Boeing - Strategic Supply Chain Management - Case Study Example

Name Class Unit Executive summary The report carries out analysis of venerability of supply chain and impacts of the supply chain on the success of business units and corporate in an Airline organization. The report notes that supply chain resilience can help a lot in mitigating risks in airline supply chain. The report identifies causes of venerability to supply chain as; economic risks, globalisation of the supply chain, failure to regionalise, acts such as terrorism and strikes, and poor inventory management. it is identified that impacts of venerability of supply chain are many such as loss of revenue and disruption of services. The report looks at Boeing as a case of successful airline organisation due to impacts of its supply chain on business units and corporate. This is carried out after analysing STEEPLE analysis of Boeing. Boeing have delegated more responsibilities to their suppliers which have led to more time to concentrate on design, integration and technologies and processes associated with assembly. There has been good partnership with the suppliers. Suppliers are involved in risk/reward sharing with the company. The relationship with their suppliers supports business strategy. The efficient supply chain used by Boeing has helped them in adjusting their production based on pull signals which may occur in the supply chain. The success of Boeing business units and corporate is based on proper supply chain management. The reports recommend that partnering with suppliers, regionalising suppliers, reconfiguration of the supply chain and supply chain management (SCM). The report concludes that supply chains should be designed to contain risks rather than allowing them to spread. Contents Executive summary 2 Contents 3 Introduction 4 The vulnerability of organization's supply chains in the Airline industry 5 The impact of supply chains on the success of business units & corporately in an Airline organization 8 STEEPLE analysis of Boeing 9 Social 9 Technological 9 Economic 9 Environment 10 Political 10 Legal 10 Ethics 10 Analysis 11 Recommendations 13 Conclusion 14 References 15 Appendix 17 Introduction Modern industries are facing venerability in their supply chain due to dynamic business and economic environment. With the globalisation era, there have been rapid changes in business environments that have affected the supply chains. Global supply chains forms the backbone of global economy. Airline industry has a complex supply chain which is exposed to different types of risks (Choi & Krause, 2006). Globalisation, lean processes and geographical locations of the supply chains have affected the airline industry. The supply chain has also become more complex due to high level of Research and Development (R&D), outsourcing, relationship between suppliers and high dependence on the suppliers. With the competition becoming stiff, there has been a need for the suppliers in the airline industry taking calculated risks. The main issue lies on the fact that the calculated risks have a capability to jeopardise the entire supply chain. Supply chains play a major role in the success of business units and corporately in airline organisations (Chen & Paulraj, 2004). Business units and corporately in airline industry uses cost-effective manufacturing of their supplies. One of the most successful organisations in the airline industry is Boeing. The company have a large supply chain which spans for more than 7000 suppliers (Çizmeci, 2005). This report critically analyses the venerability of the supply chain and the impacts of supply chain in success of business units and corporately in Airline organisation. The vulnerability of organization's supply chains in the Airline industry Supply chain venerability is defined as a serious disturbance to supply chain. The concept is as a result of certain supply chain characteristics which leads to a disruption (Wagner & Bode, 2006). Lack of ability to identify the venerability of the supply chain makes it hard for the supply chain to handle disruptions. There is need for the supply chain to use different approaches to handle supply chain risks. Without a proper supply chain risk management, it becomes hard for the organisation to handle supply chain risks (Tang, 2006). Without a proper supply chain risk management, it becomes hard for the airline industry to maintain a competitive advantage. Supply chain resilience helps in reducing risks in the airline industry. The airline industry has to deal with recurrent risks which include demand fluctuations (Wagner & Bode, 2006). This involves improving the firm efficiency so that it can enhance its supply and demand. The industry is in some instances forced to build its resilience therefore undergoing additional costs. When disruptive risks occur, an impact in one area spreads to the other parts. For example, in case there is a fire in one of the parts warehouse, its effects will be felt in the entire supply chain. This is in contrast to recurrent risks. When recurrent risks such as fluctuations in demand arise, they occur independently (Tang & Tomlin, 2008). Good supply chain management practices can help in covering recurrent risks. Occurrence of economic risks is an issue that exposes the supply chain to venerability. This involves currency fluctuation, changes in price and demand shocks. An example is the global financial crisis where a lot of suppliers applied for bankruptcy. Currency exchange rate have also been fluctuating a lot which affects the suppliers. An example is the 2010 exchange rate fluctuations which led to greater impacts on a lot of suppliers. The rise of global supply chain has led to a lot of airline industries having many operations overseas (Wagner & Bode, 2006). When systematic