Boeing 787:Case Analysis ASHISH JUDE MICHAEL What went wrong? Boeing 787: Dreamliner A detailed analysis of issues causing delay of Boeing 787 and suggesting a model which would had prevented these issues. (This case analysis is only for academic purpose) P G P E x 2 0 1 2 -­­ 1 3 IIMShillong 2 Boeing 787:Case Analysis Introduction (Extract from Case): In April 2008, Boeing confirmed a delay in the 787-­­airplane and announced a 14-­­ mont delay in delivering Boeing’s most anticipated airplane. The Boeing 787-­­ airplane, to be put in service in 2008 Initially, has become Boeing’s best-­­selling new plane ever; as of September 2008, the Boeing Company had orders for 895 airplanes from 58 customers worldwide with an estimated backlog value of $151 billion (see Exhibit 1). Although not a full-­­blown crisis such as the one faced by Airbus with its A380 airplane delays, the announcement was nonetheless a potentially serious setback for Boeing. Notes the Wall Street Journal: “Some analysts believe Boeing could be liable for as much as $4 billion of concessions and penalty payments to airlines for missed deadlines. Boeing plans to book the first 25 deliveries at zero-­­profit margin to cover penalties.”1 Analyst estimates indicate that the delay could cost Boeing over $2 billion dollars in penalties alone, plus additional R&D expenses over the next few years (see Exhibit 2). According to Boeing’s revised schedule, the first test flight of the 787-­­airplane was expected to be carried out in late 2008, and the first deliveries in the 3rd quarter of 2009. The company also planned a dramatically slower ramp-­­up in production; Boeing’s goal now is to produce 10 787s a month starting in 2012, a figure significantly lower than originally planned (see Exhibit 3). Notes Boeing’s 787 spokesperson, Yvonne Leach, the average delay for all 58 787-­­customers is expected to be about 20 months. Problems Statement: Delay in planed scheduled of Boeing 787 and the heavy loss (about 4 Billion USD) incurred to Boeing because of that. Objective: Find the reasons, which caused the delay and analyze them, suggest the probable solutions for the prevention and corrective action of this problem. Methodology: Analyzing the problem from Supply Chain Management (SCM) perspective and tackling the problem by studying the implication of various suggestions suggested and implementing the same in the present scenario. Keeping in mind the cost of implementing this suggestion should not exceed the cost of penalty paid by Boeing, time and complexity. As I am not having exact data I will only be discussing the different approaches, which can be used for analyzing & solving the problem faced by Boeing 787 program. Problem Analysis: If we read the case we can find that there were more than one problem which cumulatively gave rise to this delay. I will be discussing each one by one: 1. Unexpected Shortages of Fasteners. Unexpected Shortage of fasteners made Boeing to pressurized suppliers for quick delivery and they rushed to make the fasteners as a result they did not properly documented the work as required by federal authority. Boeing 787:Case Analysis 3 2.Underestimation of work content in the task of writing flight control codes: Both Boeing and Honeywell initially underestimated the work content, which was there in writing these codes as a result they were now scrambling to write them. 3. From bleeding edge to leading edge: Boeing introduced first time a game changing innovation which they call “Bleeding edge” in order to have a “Leading edge”. This innovation was the extensive usage of carbon fiber (composites) technology. 787 used as much as 50% of its total weight of composited as compared to 12% in 777. (Exhibit 7) This helped to reduce the weight of aircraft and hence improve the fuel efficiency. But if the components of the aircraft are too light which was the case with central wing box needed strengthening. To over come this, engineers devised a patch for first 6 aircraft and will change the design after seventh one. Designing patch caused Boeing months delay and re-­­designing the central wing box, which was the responsibility of Boeing’s partner, now became Boeing’s concern. This a big problem unless the flight test are cleared. 4. Boeing’s business strategy: Boeing out sourced a large amount of responsibilities to overseas (Spain, Italy, France, Australia and Japan). This projest has the maximum number of outsourced components (Exhibit 5) . There are as many as risk sharing 50 partners. This caused delay in fuselage assembly because of the breaking of supply chain between the suppliersi.e. Vought received parts from Japan & Australia where else Isreal Aircraft Industries was doing all things by itself for similar parts and another was the lack of aerospace experience of workforce among some suppliers ie. Spirit Aero-­­Systems. 