Supply Chain Management Issues in Boeing - Coursework Example

Supply Chain Management Issues in Boeing Table of Contents Table of Contents Executive Summary 2 Introduction 2 Boeing and Supplier Quality Management 3 Supplier Evaluation and Selection 4 Purchasing and Sourcing Knowledge Management 6 World Wide Sourcing 7 Supplier Management and Development 8 Negotiation 9 Contract Management 10 Supply Chain Information Systems for Procurement 11 Performance Measurement and Evaluation 12 Conclusion 13 Bibliography 14 Appendix 15 Executive Summary The postponement in the rescheduled first flight and delivery of the Boeing 787 Dreamliner has brought to light the necessity of ensuring an efficient supply chain management in any manufacturing organization. With 892 customer orders from 61 major airlines for this most popular product ‘Dreamliner’ of Boeing, the company is unable to make any progress in meeting the commitments in respect of deliveries of the aircrafts. The company cites problems with global supply chain that has been unable to deliver parts to the assembly plant as the reason for latest postponement of the delivery. Though the company claims that this does not have any impact on its financials, this inordinate delay has seriously hit the stock prices of the company. This has also put all other stakeholders into serious problems. This paper presents an analysis of the supply chain of Boeing in the context of various facets of the management of the supply chain by the company. Introduction In response to A 380 airliner from its arch rival Boeing Corporation embarked on the manufacture of ‘Boeing787 Dreamliner’ a light weight model with seating capacity of 210 to 296 passengers. “The 787 Dreamliner is a family of new airplanes that promises to bring big-jet comfort and economics to the mid-size market. The Boeing 787 incorporates advanced materials, systems and engines to provide a 20% improvement in fuel performance on a per-passenger basis. The 787–8 Dreamliner will carry 210 to 250 passengers about 7,650 to 8,200 nautical miles and the 787–9 will carry 250 to 290 passengers about 8,000 to 8,500 nautical miles (Boeing Commercial Aerospace). The first delivery was scheduled for May 2008 which now has been pushed as far as the second quarter of 2009. With firm orders worth $ 144 billion the company has found serious issues with its global supply chain as a result of which the company has postponed the delivery of the airliner a number of times causing serious concerns to the major airlines that have placed orders with Boeing for this aircrafts. The production process of making the new aircraft with new light weight composite materials in itself is a challenge for the company. In addition the company has made drastic changes in its supply chain which eventually has hit the progress in the manufacture and delivery of Dreamliner. The way in which the company has organized its supply chain for 787 manufacturing has put a complicated way in which the supply chain partnering firms share risks and profits from the airliner. This implies that the financial burden will be put up and down on the firms in the chain as every company would like to protect their own financial interest. This would necessarily result in chaos in the short-term and considerable delays in the completion of the manufacture of the product which will make everyone in the line suffer. The real issue is Boeing attempted to use what appears to be an automotive product like production process in which all the parts and components in a pre-fabricated form are brought the assembly line. This has necessitated sections of the aircraft to be flown out of far off locations in Japan, Italy, South Carolina and Kansas to be assembled in Washington within a short time of as much as three days. Apart from this there are various other supply chain issues being faced by the company which are explored by this paper. Boeing and Supplier Quality Management Manufacture of Boeing 787 Dreamliner represents a complete shift in the manufacturing philosophy of Boeing Corporation as the company fundamentally changed its supply chain constitution. The success of the program of 787 Dreamliner depends largely on the coordination of end to end supply chain consisting of 135 structural and systems partners located around the world. One of the critical challenges that the company faces is to ensure that all the supply chain partners have the complete access and visibility on the demand information for the various materials and components of Boeing. It is also essential that Boeing has also adequate access and visibility to the ability of the suppliers in meeting their delivery commitments. It is vitally important that all the crucial assembly parts are brought to Washington at the same time for ensuring that final assembly is not held up for want of any particular part or component. In the case of delay by one supplier of sub assembly Boeing will be left with little time or space to look for storing