Boeing Supply Chain Management Analysis - Report Example

Analysis Of Boeing Aircraft Company’s Supply Chain Management Specific to the Large Commercial Aircraft Introduction The notion of supply chain management (SCM) system is fundamentally regarded as the procedure of managing the flow of varied products and/or services. In a nutshell, the SCM procedure is often viewed to be streamlining the business activities, which tends to maximize the level of customer satisfaction. This method helps the companies in effectively controlling the production procedure and enables them to distribute products to the ultimate customers within stipulated time frame. It is worth mentioning that the SCM system lessens the time involved in performing the operations related to the similar procedure and raises revenues by filling customers’ demands at large. It has been evident that the companies belonging to this modern day context tend to develop their respective SCM procedure in order to attain superior competitive position over their respective chief business market contenders. The companies involved in dealing with different manufacturing styles often consider the above described system as an indispensable part of supplying products to the ultimate customers within stipulated time frame (Zigiaris, 2000). It has been apparently observed that most of the leading automobile companies throughout the globe have outsourced their manufacturing businesses with the intention of attaining their desired organisational targets. This technique of outsourcing has actually helped these companies to save time while producing a single product. In this similar context, The Boeing Company has outsourced almost 70% of its total manufacturing works to the third parties. Thus, the company has virtually transformed itself from manufacturers to assemblers (Locatory.Com, 2014). With this concern, the research paper intends to analyse the SCM process of Boeing in relation to large commercial aircraft (LCA). Various significant aspects that comprise the determination of the current airline industry linked with LCA, role of leasing companies as powerful intermediaries and the challenges that the airline manufacturers face like order lead time would be taken into concern for the analysis. Discussion The Current Airline Industry In Relation To LCA The airline industry still pertains to be one of the biggest and growing industries in comparison with others. Identifiably, the requirement for travel for business as well as leisure purpose has grown over the preceding years. Subsequently, the demand for large aircrafts has also increased extensively keeping into concern the convenience and the affordability that such aircrafts provide to the people travelling in exotic locations (Aircraft Aerodynamics and Design Group, n.d). With the deregulation persisting in airline industry and the introduction of low-cost carriers, the expectations of the customers are duly met. However, the cost efficiency factor is increasingly becoming a crucial concern for the companies operating in airline industry. In relation to analyse the current airline industry in relation to large commercial aircraft (LCA), it can be apparently observed that the LCAs are capable of carrying more number of passengers and most vitally minimizing the operating costs, resulting in making the airline industry more attractive towards the customers (Boeing, 2013). Notably, the future projected growth of the air travellers has reflected a wider development over a period of 20 years, securing a 5% progression in the airline market even at 3.2% growth of GDP. It is anticipated that the increase in the number of travellers would certainly raise the requirement of LCAs that will possess the capability to carry huge figure of travellers at the lower cost of operation. The current airline industry relating to LCA has been apparently noted to develop extensively as compared to the earlier years in terms of lessening operational costs and raising customer base among others. This development has certainly changed the travel pattern and thus encouraged the requirement of LCAs that are capable of carrying passengers at larger distances in a convenient and affordable way (Century of Flight, n.d.; Smarter Travel Media, 2014). Boeing’s Market Share Boeing is confronted with strong competition from various internationally based large commercial airplane makers. With the inclusion of 648 commercial aircraft deliveries, Boeing succeeded to acquire significant portion of market share in the domain of airline industry. In this regard, it can be viewed that the market share value of Boeing in American region stood at 23% in the year 2013, posing strong competition with its one of the chief business market participants i.e. Airbus. Considering the present business situation, Boeing witnessed a strong growth in sales and enhanced its profitability with strong order inflows as compared to others. Justifiably, the revenue of Boeing in the years 2010, 2011 and 2012 stood at $64.3 billion, $68.7 billion and $81.7 billion respectively (Boeing, 2013). However, despite attaining maximum profitability in terms of market share and revenue, it would be vital to mention that the main threat to the aircraft manufacturer seems to be the emergence of new entrants in the similar line of business (Forbes, 2014). It has been apparently noted that the aircraft manufacturers with their respective outsourced business succeeded to raise market share at large. It can be affirmed from a broader understanding that the market share of Boeing raised incessantly in every financial year due to its effort in minimising operational lead time and enhancing efficiency to encountering the demand of the aircrafts in global markets. Specially mentioning, the lessening of lead times could be undertaken through the incorporation of an effective LCA based supply chain management (SCM) system. It is quite vital that the present fleet of around 16000 aircrafts that possess