanes Defense airplane industry: second
largest contractor in the U.S. Well-diversified and broad product
range: Four segments: o Commercial airlines o Integrated defense
systems o Boeing Capital Corporation o Others (e.g. air traffic
management) decline/stagnation in one business can be offset by
another segment Slide 44 Appendix: SWOT- Strengths (3/3) Slide 45
Appendix: SWOT Weaknesses (1/3) Deterioated liquidity position:
Weaker financial position than competitors current ratio of 0.8
compared to S&P companies average 1.4 (year 2008) Declining
sales volume in commercial airlines resulted in increase in
inventory Slide 46 Appendix: SWOT- Weaknesses (2/3) Declining
operating margin Indicates ineffecient cost managment and weak
pricing strategy. Slide 47 Appendix: SWOT-Weaknesses (3/3) Strikes
Strikes of the IAM in 2008 resulted in a slowdown and substantial
decline in deliveries Lost revenues amounted to $6.4B Slide 48
Appendix: SWOT-Opportunities Development of Asia-Pacific Region
Extraordinary defense acquisitions (e.g. India, China, Japan)
Market liberalization: enablement of low-cost airlines to gain
market share demand for planes as well as MRO services Aircraft
financing market gradually improving Long-term outlook of aviation
industry (next 20 years) Slide 49 Appendix: SWOT-Opportunities
Long-term outlook of aviation industry (next 20 years) Estimated
increase in commercial travel: 5% Estimated increase in cargo
sector: 5,8% Expected rise in demand for airplanes: upgrade of
number of airplanes from 19,000 in 2008 to 35,800 (2027) Slide 50
Appendix: SWOT-Threats Dependence on U.S. budget spending
Integrated Defense system business represents largest fraction of
generated revenues Global economy still fragile Intense competition
Commercial aircraft: Airbus Integrated defense systems: EADS
Currency exchange rates Purchases, sales, borrowings: many
different local currencies as well as different markets
Fluctuations in exchange rate affect Dollar value and thereby have
a considerable impact on profitability Slide 51 Appendix: Boeings
20-year Forecasts (1/2) Slide 52 Appendix: Boeings 20-year
Forecasts (2/2) Slide 53 Appendix: Pay for Performance Elements
which should be included in PfP schemes: innovation, independent
actions, contributions to team performance etc. Results of
empirical analyses: Overall no correlation between PfP and company
performance Reverse causality possible: company performance results
in incentives PfP increases motivation only for simple, well
measurable tasks Badly designed PfP systems can have negative
effects: o With multiple tasks concentration on tasks that lead to
monetary incentives o Short-term orientation o Imbalance of
exploration and exploitation Slide 54 Appendix: Pay for Performance
Whats Wrong with PfP? Assumption of PfP systems: People have enough
information to work effectively and all other organizational
systems are not the main roadblocks to performance Performance is
under the control of the people who get the incentives Financial
incentives turn attention to the organizational values and its
priorities PfP attracts the right people and repels the wrong ones
Many organizations implement PfP because it is a management fashion
Slide 55 Appendix: Future Outlook Newly arising demand for
aerospace technology Become a leader in knowledge and technology to
foster company based attractiveness China: need for commercial and
defense aircraft and barriers to market entry Establish joint
ventures in China Airbus is able to launch a comparable plane in
approximately three years Improve efficiency and decrease costs of
787 to stay ahead of Airbus Difficulties of integrating suppliers
Establish Knowledge Management System and product platform
comprising complete supply chain
