Presentation on theme: "Managing New Product Development and Supply Chain Risks"— Presentation transcript:
1Managing New Product Development and Supply Chain Risks Boeing Dreamliner:Managing New Product Development and Supply Chain Risks
2Agenda Supply Chain Transformation Process 1.1 Vision Problem DiagnosisSupply Chain RedesignDeriving Competitive AdvantagePorter Market AnalysisModelMaintaining Competitive Advantage
3Agenda Supply Chain Transformation Process 1.1 Vision Problem DiagnosisSupply Chain RedesignDeriving Competitive AdvantagePorter Market AnalysisModelMaintaining Competitive Advantage
4Dreamliner Supply-Chain Transformation Process VisionTranformationProblem DiagnosisRedesign / ReconstructionMonitoring
5Vision 2016Change 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
6Transformation Vision Means Suppliers Expected Benefits Outsourcing Reduce financial investmentIncrease Supplier ResponsibilitiesConstruction of entire partsReduce development timeFrom Manufacturer to coordinatorStrategic PartnershipReduction of financial riskTechnological InnovationIncrease Production CapacityAir TransportationExploit suppliers‘ knowledge
8Problem Diagnosis Invisible to Boeing Technology Composite fuselage safety issuesEngine interchangebility issues (15 days)Computer network security issuesSupplySome tier-1 suppliers lack know-how to develop parts and select tier-2 suppliersRisk-sharing contract, incentives to produce slowerProcessOverreliance on tier-1 partners (JIT-delivery)Lack of coordination of suppliers activitiesInvisible to Boeing
9Problem DiagnosisManagementInexperienced management team without supply chain expertise led to management failureLaborUnion strike in 2008, resulted in delays and costsIncentive ProblemsDelay caused by the encountered problems costs Boeing penalties of $500m per month of delay
10Supply Chain Redesign: Implemented Boeing took the following measures to adress the problems and risks encountered:TechnologyModified designSupplyPurchased companies at bottleneck stage (e.g Vought Aircraft Industries)Limited roles of suppliers (e.g. Israel Industries)ProcessPut pressure on suppliers, stationed Boeing employees in every major supplier factoryManagementReorganization of top management (Shanahan replaced Blair)LaborConceded to unions (15% pay raise over 4 years and reduction of outsourcing, compete for work)Redraw area of responsibilitiesMore controlSupply chain expertiseEnded the strike, withdrawal of charges
12Improve Supply Chain Visibility Supply Chain RedesignGoalActivityRisk AdressedImprove Supply Chain VisibilityAll suppliers have to use IT integration systemsPenalties as incentives to use Exostar timely and accuratelyNo accurate use of planning system:Little knowledge about progress of suppliers (esp. Tier-2) and late detection of delaysSupply Chain
13Improve Strategic Supplier Selection Process and Relationships Supply Chain RedesignGoalActivityRisk AdressedImprove Strategic Supplier Selection Process and RelationshipsPut 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 suppliersIncrease communication and cooperation with suppliersOverburdened or inexperienced suppliers delaysSupplier
14Modify the Risk-Sharing Contract Supply Chain RedesignGoalActivityRisk AdressedModify the Risk-Sharing ContractProvide proper incentives for tier-1 suppliers to complete their tasks earlyPenalties for late deliveriesRewards for delivery on-timeTendency for suppliers to deliver late in order to avoid unfair punishmentSupplier
15Management Team Lack of supply-chain know-how of the management team GoalActivityRisk AdressedEstablish proper management team with expertise in supply chain managementImplement Management Audits for current and prospective managersIdentify the right executive for this challenging situationLack of supply-chain know-how of the management teamManagement Team
16Labor Relationship Management GoalActivityRisk AdressedAlign company and union/ employee objectivesIncentive system: Pay for performance/ job securityLink to company performance: success participationEnhance internal CommunicationDiscuss strategies before implementing themLabor Strikes$100m/dayLabor Relationship Management
17Customer Relationship Management GoalActivityRisk AdressedEnhance external communication throughout development processGive accurate information about delay in delivery timesHelp customers with a replacement scheduleHelp customer to set proper expectations by giving proper predictionsOffer alternative solutionsBargaining possible via finance?Loss of customersʹ trust+Contractual PenaltiesCustomer Relationship Management
18Agenda Supply Chain Transformation Process 1.1 Vision Problem DiagnosisSupply Chain RedesignDeriving Competitive AdvantagePorter Market AnalysisModelMaintaining Competitive Advantage
20Industry Overview Competition Aerospace manufacturing industry is highly concentratedTop competitors:EADS (and its subsidiary Airbus)Lockheed MartinNorthrop GrummanFirst, 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.