other large components. If one partner lags behind in the delivery, it will put pressure on Boeing to adjust the deliveries from other sub assembly suppliers and delay their arrival. One more critical issue connected with the quality of suppliers in the supply chain is that there should be continuity in the supply of components and parts to be used by Tier 1 volume partners. This has necessitated Boeing to retain contracts with Tier 2 suppliers to ensure prompt supply to Tier 1 partners. The most important issue for Boeing and other supply partners is to identify potential issues across the supply chain. This is necessary to assess the impact of such issues on the supplies from other partners or on the manufacturing process. Unless the quality of the supply chain partners are up to the level of meeting the production needs of all levels of partners there is going to be further issues in meeting the commitments on deliveries (E2open, 2008). Supplier Evaluation and Selection In any supplier evaluation and selection process the primary considerations are cost/price, quality and delivery. But only these criteria are not enough to consider entering into contracts with suppliers and make them supply chain partners. This is more than proved in the case of supply chain issues connected with the Boeing 787 manufacture. There are other factors like (i) management capabilities, (ii) employee capabilities, (iii) cost structure of suppliers, (iv) total quality performance, systems and philosophy, (v) process technology capability, (vi) environmental regulation compliance, (vii) financial stability, (viii) production scheduling and control systems, (ix) e-commerce capabilities, (x) supplier’s sourcing strategies, policies and techniques and (x) long-term relationship potential (ThomsonLearning, 2005) As admitted by the CEO of Boeing the suppliers have struggled to deliver finished subassemblies to Seattle. This has forced the company to use its own employees to work in a plant which was clearly identified to be the one for assembly (Reuters, April 2008). The wrong supplier and evaluation in the case of certain supply chain patners without looking into the other criteria of evaluation and selection has put the proeject back by 15 months. One of the main criteria for selection of suppliers with Boeing is the quality of the suppliers’output. The company requires the suppliers to comply with Boeing Quality Management System which is made as a combination of ISO 9001:2000 and aerospace quality standards. The company does a source inspection by sending the quality inspectors of the company to the vendor sources. When the company is satisfied about the internal process that the supplier is maintaining high quality standards and if Boeing is able to watch the process then the supplier becomes an acceptable one. Hence chcking and validating the processes and proceudres is one important criterion being followed by Boeing. ‘Agility’ is another criteria that is being insisted by Boeing with its suppliers. Irrespective of the size of the suppliers the company expects the supplier to possess the supplier shoud remain agile. In order to maintain the agility Boeing follows an approach of slowly ramping up the quantum of work being given to supplier. Boeing offers smaller works to the subcontractors before incresing the volume (Destefani, 2004). Purchasing and Sourcing Knowledge Management Purchasing and sourcing knowledge management is a vitally important criterion in the success of the supply chain of any manufacturing organization. For Boeing the shortage of qualified aerospace engineers has been a major issue. The limited availability of technical knowledge within the company has affected the progress in the 787 program. “On Boeing’s highly visible 787 Dreamliner aircraft, another potentially serious issue has been uncovered related to an estimated 3 percent of the fasteners being incorrectly installed by one of Boeing’s global partners”. This problem has arisen mainly due to lack of sharing the knowledge. With a better knowledge management the company could have easily avoided the problem of fasteners. Moreover the manufacture of 787 has been planned mostly with composite materials mainly carbon graphite instead of traditional aluminum materials. This has also increased the need for a higher level of purchasing and knowledge management. Boeing decided to engage ‘Exostar’ as a secure exchange for enabling electronic commerce to focus on executing procurement transactions. Exostar later aligned with E2Open a provider of multi-tier supply chain management applications. “Boeing decided to use the E2Open applications, implemented as on-demand services on the Exostar network, for basic multi-tier supply chain functions, such as issuing purchase orders, invoices, and payments, communicating planning schedules, aligning order information and partner commitments against planning schedules, tracking inventory through the returns process, and key performance indicator