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Boeing Dreamliner: Managing New Product Development and Supply Chain Risks.

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Presentation on theme: "Boeing Dreamliner: Managing New Product Development and Supply Chain Risks."— Presentation transcript:

1 Boeing Dreamliner: Managing New Product Development and Supply Chain Risks

2 Agenda 1.Supply Chain Transformation Process 1.1 Vision 1.2 Transformation 1.3 Problem Diagnosis 1.4 Supply Chain Redesign 2.Deriving Competitive Advantage 2.1 Porter Market Analysis 2.2 Model 2.3 Maintaining Competitive Advantage

3 Agenda 1.Supply Chain Transformation Process 1.1 Vision 1.2 Transformation 1.3 Problem Diagnosis 1.4 Supply Chain Redesign 2.Deriving Competitive Advantage 2.1 Porter Market Analysis 2.2 Model 2.3 Maintaining Competitive Advantage

4 Dreamliner Supply-Chain Transformation Process VisionTranformation Problem Diagnosis Redesign / Reconstruction Monitoring

5 Vision 2016 Change Boeing from a wrench-turning manufacturer to a master planner, marketer and snap-together assembler of high-tech airplanes. Created bevor the Boeing-McDonnell Merger in 1997

6 Transformation Vision Expected Benefits SuppliersMeans From Manufacturer to coordinator Increase Supplier Responsibilities Strategic Partnership Technological Innovation Air Transportation Reduce development time Reduction of financial risk Increase Production Capacity Exploit suppliers knowledge Construction of entire parts Outsourcing Reduce financial investment

7 Problem Diagnosis Delay TechnologySupplyProcessManagementLabor

8 Problem Diagnosis Composite fuselage safety issues Engine interchangebility issues (15 days) Computer network security issues Technology Some tier-1 suppliers lack know-how to develop parts and select tier-2 suppliers Risk-sharing contract, incentives to produce slower Supply Overreliance on tier-1 partners (JIT-delivery) Lack of coordination of suppliers activities Process Invisible to Boeing

9 Problem Diagnosis Inexperienced management team without supply chain expertise led to management failure Management Union strike in 2008, resulted in delays and costs Incentive Problems Labor Delay caused by the encountered problems costs Boeing penalties of $500m per month of delay

10 Supply Chain Redesign: Implemented Technology Modified design Supply Purchased companies at bottleneck stage (e.g Vought Aircraft Industries) Limited roles of suppliers (e.g. Israel Industries) Process Put pressure on suppliers, stationed Boeing employees in every major supplier factory Management Reorganization of top management (Shanahan replaced Blair) Labor Conceded to unions (15% pay raise over 4 years and reduction of outsourcing, compete for work) Boeing took the following measures to adress the problems and risks encountered: Redraw area of responsibilities Ended the strike, withdrawal of charges Supply chain expertise More control

11 Supply Chain Redesign: Recommendations Our recommendation: Proactive Risk Reduction/Elimination Risks Proactive Measures

12 Supply Chain Redesign All suppliers have to use IT integration systems Penalties as incentives to use Exostar timely and accurately Improve Supply Chain Visibility No accurate use of planning system: Little knowledge about progress of suppliers (esp. Tier-2) and late detection of delays Supply Chain GoalActivityRisk Adressed

13 Supply Chain Redesign Put more effort in evaluating technical capabilities and supply chain expertise of potential suppliers (e.g. scorecard) Help tier-1 suppliers to select tier-2 or -3 suppliers Increase communication and cooperation with suppliers Improve Strategic Supplier Selection Process and Relationships Overburdened or inexperienced suppliers delays Supplier GoalActivityRisk Adressed

14 Supply Chain Redesign Provide proper incentives for tier-1 suppliers to complete their tasks early Penalties for late deliveries Rewards for delivery on-time Modify the Risk- Sharing Contract Tendency for suppliers to deliver late in order to avoid unfair punishment Supplier GoalActivityRisk Adressed

15 Implement Management Audits for current and prospective managers Identify the right executive for this challenging situation Establish proper management team with expertise in supply chain management Lack of supply-chain know-how of the management team Management Team GoalActivityRisk Adressed

16 Incentive system: Pay for performance/ job security Link to company performance: success participation Align company and union/ employee objectives Discuss strategies before implementing them Enhance internal Communication Labor Strikes $100m/day Labor Relationship Management GoalActivityRisk Adressed

17 Give accurate information about delay in delivery times Enhance external communication throughout development process Help customer to set proper expectations by giving proper predictions Offer alternative solutions Bargaining possible via finance? Help customers with a replacement schedule Loss of customersʹ trust + Contractual Penalties Customer Relationship Management GoalActivityRisk Adressed