5. Revised plan: Responding quickly to the delay Mr.Shanahan revamped 787 executive team and reorganized into : 1) Airplane development. 2) Global Supply Chain 3) The final assembly and delivery. Also Boeing sent its employees stationed at each suppliers factory in order to have better control over the supply chain. Vought’s & GA’s plant problem is fixed by Ex-­­Boeing managers in each plant. Production activities were rationalized and areas of responsibilities were re drawn to speed up aircraft production. 6. Potential Treats: Strikes by Labor and Engineers are threatening Boeing now. The labor strike is basically against the outsourcing done by Boeing and the pressure caused by Boeing on the employees to start assembly of aircrafts with thousands of shortages. And the engineers want to reduce the number of contract jobs created by Boeing. Both of the unions want more Jobs and are against the business 4 Boeing 787:Case Analysis strategy of Boeing, The strike is such a big problem that if there are three strikes and it will be very difficult for Boeing to run the show. Hypothesis Development & Analysis: In hypothesis development I will try to solve the listed problems with each one of the below states strategy: 1. Lean Management: Specify the value desired by the customer. Identify the value stream for each product. Make the flow continuously. Introduce pull between all steps where continuous flow is possible. Manage towards perfection. Principle behind lean management is to reduce waste. Above stated matrix shows how we can implement LEAN concept. If we consider the problem faced by Boeing and try to solve them one by one we will find if Lean is useful for us. Problem with LEAN is that it is basically works at tactical or operational level and it takes time to implement. Implementation of LEAN leads to: 1. Speed up the value chain. 2. Waste elimination. 3. Value system redesign. 1. Unexpected Shortage of Fasteners: First question arises why the fasteners felled shortage? There can be two scenario’s either less quantity was ordered or they were wasted during assembly. The first scenario may be due to the mistake during ordering which is generally negligible. Second scenario may be possible that the available quantity of fasteners were wasted during assembly. LEAN Management can address this. By giving limited number of fasteners to an operator whose job is only to do that particular job in a lean production line. 2. Underestimation of work content in the task of writing flight control codes: This is a lapse, which can contribute to a strategic level forecasting & planning failure. In this case we can implement LEAN at operation level by speeding up the coding process which can be said as a Corrective action rather than preventive action. Hence we cannot solve this problem by LEAN. 3. From bleeding edge to leading edge: Boeing has tried some innovative technology and this problem aroused during R&D phase and LEAN concept can’t help us much in solving this problem. 4. Boeing’s business strategy: The difficulty to manage the supply chain among the suppliers and Boeing. The problem was regarding the balancing of supply chain and ensuring that product Boeing 787:Case Analysis 5 flows continuously. Lean would have helped at operational and at most tactical level but not strategic level. 5. Revised plan: We can see the role of LEAN when Mr.Shanahan revamped 787 executive team and reorganized into : 1) Airplane development. 2) Global Supply Chain 3) The final assembly and delivery. 4) Sending Boeing representatives to supplier’s location. 6. Potential Treats: The major reason for strikes stated is the anger due to the number of jobs Outsourced. Hence here also Lean concept can’t be applied. Thus we can see that we can help us in fixing some issues (2 out of 6) but not all by LEAN Concept. Main drawback is cannot be used as a tool for strategic supply chain improvement tool. We can achieve Island of excellence in an organization by implementing only LEAN and will take lot of time to yield results. 2.Six Sigma: D M A I C Define the customer, Critical to Quality issues, business process. Measure the performance of business of the business process. Analyze to determine the root cause and opportunities for improvement. Improve the process, develop and deploy implementation plan. Control the improvement to keep on new course. By implementing Six Sigma we can achieve: 1. Variation Reduction. 