Supply Chain Design Case Study on Boeing’s 787 Dreamliner

Supply Chain Design Case Study on Boeing’s 787 Dreamliner

Introduction

Recent years have seen air transportsaturated with different models of airplanes. Competition has stiffened, forcing new innovative ways of different plane manufacturers to attract customers. Boeing is among the leading air travel providers, developed the Dreamliner 787 to provide additional value to passengers. This was a decision picked from the two main strategies that the giant airplane manufacturer was contemplating, to regain the most significant share of the air transport market. The first plan was to sell the existing models at low prices while the second was to come up with a new model of an aircraft that would take over the market due to its uniqueness in providing comfort to passengers. The manufacturer’s brilliant strategy to add value for its customers was put into effect in 2003 when it launched the 787 Dreamliner. The dream was to be realized by restructuring the supply chain to save on costs and time. Boeing’s stock markets sharply rose to $100 from $30 a share. Later in the past 2008, the company started experiencing challenges on the delivery schedule of Dreamliner 787. This consequently led to a fall in market shares.This paper discusses the supply chain rationale taking a case study on Boeing for the 787 Dreamliner, the underlying risks, and finally, the strategies put in place to mitigate the risks.

Supply Chain Structure

Supply chain design and management thrives on a fundamental idea of a cumulative effort from various entities, including organizations, in particular, to ensure a product reaches the end-user. Organizations are linked in a network of the systematic flow of physical services such as goods and information. Boing employed a supply chain never seen before in the aircraft industry to develop the Dreamliner for a shorter time and using fewer costs. The time to manufacturer the then much-admired plane was to be reduced to four years from six while the costs were to be $6 billion of the expected $10 billion. The supply chain had a link connecting over fifty partners who formed the first tier. The second tier composed of suppliers who produced the goods that were supplied by the tier-1 partners. Complete parts were supplied to the manufacturer, and they were assembled in a record three days. The supply chain is therefore viewed as unconventional. Outsourcing was played a crucial rolein the success story of the Dreamliner.

Approximately three-quarters of the production and development activities of the 787 Dreamliner were outsourced. Suppliers had the mandate to create and supply different sections at a go. The expertise of the suppliers was also outsourced by Boeing hence reducing costs. The coordination between the partners would be imperative; the manufacturer thus used Exostar, a web-based program to gain the visibility of the supply chain. This was a way to put into use communication technology in the process. The tool would also integrate critical processes, hence reducing the development time. A key focus of the project was to increase the capacity of producing the aircraft without incurring extra costs. .

Implementation of the program on the supply of complete parts with assembling, taking at most three days at the Dreamliner’s plant meant to increase production capacity. This would also mean a reduction in costs that could have been incurred by upscaling the supplied parts. The strategy of the whole process was aimed at decentralizing hence a decrease in investment. Boeing also focused on making use of tier-1 suppliers. According to Tang and Zimmerman1, This was a strategic plan to reduce costs on the procurement of raw materials and assembly of early-stage parts. Many assembly activities geared toward the program were carried out in different countries. This was in a bid to reduce the costs of development. It was also imperative to minimize financial risks that would arise.

The financial health of the program was to be looked at keenly. Factors such as bankruptcy and a volatile market could cause financial risks. Boeing puts out a contract that shared risks. The strategic partners consented not to be paid for any deployment of services by the company made its first sale of Dreamliner 787. This strategy would work to ensure the partners coordinated and collaborated to meet development targets. However, the payment scheme imposed the partners on financial risks. An incentive to woo the strategic suppliers was that the term allowed their revenue to increase by owning up the production and developing entire sections of planes rather than small parts.

Supply Chain Risks of 787 Dreamliner

With a great potential of reducing the development time and production cost, the flipside exposed the Dreamliner project to various risks. Ranging from supply risks, to demand risks.  If the risks are not mitigated, posed a danger to the new innovative aircraft build. The use of technology that had not been used before was bound to be a challenge to the program.This section discusses the challenges experienced by the Dreamliner programthat resulted in delays in delivery (Tang and Zimmerman1, 2009).

Boeing’s reliance on the tier-1 partners for the supply of essential components of the aircraft posed a danger to the development agenda. The supplied equipment had not been proven anywhere before. The breaking of the chain would cause detrimental effects on the program. Boeing aborted the premier flight that was to take off in 2007. The manufacturer cited a shortage of parts and software. If there was a delay in delivering a specific section of the plane, then the schedule of delivery of the entire plane was bound to be delayed. It was reported that tier-2 and tier-3 did not input timely and accurate details into the Exostar tool. This was due to cultural differences. This exposed a lack of or little coordination towards the goal.Outsourcing of both products and experts increased job insecurity among employees.

Boeing’s more than 25,000 workers went on a strike in 2008. Concerns among employees were ripe over their job security due to increased outsourcing of expertise by the company. The strike caused a delay in the schedules of the Dreamliner.  The strike impacted even strategic partners. A crucial partner to the airline named Spirit Aerosystems reduced the workweek for the company’s workers in anticipation that the strike would cause order cancellations. The act would subsequently reduce the work schedule.

Customers started losing their trust with the airline’s ability to develop an up to date model in the wake of numerous delays. Doubts about the Dreamliner’s range over an overweight suspicion were rife. This led to customers canceling their orders for the hyped plane. Reports indicated that orders dropped to 850 in July 2009 from 895 in November 2008. The risks needed action for the carrier to continue with its planned mission.

Boeing’s Reaction Strategy to Mitigating Risks

Boeing had to act fast and hard in response to the risks presented. Boeing understood the need to take over control of the development process. This was due to some of the tier-1 partners not having the technical knowledge to create some important components of the plane. Boeing took direct control over Vought Aircraft industries, which was observed to be a weaker link in the supply chain (Tang and Zimmerman1, 2009).

Mitigating the labor risks was essential to end the strike that had taken up to two months. Boeing gave a promise to reduce the number of tasks performed by outside vendors. Workers were also awarded a wage boost of 15% to run for four years. The plan to get expatriates from global partners was, therefore, ditched in favor of the local experts. It was important for the company to counter accusations of the incapability of developing the Dreamliner by customers who were canceling their orders. Sharing updates of progress on its website helped restore the manufacturer’s public image. Due to late deliveries, Boeing compensated airlines by supplying them with replacement planes, which were the new 737 and 747. Other risks that were mitigated included technology risks and management risks.

Boeing took huge steps in curbing down the risks that would have seen its failure. However, it would have been easy if the management would have anticipated the risks and come up with possible solutions at the onset of the program. Skilled leadership would have delivered requisite job demands, and delay problems would have been dealt with effectively.

Conclusion

A shift from conventional supply chain to new methods of the supply chain in airplane best describes the strides made by Boeing in developing 787 Dreamliner. Though the plan was a master thought to reduce both development cost and time, it had its fair share of challenges and risks.This paper reveals a lack of management, and co-ordination was the root of the risks experienced by the aircraft manufacturer. The failure and delays in meeting delivery schedules led to redesigning the process in production and supply chain. The risks encountered were avoidable had there been initial anticipation of the risks and its management criteria. Boeing’s grand 787 Dreamliner idea provides lessons to managers who are restructuring and reinventing the supply chain design. An analysis of the potential future is vital for the design.

References

Christopher S. Tang and Joshua D. Zimmerman1.(2009). Managing New Product Development and Supply Chain Risks: Supply Chain ForumVol.10 – N°2 – 2009.