18 Agenda 1.Supply Chain Transformation Process 1.1 Vision 1.2 Transformation 1.3 Problem Diagnosis 1.4 Supply Chain Redesign 2.Deriving Competitive Advantage 2.1 Porter Market Analysis 2.2 Model 2.3 Maintaining Competitive Advantage

19 Industry Overview Competi- tion Potential entrants BuyersSubstitutesSuppliers

20 Industry Overview Competition Aerospace manufacturing industry is highly concentrated Top competitors: EADS (and its subsidiary Airbus) Lockheed Martin Northrop Grumman

21 Industry Overview Substitutes Airbus is developing the A350 (late-2014) Boeing 787-9A Passengers280 (3-class)270 (3-class) Range8,000-8,500 nmi8,560 nmi Length206 ft.199 ft.

22 Industry Overview Potential Entrants highly regulated industry (Federal Aviation Administration, EPA) Technical expertise is crucial Capital-intensive industry These factors pose barriers to entry However, due to Boeings order-to-performance the company risks creating new future competitors.

23 Industry Overview CS 100 and CS 300 Compete against Boeing Bombardier C ER Competes against Boeing 737 and A320 Commercial Aircraft Corporation of China (COMAC) Irkut MS-21 Competes against Boeing 737 and A320 United Aircraft Corporation

24 Industry Overview Supplier Not a traditional supplier-buyer relationship Instead partners in the sense of mutual dependency Minimum bargaining power

25 Industry Overview Customer Limited number of airline manufacturers Customers order aircraft years before the aircraft is finished, are obligated to fulfill the contract Furthermore, Boeing faces considerable demand: Backlog Growing demand from Asia Defense spending

26 Deriving Competitive Advantage: Model Competitive Advantage Core competencies Opportunities Value Chain Improved Value Chain

27 Deriving Competitive Advantage: Model Core competencies Opportunities Match Well-diversified business Market leadership experience Know-how/expertise for building commercial aircrafts Emerging trends in Asia (defence as well as comm. planes) Positive long-term outlook in aviation industry High defense spending

28 Deriving Competitive Advantage: Model Competitive Advantage Core competencies Opportunities Impro ved Value Chain strategic flexibility organizat. learning technology management Improved Value Chain

29 Deriving Competitive Advantage: Model Competitive Advantage Core competencies Opportunities Improved Value Chain Efficiency/Effectiveness Quality Responsiveness to customers Innovation

30 Maintaining Competitive Advantage Current competitive advantage: unique experience in supply chain process Apply to further projects and thus leverage the effect Monitor and continually improve Supply Chain Process Future Competitive Advantage

31 Presented by Laura Kirsch Melina Zurek Marcus Wigand Michael Combach

32 Questions and Answers Questions?

33 Appendix: Boeings Suppliers for the Dreamliner

34 Appendix: Trends and Opportunities Industry Trends Increasing importance of efficiency due to volatile fuel prices Industry consolidation and formation of partnerships: Five major companies dominate, and hundreds of other companies act as suppliers Industry Opportunities Outsourcing of aircraft maintainance through airlines as new business opportunity Replacement of air force fleet

35 Appendix: Future competitors analysis Bombardier The Canadian company with headquarters in Montreal produces aircrafts, business jets, mass transportation equipment and also provides financial services. Its new CSeries are equipped with new, more efficient engines and the fuselage contains a high percentage of composite materials. Furthermore, Bombardier stresses the airplanes eco-friendliness. In these aspects, the Cseries are similar to the Boeing 787 and the A350. Since the Boeing is basically a smaller version of a bigger airplane, it is rather inefficient and was sold only few times.

36 Appendix: Future competitors analysis CS 100CS 300Boeing Passagers Range (nmi) Length114 ft. 6 in.124 ft. 10 in.102 ft. 6 in. Height37 ft. 9 in. 41 ft. 3 in. Wing Span115 ft. 1 in. 112 ft. 7 in.

37 Appendix: Future competitors analysis Commercial Aircraft Cooperation of China COMAC C ER Boeing Passagers156 (mixed-class) Range (nmi) Length124 ft. 8 in.102 ft. 6 in. Wing Span114 ft. 10 in.112 ft. 7 in.

38 Appendix: Future competitors analysis United Aircraft corporation Irkut MS Boeing Passagers150 (1-class, standard) Range (nmi) Length117 ft. 9 in.102 ft. 6 in. Height37 ft. 9 in.41 ft. 3 in. Wing Span117 ft. 9 in.112 ft. 7 in.

