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Managing New Product Development and Supply Chain Risks

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

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

2 Agenda Supply Chain Transformation Process 1.1 Vision
Problem Diagnosis Supply Chain Redesign Deriving Competitive Advantage Porter Market Analysis Model Maintaining Competitive Advantage

3 Agenda Supply Chain Transformation Process 1.1 Vision
Problem Diagnosis Supply Chain Redesign Deriving Competitive Advantage Porter Market Analysis Model Maintaining Competitive Advantage

4 Dreamliner Supply-Chain Transformation Process
Vision Tranformation 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 Means Suppliers Expected Benefits Outsourcing
Reduce financial investment Increase Supplier Responsibilities Construction of entire parts Reduce development time From Manufacturer to coordinator Strategic Partnership Reduction of financial risk Technological Innovation Increase Production Capacity Air Transportation Exploit suppliers‘ knowledge

7 Problem Diagnosis Delay Technology Supply Process Management Labor

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

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

10 Supply Chain Redesign: Implemented
Boeing took the following measures to adress the problems and risks encountered: 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) Redraw area of responsibilities More control Supply chain expertise Ended the strike, withdrawal of charges

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

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

13 Improve Strategic Supplier Selection Process and Relationships
Supply Chain Redesign Goal Activity Risk Adressed Improve Strategic Supplier Selection Process and Relationships 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 Overburdened or inexperienced suppliers  delays Supplier

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

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

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

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

18 Agenda Supply Chain Transformation Process 1.1 Vision
Problem Diagnosis Supply Chain Redesign Deriving Competitive Advantage Porter Market Analysis Model Maintaining Competitive Advantage

19 Industry Overview Competi-tion Potential entrants Buyers Substitutes
Suppliers

20 Industry Overview Competition
Aerospace manufacturing industry is highly concentrated Top competitors: EADS (and its subsidiary Airbus) Lockheed Martin Northrop Grumman First, we take a closer look at Boeing‘s current competition. The aerospace manufacturing industry is a highly concentrated industry. The 20 largest companies generate 90% of the industry‘s revenue. Boeing‘s most important competitors are, among others: The EADS and its subsidiary Airbus, Lockheed Martin and Northrop Grumman. You may consult the appendix for further information on these companies.

21 Industry Overview Substitutes Airbus is developing the A350 (late-2014) Boeing A Passengers 280 (3-class) 270 (3-class) Range 8,000-8,500 nmi 8,560 nmi Length 206 ft. 199 ft. Currently, Airbus is developing the A350, which is expected to start operating in late 2014. We considered a comparison between the „strech version“ of the dreamliner, the Boeing and the A and concluded that the company‘s are similar enough to be perceived as substitutes by potential buyers.

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 Boeing‘s „order-to-performance“ the company risks creating new future competitors. The aerospace industry is highly regulated. Companies have to comply to regulations published by the Federal Aviation Administration (FAA), the Environmental Protection Agency (EPA) and other institutions such as the military, NASA or Homeland Security. Furthermore,

23 Industry Overview 2013 Bombardier CS 100 and CS 300 Compete against Boeing Commercial Aircraft Corporation of China (COMAC) C ER Competes against Boeing 737 and A320 United Aircraft Corporation Irkut MS-21 2016 From our competitor analysis, we concluded that the following three companies might pose a threat for Boeing, especially in the seat market. Bombardier, a Canadian manufacturer, the Commercial Aircraft Corporation of China and the Russian United Aircraft Corporation all target the Boeing 737. The 737 is the company‘s bestselling airplane: At the end of of the 3546 orders outstanding were 737 (almost 65%) and in % of deliveries were 737. 2016

24 Industry Overview Supplier
Not a traditional supplier-buyer relationship Instead partners in the sense of mutual dependency Minimum bargaining power Porter‘s five forces assess the company‘s relationships to suppliers to evaluate how easy it is for suppliers to drive up prices. This depends on the numbers of suppliers of each key input, the uniqueness of their input, the cost of switching to another supplier and so on. However, Boeing and its suppliers do not have a traditional supplier-buyer relationship. They are rather partners in the sense of mutual dependency. Therefore, supplier‘s bargaining power is restricted, because suppliers themselves rely on the partnership with Boeing.

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 As a last force, it is important to consider how easy it is for customers to drive down prices. Airline manufacturers have only a limited number of manufacturers to choose from. Moreover, customers order aircraft years before the aircraft is finished and are obligated to fulfill the contract. Furthermore, Boeing faces considerable demand from different customers. The company should – obviously – ensure that it meets the demands of its existing customers. Nevertheless, the fact that there are other potential buyers reduces customers bargaining power. Boeing has a significant backlog: in 2009 orders amounted to $316 billion Boeing can expand into the Asia-Pacific region to take advantage of the growing demand in this region: In Asia, the liberalization of the market for air traveling resulted in low-cost airlines significantly improving their marketshare. These low-cost airlines need airplanes and maintainance and are therefore potential customers of Boeing. Japan, India and China had high defense expenditures: In 2008, the three countries together had defense spendings of billion dollar. Boeing does not only profit from defense spending in Asia, but also from the defense expenditures of the United States. E.g. during early 2009 the company received a contract from Missile Defence Agency (MDA) worth 250 million dollars.

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

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

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

31 Presented by Laura Kirsch Melina Zurek Marcus Wigand Michael Combach

32 Questions and Answers Questions?

33 Appendix: Boeing‘s 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 100 CS 300 Boeing Passagers Range (nmi) 2200 3050 Length 114 ft. 6 in. 124 ft. 10 in. 102 ft. 6 in. Height 37 ft. 9 in. 41 ft. 3 in. Wing Span 115 ft. 1 in. 112 ft. 7 in.

37 Appendix: Future competitors analysis
Commercial Aircraft Cooperation of China COMAC C ER Boeing Passagers 156 (mixed-class) Range (nmi) 3000 3050 Length 124 ft. 8 in. 102 ft. 6 in. Wing Span 114 ft. 10 in. 112 ft. 7 in.

38 Appendix: Future competitors analysis
United Aircraft corporation Irkut MS Boeing Passagers 150 (1-class, standard) Range (nmi) 3100 3050 Length 117 ft. 9 in. 102 ft. 6 in. Height 37 ft. 9 in. 41 ft. 3 in. Wing Span 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) Strengths Strong growth prospects
Sustained business due to strong order backlog Leading market position Well-diversified and broad product range Weaknesses Deteriorated liquidity position Declining operating margin Declining market share Strikes

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

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: Commercial airlines Integrated defense systems Boeing Capital Corporation 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: Boeing‘s 20-year Forecasts (1/2)

52 Appendix: Boeing‘s 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: With “multiple tasks” concentration on tasks that lead to monetary incentives Short-term orientation Imbalance of exploration and exploitation

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


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