disruptions occur, the supply chains are greatly affected. Globalisation has led to outsourcing. Globalisation provides an avenue for cost cutting but however, it may lead to disruptions. Outsourcing to areas which are volatile or venerable exposes the industry to disruptions in supply chains. Sometimes, outsourcing is done without proper evaluations of risks involved, such as child labour (International Labour Organisation, 2015). Most of the outsourcing is carried out in emerging economies where the legal and political system is volatile. This exposes the supply chain to risks. For example, Thailand floods disrupted the supply chains which relied on the country cheap labour. Airline industry has a complex supply chain which makes it hard to identify all disruptions associated with outsourcing. This leads to a venerable supply chain which is prone to unforeseen disruptions (Tang, 2006). For the airline companies which use low cost offshore suppliers who have a long lead time, they become vulnerable to lengthy shutdown when there are problems in transportation routes. Globalisation is associated with decentralisation of suppliers in the airline industry. This is through supplying firms specialising on a single product instead of wide range of products. This exposes the industry to risk in case the industry closes down. There has been reduction in number of suppliers. This leads to single suppliers with large orders leading to the firm enjoying reduced costs. This has contributed to overdependence on suppliers. In case the suppliers are bankrupt, a large part of supply chain is disrupted. Overreliance on sole source suppliers has affected the airline industry in a great way (Tang & Tomlin, 2008). The matter has been made worse by the fact that there has been use of common parts and centralised inventories. This has made inventories to be more venerable to disruptive risks. Another issue with the airline supply chain which can lead to disruptions is failure to regionalise. This leads to a case where a breakdown in one supply plant disrupts operations in the whole industry. Airlines which have not regionalised their supply chain face high costs of transport. This approach makes the supply chain more fragile since the impact of disruptions is felt in the entire company. Due to high costs of transport, some players in airline industry have their global supply chains being replaced by regional suppliers. There have been establishment of more cost effective supply chain where sourcing is local and it’s organised at the country level. This have helped in cost reduction and ensuring that the supply chain is less venerable from any disruptive event. This ensures that in case a disruptive event occurs in any region in a supply chain, it is contained (Tang & Tomlin, 2008). The markets affected by disruptions are served from the supply chains from the neighbouring areas. Airline industry is exposed to intentional acts which may disrupt supply chain. These are acts carried out by people with different intentions. The acts can be described as terrorism or non terrorism. Non terrorist acts include labour strikes which may paralyse the supply chain. A strike in a mining firm may lead to shortage of airplane parts. Also a strike in the cargo handling may lead to pile up which disrupts an entire supply chain. Terrorism has been a major threat to air transport as well as its supply chain (Sheffi, 2002). Modern terrorism has been acting in large scale and can disrupt an entire supply chain. Poor inventory accuracy is a major cause of venerability in airline supply chain. Analysis has been able to show the correlation that exists between inventory accuracy and airline ability to satisfy its needs. For example, an airline with a low bin inventory is more exposed to parts related delays and cancellations (Sodhi & Tang, 2012). In the airline industry, it is common to see accuracy rate going down to 60% from expected 99%. When the airline uses net inventory accuracy, it can easily skew its management perceptions through netting out its overages and shortfalls. Use of the net inventory has been a major cause of inaccuracies in the airline industry. This is due to fact that net inventorying gives more than 90% accuracy while the accurate records on parts is much lower. The airline supply chain varies in terms of complexity. This is due to the types of fleets, destinations and the maintenance framework (Tang, 2006). When there is high complexity in the supply chain, the amount of the inventory required to support the operations is influenced as well as inventory velocity. The impacts of poor performing supply chains in the airline industry are many. For example, it has been proved that about 50-60% of the costs incurred in the maintenance are as a result of a poor performing supply chain. Maintenance and parts related delays accounts for $15 million to $16 million cost annually. The best performing supply chains in the airline industry have been able to reduce the supply costs by 40%. This is especially when the process is mature or automated (Sodhi & Tang, 2012). Best performing supply chains are expected to get more from their inventories than the average performers. The impact of supply chains on the success of business units & corporately in an Airline organization Boeing have 6 business units which consist of integrated defence system, commercial airplanes, Boeing capital corporation, connexion, phantom works and shared support services. Due to the nature of industry, Boeing has a small customer base. Customers include governments and airlines and leasing companies. The supply chain management in the airline industry is based on lean supply chain. This is due to cost reduction which has led to major improvements such as adoption of process technologies. Most of cost