reporting” (Moad, 2007) There was the absolute necessity that the suppliers in Tier 2 and Tier 3 had the requisite knowledge on using these technological applications to cope up with the pace of supply chain movements. As explained by Chuck Agne, director of supplier management with Integrated Defense System (IDS) the company expects a kind of ‘tribal knowledge’ to exist with the supplier. Tribal knowledge implies the possession of any trick, inside tip, shop aid or the kind of experience that enables the supplier to produce the component or part. As explained by Agne “When you outsource, the supplier gets the drawings, the planning papers, and the tooling to make the part. But unfortunately, he doesnt know about, for example, a shop aid that is critical to make the part. The only person who knows that is the guy that has been making it for 17 years. So theres a learning curve involved. Theres a certain amount of knowledge thats not reflected on the planning documents. Its something that is lost and has to be regained, and we try to make suppliers aware of that knowledge before they start making parts”. This kind of sourcing knowledge management is considered critical in the subcontracting of Boeing. World Wide Sourcing In order to implement the new philosophy in the supply chain management Boeing decided to spread the risk among the suppliers and call on them to help shorten the cycle time. For this purpose Boeing identified 30 key suppliers including Fuji, Vought and Goodrich who will be able to design and integrate subsystems in full so that the completed subassemblies will be shipped to assembly plant in Washington. The supply chain consisted of three tiers of suppliers each one complementing the other tier. With this arrangement the company had located supply chain partners all over the world starting from South Korea, Japan and European countries. “The essential problem,” according to Tim Opitz director of product operations and support with Boeing says, “is that although the new business model spreads risk and new responsibilities among Boeings suppliers, it also reduces Boeings visibility into where inventories are, how well suppliers are executing against production plans, and how production delays might affect critical processes” (Moad, 2007). This major issue is caused by the world wide soucing policy adopted by the company. Prior to 2000 the supply chain of the company was considered as a support function to the manufacturing activity of Boeing. With this system the company could manufacutre more than 50 types of aircrafts engaging 33,000 and odd suppliers handling between 100,000 to 4000,000 stock keeping units with most of them unique to each type of aircraft(see Appenix). However with the change in supply chain management philosophy since the year 2006 starting with the manufacture of Boeing 787 the supply chain had become an integrated one formed with the intention ofoptimizing the value. With the shift in the objective and nature of supply chain the company had to resort to manage strategic suppliers who are entrusted with the management of supplychain and the company has moved from manufacture to assembly concept. This has necessitated the company to choose capable suppliers from different nations across the world. The world wide sourcing instead of adding to the efficiency of the supply chain has created additional issues which the management had to take care of. Supplier Management and Development Objective of supplier management is to supplement firm knowledge and experience with that of the supplier. The firm and suppliers should coordinate their efforts in developing and monitoring strategies to optimize the benefits of the collaboration with each other. This coordination should result in improved logistics, fulfillment of modern environmental requirements and developing joint innovation strategies and technology roadmaps. The more a supplier actively takes part in the process of optimizing the firm development the more secured will be the long-term association between the firm and the suppliers. An efficient supplier management results in enhanced productivity on both the sides and the relationship between the firm and the suppliers leads to a growth with consistency. Fruitful cooperation from the sides of both the firm and the suppliers forms the basis on which the maximization of the shared value-added chain that is delivered to the end customers (Simens, 2008). With a view to achieve cost competitiveness Boeing changed the supply chain policy and started outsourcing major components such as machined and stamped airframe components. This has made the company to rely on a total subcontract base. This has also resulted in facing challenges in supplier management and development. Offloading the kind of works Boeing wanted to subcontract required different kinds of suppliers. The suppliers were to have more sophistication; in fact much more than that required for making a detail part. “There are bills of materials