2. Stability & Accuracy In this problem we and attack the problem at microscopic level, we can standardize various processes and reduce the variations. We will try to solve each problem by Six sigma and see how efficient is it in present case. 1. Unexpected Shortage of Fasteners: If we assume that the shortage rise was due to the bad quality of fasteners supplied by supplier. Six Sigma would had help the supplier to reduce its variation so that the fasteners would had been standardized and this problem would had been prevented. In other words Boeing can demand its suppliers and its own factory to adhere to Six Sigma level in critical processes. 2. Underestimation of work content in the task of writing flight control codes: We can’t help this problem just using Six Sigma. 6 Boeing 787:Case Analysis 3. From bleeding edge to leading edge: Design by Six Sigma technique would have helped in preventing this problem. And also for redesigning we should follow the same. 4. Boeing’s business strategy: Six Sigma can’t help business strategy, as Six Sigma is operation level concept not a strategic level. 5. Revised plan: Revised plan can take help of Sig Sigma when the Boeing repersentatives stationed at supplier premises pressurize them to improve their critical processes to Six Sigma level. 6. Potential Treats: Sig Sigma may not help us in solving the threat of strikes. In brief we can say that thought at operational level we may improve the scenario but at strategic level we cannot do by utilizing Six Sigma. 3. SCOR (Supply Chain Operation Reference) Model: SCOR helps us optimizing supply chain as a whole by: 1. Top down analysis 2. End to end view Above diagram gives a general end-­­to-­­end view of a supply chain. And in next diagram shows the implementation of SCOR Model. Boeing 787:Case Analysis 7 SCOR is a SCM reference models it integrate the well-­­known concepts of business process reengineering, benchmarking and process measurement into a cross-­­ functional framework. The below stated diagram explains how it helps in strategic supply chain management. 8 Boeing 787:Case Analysis Lets try to solve problems faced by Boring through SOCR Model. 1. Unexpected Shortages of Fasteners. If we assume that the shortage occurred because of the non-­­receipt of items from suppliers we can solve the issue by SCOR but Quality issues of supplier can’t be covered. 2.Underestimation of work content in the task of writing flight control codes: This could have been prevented if SCOR model would have been adopted. 3. From bleeding edge to leading edge: This is a design issue, which cannot be solved by SCOR. 4. Boeing’s business strategy: SCOR is a strategic tool to optimize strategy hence it could have been used. 5. Revised plan: Revised plan could have been much better if they would have used SCOR model completely. 6. Potential Treats: Redefining the supply chain strategy can arrest potential threats, which can also be done by following SCOR model. But it may not solve the complete problem. We can see that SCOR model would have been able to help us to solve many problems but not all. 4. Convergence Model (Six Sigma+Lean+SCOR) Convergence model is the intersection of Six Sigma, Lean & SCOR. The diagram below shows clearly what is Convergence Model. Boeing 787:Case Analysis 9 First I will explain how Six Sigma model (DMAIC) is followed in Supply Chain Excellence perfectly synchronize with each other. “Define” can be used to supply chain definition and priorities, “Measure” can be used to analyze “SCOR” card, “Analyze” analogous to Work and information flows, “Improve” to implementation plan and “Control” to Deployment Organization. Define Measure Analyze Improve Control Supply chain definition and priorities. Analyze basis of competition (SCORcard). Work and Information Flows. Project definitions and implementation plan. Deployment organization. We can also say that Six Sigma can be used to control the microscopic parameters of SCOR model. Now I will discuss how each attribute of SCOR both Internal & Customer can be achieved by either Six Sigma or Lean. In below stated matrix it is shown how each attribute is related to a Metric or Activity and the approach we should use. Customer Internal Reliability Responsiveness Flexibility Costs Assets Perfect Order fulfillment. Order Fulfillment Cycle time. Supply Chain Flexibility. Supply Chain Management Cost. Cost of Goods Sold (COGS). Cash to cash cycle time. Return on supply chain fixed assets. Return of Working Capital. Six Sigma Lean Lean Lean Lean & Six Sigma Lean & Six Sigma Lean & Six Sigma Lean & Six Sigma Now we will try to solve the problems using SCOR model and also how actually the problems were solved actually. 