savings in Boeing have occurred in the assembly section. The supply chain in the industry has undergone major improvement initiatives with an aim of obtaining high value at the enterprise level and across the whole supply chain network. The aircraft manufacturers have delegated more responsibilities to the suppliers. This is seen in design and system integration. STEEPLE analysis of Boeing Social This looks at the demographics, education level and the age of the customer base. Being customer base is made up of government, leasing companies and airlines. This is a customer base that is very sensitive to trends and technology changes. Due to their nature, the customers have high income levels. The three groups are major stakeholders to the company. When the company faces disruptions in their supply chains, the three groups are greatly affected. Technological This involves look at the technology in the industry. Boeing has the latest technology in its supply chain and plants. Before one qualifies to be a supplier to Boeing, they have to be vetted to meet the technological capabilities required. Economic This involves tax rates, exchange rates, economic growth and the level of consumer confidence. The economic impacts are felt through the supply chain. This is due to fact that they impact the external environment. The company enjoys subsidies which are aimed at making it more competitive. Environment This involves the company outlook towards the environment and the government regulations. The company ensures that all suppliers comply with government regulations on environment. Boeing corporate social responsibility involves adherence to environmental protection. Political This looks at the political aspects of the area of operation. Political environment affects the company operations. If there is political unrest in one of Suppliers Company, they are bound to disrupt the supply chain. Legal These are rules a company is subject to. Boeing is subject to American laws as well as laws governing the aviation industry. The company suppliers are also subject to laws in their areas of operations (International Labour Organisation, 2015). For the smooth functioning of the supply chain, laws have to be adhered to. Ethics This looks at the ethics principles and standards for business behaviour. Boeing is an ethical player in the aviation industry. The supply chain is always monitored to follow ethics in their areas of operations. With globalisation, ethics have become an important aspect of the supply chain. This is due to child labour, poor working conditions and unethical sourcing where materials are gained illegally (Ethical Trade Initiative, 2015). Boeing has been considering these in their operations. Analysis Delegating more responsibilities to the suppliers have enabled the manufacturers to have more time to concentrate on design, integration and technologies and processes associated with assembly. This has been achieved through having trust on both partners. The main aim has been to unlock the value in the entire supply chain. Boeing has complex supply chains on its business units. The supply chains also differ from each other. The major similarities occur in both commercial and military business segments (Çizmeci, 2005). This is due to fact that they utilise best practices. Boeing have one of the most elaborate and success ordering system in its supply chain. The company orders come from the leasing companies and airlines. The orders by both leasing companies and airlines are based on long term agreements. Boeing manufactures their aircraft based on the order. This has given the company a lead time of a year to a year and half based on the product. The company supply chain takes longer time when the product being ordered is new. Boeing has four major manufacturing facilities located in US. One of the facility deals with parts manufacture while the rest are involved in assembly (Çizmeci, 2005). The company have been engaging lean manufacturing efforts and uses both 2nd and 3rd tier suppliers. Boeing supply chain is divided into three main sections which are; aero structures, engines and avionics. The aero structure supply chain deals with the structural assembly of the airplane. The chain involves sourcing for aluminium, titanium and other composite materials needed. The aero structure manufactures have been a major barrier to entry in the industry. The suppliers to the aero structures have to qualify by having adequate capital, expertise and labour. These suppliers consist of the 3rd tier suppliers. The industry have been moving towards use of 1st and 2nd tier suppliers who are capable of coming up with complex components (Çizmeci, 2005). This has helped Boeing to have a fast assembly process. Boeing has more than 14 aero structures suppliers in United States. Boeing has also been very active in outsourcing their aero structures from Asia. This policy has helped Boeing to gain advantage of better technology and lower their costs. The company have only four suppliers for their engines in commercial aircrafts. Rolls-Royce, Pratt & Whitney, CFMI and General Electric are the suppliers to Boeing engine. The suppliers are selected very carefully due to sensitive nature of the industry (Ho, Xu & Dey, 2010). The selection of the suppliers in a careful manner has led to success in Boeing manufacture process leading to high levels of safety. Boeing has a supply chain that supports its business strategy. This is from the design up to the after sale services in the airline industry. This is due to fact that at the design stage, 1st and 2nd tier suppliers are involved in the design and development. This helps the company to reduce their costs and the lead time in design. The design using this process makes it easy to maintain which helps the airlines to reduce their