involved and there are layers of bills of materials” (Destefani, 2004). Since suppliers are doing assembly work there is the necessity for a higher level of scheduling and management especially with respect to their own production process. This has posed a challenge in respect of many suppliers who have been contracted to make detail parts in achieving the level of sophistication required to manage the supply chain cycle without break. Here comes the concept of supplier management and development from the side of Boeing to improve the efficiency of supply chain. The use of sophisticated software application networks of Exostar and E2Open necessitates training of the staff at all levels of suppliers to maintain the information flow in tact among the supply chain partners. Negotiation The responsibility of managing an extended supply chain as that of Boeing needs a strong ability on the part of the supply chain managers to negotiate with the probable supply chain partners. In the case of Dreamliner project this responsibility is much more pronounced because of the stakes involved in respect of each major supplier of subassemblies. The company needs to develop strategies for longer term planning as well as negotiation strategies. In Boeing the structure of the organization is aligned in such a way that contracting and negotiation are under the control of one individual. Contract Management Contract management in the context of supply chain enhances the visibility, control and performance. This requires the firms to improve the processes and tools they engage to monitor different activities related to contract management. The contract management process starts from the creation of the contract till measuring the performance. There are three main factors that influence monitoring the contract management more closely. They are: (i) pricing fluctuations and various supply chain disruptions are required to be assessed so that the associated risks can be mitigated. An effective contract management can be used to increase predictability and along the way will also help the firm to reduce uncertainties, (ii) new and emerging regulations often require firms to establish and document business controls in respect of contracts being entered into with the by large and medium firms, (iii) procurement has been taking the center place to validate the cost savings envisaged by the firms. While firms attach more importance to contract management they also face certain obstacles through various practices that block an efficient contract management performance. The issues involved are (i) fragmented procedures for managing contracts, (ii) process involving too much of labor, (iii) poor physical accessibility into the contacts, (iv) inadequate measures to assess the performance of the contractors, (v) lack of common systems infrastructure (Patel, 2006). In the case of Boeing contracts have been entered into with the supply chain partners mainly with a view to eliminate huge costs involved in the manufacture of the prestigious Dreamliner. However it seems Boeing has not assessed the likely interruptions in the supply chain while entering into contracts with suppliers in Tier 2 and Tier 3, due to technological and financial issues which have resulted in considerable delays in completing the project on time. Moreover although the Company instituted strong procedures for evaluation and selection of the suppliers the company had inadequate system of evaluating the performance of contracts. This has made the company suffer due to an inefficient supply chain management. The delay in supplying some kind of fasteners had halted the progress of the manufacture of Boeing 787. “On Boeing’s highly visible 787 Dreamliner aircraft, another potentially serious issue has been uncovered related to an estimated 3 percent of the fasteners being incorrectly installed by one of Boeing’s global partners” (SupplyChainMatters, 2008). Supply Chain Information Systems for Procurement Modern business practices aim at improving the operational process efficiencies. The improvement in process efficiencies are expected to result in functional and administrative costs. The improvements in procurement processes are also expected to stem out of the operational process improvement. In order to maximize the process improvements the firms need to automate the procurement processes and optimize the supply chain management procedures (Impact, 2008) “For the new 787 "Dreamliner," Boeing leverages its extended supply chain and partner manufacturing resources as a competitive advantage to improve time-to-market and reduce total cost” (Exostar, 2006). The success of Boeing in its assembling the Dreamliner depends on a careful coordination of the activities of numerous structural and systems partners who are situated in different countries allover the world. It was important for Boeing to synchronize the information on the demand/supply and logistics details relating to various supply chain partners in