the capacity of carrying more than 100 passengers need to be improved in order to meet the global demands of the LCAs as well as to sustain in this competitive landscape (Locatory.Com, 2014). Porter’s View: Effects To the National and Legacy Carriers Michael E. Porter, an author developed a theory of effect concerning the competitive pressure as determined by a firms’ profitability. The sturdiest competitive forces are observed to play imperative roles in formulating effective strategies. The competitive marketing strategies as discussed by Porter are fundamentally based on the three ‘generic strategies’ including differentiation along with cost leadership and focus (Sharp, 1991). In order to determine the effects of the aforesaid viewpoints of Point on national as well as legacy carriers, it is often observed that for accomplishing superior competitive position, the airline manufacturers like Boeing focuses on increasing sales. The national and the legacy carriers have their supremacy and thus dominate the business markets wherein they operates while considering long journeys and distant travels. However, with the introduction of the low-cost carriers, the legacy as well as the national carriers faces steep challenges. The low-cost carriers compete at a huge level with the legacy carriers at the regional market. In order to capture potential business market, the cost-effectiveness factor would be a huge challenge for the legacy carriers. The effect is evident as the domestic travellers are more inclined towards the regional aircrafts than the legacy or national aircrafts for travelling within the domestic areas. The effect of such behaviours from the customers end has been evident from the steep fall of the sales turnover of the legacy air careers in the domestic market (Tan, 2014). Based on the recent trends of the airline industry, it could be revealed that the competitive position of the legacy carriers has deteriorated simultaneously over the previous few decades. One of the strategies, which could be incorporated by the legacy and national carriers is outsourcing, resulting in raising their respective competitiveness in the local business markets as well. It would be vital to mention in this regard that the only strategy, which suits the national and legacy carriers to have an effect in the local airline domain without getting affected in their operations is outsourcing to a broader extent. Specially mentioning, apart from executing the business strategy of outsourcing, Boeing is also looking forward towards conducting pre fabrication of the different parts of the aircraft that has already been outsourced. This is because to ease out the complexities involved in the operational procedure and most vitally to enhance the efficiency of the overall performance of the company (Tan, 2014; Cizmeci, n.d.). The Powerful Intermediary: Leasing Companies Leasing companies are those companies that convey the ownership of goods manufactured or produced to some other entity (lessee). The lessee bears the benefits as well as the risks associated with the leased goods and the lessor is entitled to the amount, which has been agreed upon at the time of the lease agreement. Leasing helps a business in several ways. With the increased level of globalisation and the changing mode of business environment, leasing companies often act as powerful intermediaries to develop international business at large. In precise, it could be affirmed that the leasing companies serve as pillars in advancing SCM system, which in turn results in enhancing the operational performance of the companies (Gavazza, 2011; Park, 2007). Leasing companies at the backdrop of airline manufacturers like Boeing work on the idea of buying aircrafts and leasing them to others with the intention of developing design mechanisms as well as configurations that would attract the customers at large. It is worth mentioning that the leasing companies in relation to LCAs serve as a powerful source of intermediary as they possess the capability of offering standardised aircrafts to the airline manufacturers like Boeing. The leasing companies acting as powerful intermediaries eventually result in lessening the responsiveness made towards LCAs. With the presence of the leasing companies that are also acknowledged as secondary companies, the traditional aircraft manufacturers often have to face numerous backlogs with regards to their projected as well as actual sales (Cizmeci, n.d). The Business Cycle and the Capacity Question In relation to determine the business cycle relating to LCA, it can be affirmed that the increase in the number of people traveling by air has certainly developed the airline industry, resulting in promoting airline business in global domain. It is often observed that apart from facing intense business market competition, the traditional airline carriers face the issue concerning acquiring capacity in their respective business cycles. Moreover, at the time of economic downturn, the LCA manufacturers often face huge challenges particularly from the downward market trend. Considering the overall development observed in the airline industry, the demand of large aircrafts also raised by a considerable extent (U.S. International Trade Commission, 1993). Specially mentioning, since the costs involved with the assets are generally carried out by the down-cycle aspect of business, the future financial health of the airline manufacturers like Boeing rely on being the ability to obtain more revenues and raise incomes at the time of up-cycle. It has been apparently observed in this similar concern that the business cycles are speculated over a period of 5-10 years and the aircraft manufacturers similar to Boeing tend to make their respective orders at upside phase. Another problem that the airline manufacturers often face is the aspect associated with the capacity question. The requirement of the correct capacity of seats at the right time is a huge challenge face by the