operating costs. The company supply chain has led to high price flexibility (Çizmeci, 2005). Boeing involves the suppliers in risk/reward sharing which have led to flexibility in price negotiations. The efficient supply chain used by Boeing has helped them in adjusting their production based on pull signals which may occur in the supply chain (Sodhi & Tang, 2012). Operational metrics of the effectiveness of supply chain are; cost, quality and schedule. Boeing have been able to fir the three metrics into the company strategy by balancing them. The costs function occurs during manufacturing and the procurement processes. The schedule metrics based on offering on time delivery to the customers (Çizmeci, 2005). At Boeing, this is achieved through speed and efficiency in the entire supply chain. Most of the practices that are carried out by Boeing in their supply chain are in line with business and corporate strategy. Using suppliers who are capable of supplying integrated components have helped in some of the functions in assembly line thus saving on time. Some of the tasks are delegated to suppliers which lead to elimination of integration tasks in assembly line. Recommendations Supply chain management in the airline industry involves looking at the relationship among the members in the chain, taking control of the inventory, being able to forecast demand and receiving feedback. The operations at the airport supply chain are aimed at reducing the industry operational costs and enhance customer satisfaction. The adoption of partnering approach is a major way in which airline industry can mitigate supply chain venerability. This is the best form of relationship to manage suppliers. However, partnership is not reliable in the long run if much concentration is put on them (Tang & Tomlin, 2008). This is due to fact that complacency may creep in which can lead to reduced performance. In most cases, supply chain disruptions are beyond the manager control. Acting on the risks may lead to an effect on the supply chain. The main task that the management can engage in is reconfiguration of the supply chain so that it can handle risks more effectively (Ho, Xu & Dey, 2010). The most venerable supply chains have a single supply chain for the whole company. Through a single supply chain in the airline industry is cost effective a single disruption may lead to a major problem. The best way to curb venerability in the airline industry is through use of supply chain management. Supply chain is a critical part in the airline industry. There is need for more collaboration of partners in the airline supply chain. The main aim of eliminating venerability is to create value to the customers through minimising and eliminating waste in the system. Anything that is seen as a waste in the airline industry is also a waste in the supply chain (Tang, 2006). The airline industry should only outsource noncore activities. Conclusion Venerability of the supply chain in the airline industry are caused by economic factors, globalisation, terrorism, poor inventory management and failure to regionalise. The impacts of disruptions are many and may paralyse operations in entire system. Supply chain resilience can help a lot in mitigating these risks. Taking control of inventory, supply chain management and partnering with suppliers can help a lot in reducing supply chain venerability. There is need to reconfigure supply chain so that it can handle risks more effectively. Due to growing demand in the airline industry, players have to enhance their operational capabilities. Improving the supply chain like Boeing have done will enhance positive impacts on the business units and corporate in airline industry. Supply chain is a source of competitive advantage if well managed. Supply chains should be designed to contain risks rather than allowing them to spread. References Chen, I.J. & Paulraj, A. (2004).Towards a theory of supply chain management: the constructs & measurements. Journal of Operations Management, 22(2), 119-150. Choi T.Y, & Krause DR. (2006). The supply base and its complexity: implications for transaction costs, risks, responsiveness, and innovation. Journal of Operations Management; 24 (5), 637-652. Çizmeci, D. (2005). An examination of Boeing's supply chain management practices within the context of the global aerospace industry. Massachusetts Institute of Technology. Engineering Systems Division. Ethical Trade Initiative. (2015). Retrieved 23rd February 2015 from, http://www.ethicaltrade.org/about-eti Ho, W., Xu X, K. & Dey, P. (2010). Multi-criteria decision making approaches for supplier evaluation and selection: A literature review. European Journal of Operational Research, 202, 16-24. International Labour Organisation. (2015). Conventions and Recommendations. Retrieved 23rd February 2015 from, http://www.ilo.org/global/standards/introduction-to-international- labour-standards/conventions-and-recommendations/lang--en/index.htm Sheffi, Y. (2002). Supply Chain Management under Threat of International Terrorism. International Journal of Logistics Management, 12(2), 1-11. Sodhi, M.S. & Tang, C.S. (2012). Managing Supply Chain Risk. New York: Springer. Tang, C.S. & Tomlin, B. (2008). The power of flexibility for mitigating supply chain risks. International Journal of Production Economics, 116 (1), 12-27. Tang, C.S. (2006). Robust Strategies for Mitigating Supply Chain Disruptions. International Journal of Logistics Research and Applications, 9(1), 33-45. Wagner, S.M. & Bode, C. (2006). An empirical investigation into supply chain vulnerability. Journal of Purchasing & Supply Management, 12(6), 301-312. Appendix Fig, 1. Boeing Supply chain Fig, 2. Diagram showing airline supply chain management, http://www.metricstream.com/solutions/supply_chain_risk_management.htm Read More