39 Appendix: List of Competitors AgustaWestland Airbus BAE System Bombardier Dassault Aviation Embraer EADS Finmeccanica GE Aviation General Dynamics Goodrich Corp. Kaman Lockheed Martin Northrop Grumman Raytheon Rockwell Collins Textron Thales United Technologies

40 Appendix: SWOT (1/2) Strong growth prospects Sustained business due to strong order backlog Leading market position Well-diversified and broad product range Strengths Deteriorated liquidity position Declining operating margin Declining market share Strikes Weaknesses

41 Appendix: SWOT (2/2) Development of Asia-Pacific Region Aircraft financing market gradually improving Long-term outlook of aviation industry Opportunities Dependence on U.S. budget spending Global economy still fragile Intense competition Currency exchange rates Threats

42 Appendix: SWOT Strengths (1/3) Strong Growth Prospects: P/E ratio of 12.2 exceeds S&P 500 companies average of 9.2 (at the end of fiscal year) Sustained business due to strong order backlog: Significant backlog increase in 2009 ($316B) and 2008 ($323B) - compared to 2007 ($296,6B) New orders exceeded deliveries (737 NG, 767, 777, 787)

43 Appendix: SWOT Strengths (2/3) Leading market position Commercial airline industry: one of the two major manufacturers of airplanes Defense airplane industry: second largest contractor in the U.S. Well-diversified and broad product range: Four segments: o Commercial airlines o Integrated defense systems o Boeing Capital Corporation o Others (e.g. air traffic management) decline/stagnation in one business can be offset by another segment

44 Appendix: SWOT- Strengths (3/3)

45 Appendix: SWOT – Weaknesses (1/3) Deterioated liquidity position: Weaker financial position than competitors current ratio of 0.8 compared to S&P companies average 1.4 (year 2008) Declining sales volume in commercial airlines resulted in increase in inventory

46 Appendix: SWOT- Weaknesses (2/3) Declining operating margin Indicates ineffecient cost managment and weak pricing strategy.

47 Appendix: SWOT-Weaknesses (3/3) Strikes Strikes of the IAM in 2008 resulted in a slowdown and substantial decline in deliveries Lost revenues amounted to $6.4B

48 Appendix: SWOT-Opportunities Development of Asia-Pacific Region Extraordinary defense acquisitions (e.g. India, China, Japan) Market liberalization: enablement of low-cost airlines to gain market share demand for planes as well as MRO services Aircraft financing market gradually improving Long-term outlook of aviation industry (next 20 years)

49 Appendix: SWOT-Opportunities Long-term outlook of aviation industry (next 20 years) Estimated increase in commercial travel: 5% Estimated increase in cargo sector: 5,8% Expected rise in demand for airplanes: upgrade of number of airplanes from 19,000 in 2008 to 35,800 (2027)

50 Appendix: SWOT-Threats Dependence on U.S. budget spending Integrated Defense system business represents largest fraction of generated revenues Global economy still fragile Intense competition Commercial aircraft: Airbus Integrated defense systems: EADS Currency exchange rates Purchases, sales, borrowings: many different local currencies as well as different markets Fluctuations in exchange rate affect Dollar value and thereby have a considerable impact on profitability

51 Appendix: Boeings 20-year Forecasts (1/2)

52 Appendix: Boeings 20-year Forecasts (2/2)

53 Appendix: Pay for Performance Elements which should be included in PfP schemes: innovation, independent actions, contributions to team performance etc. Results of empirical analyses: Overall no correlation between PfP and company performance Reverse causality possible: company performance results in incentives PfP increases motivation only for simple, well measurable tasks Badly designed PfP systems can have negative effects: o With multiple tasks concentration on tasks that lead to monetary incentives o Short-term orientation o Imbalance of exploration and exploitation

54 Appendix: Pay for Performance Whats Wrong with PfP? Assumption of PfP systems: People have enough information to work effectively and all other organizational systems are not the main roadblocks to performance Performance is under the control of the people who get the incentives Financial incentives turn attention to the organizational values and its priorities PfP attracts the right people and repels the wrong ones Many organizations implement PfP because it is a management fashion

55 Appendix: Future Outlook Newly arising demand for aerospace technology Become a leader in knowledge and technology to foster company based attractiveness China: need for commercial and defense aircraft and barriers to market entry Establish joint ventures in China Airbus is able to launch a comparable plane in approximately three years Improve efficiency and decrease costs of 787 to stay ahead of Airbus Difficulties of integrating suppliers Establish Knowledge Management System and product platform comprising complete supply chain

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