aircraft manufacturers. Thus, the requirement of the additional capacity at a peak time of the airline business eventually becomes a challenge for the airline manufacturers. Apart from the above discussed aspect, the airline manufacturers also face the problem of maintaining lead time, which hinder them to comply with the requirements of the customers at large. This is the position exactly where the notion of SCM plays an imperative role. This can be justified with reference to the fact that the execution of an effective SCM process contributes in lessening lead time and making proper as well as quality as per the requirements of the customers (Cizmeci, n.d). Order Lead Time – Challenges That Airlines Face The notion of order lead time often impose considerable impact on the entire performance of the airline manufacturers, which might dampen the oscillations persistent in the business cycle of airline manufacturers. It can be apparently observed that the airline manufacturers face diverse sorts of issues that result from the adverse impacts impose by the significant concern of order lead time. In this similar context, the issues that emerge from this aspect include lessening the delay, which the airline seat capacity will pose towards air traffic demand and limiting excess capacity relating to the decisions made on fleet planning. However, with respect to LCAs, the order lead time of manufacturing is observed to remain quite extensive. The expanse of time to generate one order needs to be curtailed so as to mitigate the requirement for the exact capacity of fleet at the right time (U.S. International Trade Commission, 1993). By taking into concern the fact that the aircraft producers often rely heavily on their respective SCM procedures, business cycles and market trends, the challenge concerning order lead time need to be addressed as well as mitigated in an effective manner with the intention of accomplishing superior business market competition. Thus, it can be affirmed from a broader understanding that the aspect of order lead time eventually becomes a huge challenge for the aircraft manufacturers as the requirements of the customers are not met efficiently, resulting in hindering the augmentation of customer base. However, it is the LCA supply chain, which aids the airline manufacturers to mitigate the challenge relating to order lead time by a certain degree. This is mainly performed through diverse ways like lessening order lead times along with the costs linked with aircraft lifecycle and developing the business life cycle particularly the up-time among others (U.S. International Trade Commission, 1993). It is anticipated that shortening order lead times would certainly make the airline manufacturing companies responsive towards complying with the altering market forces. It is worth mentioning in this regard that the responsiveness of Boeing has developed from the traditional lead times of 12-18 months to three days. It can be affirmed that this result could not be made possible without developing its LCA mechanism with implementing the business strategy of outsourcing (Massachusetts Institute of Technology, 2005). Conclusion Based on the above analysis and discussion, it is quite clear that the airline industry would face intense business market competition due to the emergence of considerable new entrants and rapid technological transformations among others. Thus, for sustaining in this competitive landscape and conduct business in future efficiently, there lays the requirement of the airline manufacturers to adopt certain significant initiatives. These initiatives include developing their respective SCM procedures, implementing effective business strategies like outsourcing, lessening order lead times and making full as well as effective utilisation of the accessible resources among others. It can be apparently observed in this similar concern that in recent times, the airline manufacturer i.e. Boeing has outsourced 70% of its manufacturing requirements that eventually resulted lessening lead times at large. It is quite obvious that with the development of the business markets, the challenges would also become more diverse and complicated to handle. In this regard, the airline manufacturing company i.e. Boeing needs to speculate the market and change its policies accordingly with the changing business market setting. While analysing the SCM procedure of Boeing, it was ascertained that the national as well as the legacy carriers often face certain challenges while performing their respective operational functions relating to order lead times and capacity question among others that eventually result in hindering the attainment of superior competitive position. In this regard, according to the viewpoints of Porter, the national along with the legacy carriers could attain superior competitive position and mitigate the above described challenges through focusing on the factor of cost-effectiveness. Hence, it can be concluded that Boeing needs to manage its supply chain procedure in an effective way with the intention of competing with its chief business market participants and sustain in this competitive landscape for longer time period. References Aircraft Aerodynamics and Design Group. (n.d). The airline industry. Retrieved from http://adg.stanford.edu/aa241/intro/airlineindustry.html Boeing. (2013). Current market outlook 2013 –2032. Retrieved from http://www.boeing.com/assets/pdf/commercial/cmo/pdf/Boeing_Current_Market_Outlook_2013.pdf Century of Flight. (n.d). Commercial jet aviation. Retrieved from http://www.century-of-flight.net/Aviation%20history/jet%20age/commercial%20aviation2.htm Cizmeci, D. (n.d). An examination of Boeing’s supply chain management practices within the context of the global aerospace industry. Executive Summary of Thesis, 1-10. Forbes. (2014). New entrants pose a challenge to Boeing’s share of the global commercial airplane market. 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