1. Unexpected Shortages of Fasteners. We can assume this problem would had arise because of: a) Low quality of fasteners sent by supplier: This can be solved by improving quality and implementing Six Sigma at suppliers premisis. b) Limited quantity was ordered and was wasted during assembly at Boeing assembly. To prevent this LEAN concept can me implement in Being Assembly line. c) As a result of shortage Boeing pressurized suppliers for quick delivery and they rushed to make the fasteners as a result they did not properly documented the work as required by federal authority. Here SCOR model comes into play Boeing would have dilated risk by keeping more suppliers also requirement of documentation of process would had been floated to supplier along with other additional requirement. And plan 10 Boeing 787:Case Analysis would have been drawn in keeping in mind the lead-­­time taken by supplier and also strategy in case the supplier misses its delivery schedule. 2.Underestimation of work content in the task of writing flight control codes: This could have been controlled if both LEAN and SCOR would had been followed. LEAN for standardization and proper scheduling so that correct estimate regarding completion of activity can be determined. SCOR in the case of properly re-­­arranging this activity in supply chain plan and also a back-­­up plan if this gets delays which other activity can be completed. 3. From bleeding edge to leading edge: Using 50% composite material was going to be break through innovation in Aircraft manufacturing. SCOR would have enabled to properly plan and given some cushion for solving problems like these and integrate that plan with the supply chain so that this problem would not had affected this assembly like in such a critical manner. 4. Boeing’s business strategy: Convergence is the most appropriate tool to optimize a vast supply chain network with so many risk partners. As a project with such level complexity we have to control quality of its and suppliers (tier 1,2&3), On Time Delivery (OTD) of its own & suppliers, control on overall cost of supply chain and the real time flow of information among all risk partners. A holistic picture is required. If we see Convergence model Quality related parameters can be taken care by Six-­­Sigma, OTD and Cost control by LEAN concept and real time information flow, holistic picture and other supply chain optimization by SCOR model. 5. Revised plan: If we observe the revised plan closely they have adopted some parameters of Six Sigma and SCOR. For example sending representatives into supplier’s premises to ensure good quality, OTD and correct information flow. LEAN was missing as it will take lot of money to stationed your representative at each factory location of a supplier. It’s an additional cost to Boeing. 6. Potential Treats: Potential threats of strikes would also had been reduced by opting convergence model as the frustration in the employees due to unplanned activities would have been less. They would have saved more on cost and would have given incentives to both engineers and employees. Hence I definitely would have suggested Boeing management to Implement Convergence model for management of their supply chain instead of adopting partly some solutions Six Sigma , LEAN & SCOR in bits and pieces. As overall synergy of these three can bring wonders. Boeing 787:Case Analysis 11 Suggested Solution: Lean Six Sigma SCOR Convergence ✔ ✔ ✖ ✔ ✖ ✖ ✔ ✔ ✔ ✔ ✖ ✔ ✔ ✖ ✔ ✔ ✔ ✔ ✔ ✔ The above matrix you can see that by adopting Convergence model we can attack simultaneously all the problems and solve them. That will take less time as compared to solve each problem with different approach, as all of these problems are interlinked. Conclusion: I was not able to add much of mathematical analysis, as I wanted to analyze the case by descriptive analysis rather than analytic, as I was not having the exact cost of implementing these models at a scale which Boeing require them. For understanding them I need some company confidential data. But still with the amount of penalty levied on Boeing amounted to 2507 Million USD for initial 310 aircrafts and a whooping 4 Billion USD is anticipated for entire project. This is a huge amount and we would have implemented Convergence model in much lesser than this. For Vast & Complex Global Supply Chain like Boeing 787 Convergence is a complete SCM management model. -­­-­­-­­-­­-­­-­­-­­-­­-­­-­­-­­-­­-­­-­­-­­-­­-­­ ✖ ✖ ✖ ✔ 12 Boeing 787:Case Analysis Boeing 787:Case Analysis 13 14 Boeing 787:Case Analysis Boeing 787:Case Analysis 15 Reference Case: Boeing 787: The Dreamliner (B) from Foster Business School; University of Washington (Exhibits are taken from the case it self). Sources: 1. SCOR, Lean and Six Sigma – Supply Chain Synergy by Douglas Kent and Hitesh Attri. 2. Supply Chain Operations Reference (SCOR) Model Convergence with Lean and Six Sigma by Matthew J. Milas.