all the three different tiers so that the key components are made to arrive at Everett, Wash., facility exactly at the right time they are needed for final assembly that is expected to be completed over a shorter period of three days. This has neceesiatated the company to partner with ‘Exostar’ supply chain management solution. “The Exostar Supply Chain Management Solution, powered by E2open software, is used to manage the complete order lifecycle and returns process, while also tracking planning schedules, consumption, and managing replenishment for the Boeing Partner Managed Inventory program” (Exostar, 2006). Performance Measurement and Evaluation In the present day Boeing has to deal with a more complex and rigid supply chain spread over various tiers. It is observed that the company with its well-known ‘innovation edge’ has not helped the company to overcome the supply chain issues. If the company is unable to master its supply chain flexibility it may not be able to gain the market advantage over the next years. “Visibility to actual demand and to the precise location of where goods are in the pipeline can lead to quantum improvements in day-to-day supply-chain execution” (Hofman, 2002). In addition to this it is important that the firms have one more important aspect of visibility in assessing the ‘overall performance’ of the supply chain partners. Identification and analysis of the performance trends of the supply chain partners will enable the firm to make strategic plans and better process changes to embark upon a continuous improvement in operational and procurement efficiencies. Boeing by installing Exostar aided by E2Open could have easily made an assessment of the demands of Tier 1 and Tier 2 suppliers; in fact the company did. However due to the inefficiencies of some supply chain partners the whole system suffered as the supply chain was more an integrated one. Conclusion The fact remains in the present day context even with the assistance provided by with far better and improved equipment, computers having latest technology and software installed together with a highly skilled workforce, Boeing is unable to bring out even one-tenth the number of aircraft it could manage to produce during World War II. For the company it takes an average of two years to roll out an aircraft order. Introducing a new design takes much more time. This is evident from the happenings in the case of Dreamliner the new design787 aircraft. The reasons for such delays are clearly brought from the supply chain perspective. With the more complicated design and material involved in the manufacture the company has further complicated the process by adopting an innovative supply chain process that is taking quite some time to stabilize in view of the intricacies and technicalities involved. Moreover “todays aircraft are more complex and are customized to meet the needs of each customer. Lead times are longer, and supply chains cannot stretch, or are not flexible enough, to keep up with demand” (Garbe & Sarkar, 2007). The issues get further complicated due to the presence of bureaucracy in the dealings. It is vitally important that Boeing takes the necessary initiatives to ensure that its supply chain complies with a variety of procedures and information systems. Foremost requirement is that the company should improve its contract management performance and supplier performance evaluation which are very critical for the kind of risks involved not only for Boeing but for all the supply chain partners. Bibliography Destefani, J., 2004. A look at Boeings outsourcing Strategy. Soceity of Manufacturing Engineering, 132(3), Available at: http://www.sme.org/cgi-bin/find-articles.pl?&04mam001&ME&20040301&&SME&#article [accessed 13 December 2008]. E2open, 2008. 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Available at: http://www.managingautomation.com/magread.aspx?Content_Id=164056&page=1 [accessed 12 December 2008] Patel, V., 2006. Supply chain management review. [Online]. Available at: http://www.scmr.com/article/CA6326621.html [accessed 13 December 2008] Reuters, April 2008. Boeing CEO admits 787 Dreamliner errors. [Online]. Available at: http://www.reuters.com/article/businessNews/idUSN2228189920080422 [accessed 12 December 2008] Simens, 2008. Supplier Management. [Online]. Available at: https://w9.siemens.com/cms/csp/en/suppliers/supplier-management/Pages/mamagement.aspx [accessed 12 December 2008] SupplyChainMatters, 2008. Boeing’s Supply Chain Challenges Continue Beyond the Work Stoppage. [Online]. Available at: HYPERLINK http://www.theferrarigroup.com/blog1/?cat=5 [accessed 13 December 2008] ThomsonLearning, 2005. Chapter 7 Supplier Evaluation and Selection. [Online]. Available at: http://fclass.vaniercollege.qc.ca/~tenenbal/FOV1-0003CE67/FOV1-0003CFCE/Chapter%2007%20supplier%20evaluation%20and%20selection.ppt?FCItemID=S001EC85A [accessed 12 December 2008] Appendix Source: http://www.ctre.iastate.edu/educweb/2006seminar/boeing41406.pdf Read More