21Industry OverviewSubstitutes Airbus is developing the A350 (late-2014)BoeingAPassengers280 (3-class)270 (3-class)Range8,000-8,500 nmi8,560 nmiLength206 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.
22Industry Overview Potential Entrants highly regulated industry (Federal Aviation Administration, EPA)Technical expertise is crucialCapital-intensive industryThese factors pose barriers to entryHowever, 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,
23Industry Overview2013BombardierCS 100 and CS 300Compete against BoeingCommercial Aircraft Corporation of China (COMAC)C ERCompetes against Boeing 737 and A320United Aircraft CorporationIrkut MS-212016From 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
24Industry Overview Supplier Not a traditional supplier-buyer relationshipInstead partners in the sense of mutual dependencyMinimum bargaining powerPorter‘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.
25Industry Overview Customer Limited number of airline manufacturers Customers order aircraft years before the aircraft is finished, are obligated to fulfill the contractFurthermore, Boeing faces considerable demand:BacklogGrowing demand from AsiaDefense spendingAs 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 billionBoeing 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.
26Deriving Competitive Advantage: Model Core competenciesOpportunitiesCompetitive AdvantageImproved Value ChainValue Chain
27Deriving Competitive Advantage: Model Core competenciesOpportunitiesMatchWell-diversified businessMarket leadership experienceKnow-how/expertise forbuilding commercial aircraftsEmerging trends in Asia(defence as well as comm.planes)Positive long-term outlookin aviation industryHigh defense spending
28Deriving Competitive Advantage: Model Core competenciesOpportunitiesCompetitive AdvantageImproved Value ChainImproved Value Chainstrategic flexibilityorganizat. learningtechnologymanagement
29Deriving Competitive Advantage: Model Core competenciesOpportunitiesCompetitive AdvantageImproved Value ChainEfficiency/EffectivenessResponsiveness to customersQualityInnovation
30Maintaining Competitive Advantage Apply to further projects and thus leverage the effectMonitor and continually improve Supply Chain ProcessCurrent competitive advantage: unique experience in supply chain processFuture Competitive Advantage
34Appendix: Trends and Opportunities Industry TrendsIncreasing importance of efficiency due to volatile fuel pricesIndustry consolidation and formation of partnerships: Five major companies dominate, and hundreds of other companies act as suppliersIndustry OpportunitiesOutsourcing of aircraft maintainance through airlines as new business opportunityReplacement of air force fleet
35Appendix: Future competitors analysis BombardierThe 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.
36Appendix: Future competitors analysis CS 100CS 300BoeingPassagersRange (nmi)22003050Length114 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.
37Appendix: Future competitors analysis Commercial Aircraft Cooperation of ChinaCOMAC C ERBoeingPassagers156 (mixed-class)Range (nmi)30003050Length124 ft. 8 in.102 ft. 6 in.Wing Span114 ft. 10 in.112 ft. 7 in.
38Appendix: Future competitors analysis United Aircraft corporationIrkut MSBoeingPassagers150 (1-class, standard)Range (nmi)31003050Length117 ft. 9 in.102 ft. 6 in.Height37 ft. 9 in.41 ft. 3 in.Wing Span112 ft. 7 in.
39Appendix: List of Competitors AgustaWestlandAirbusBAE SystemBombardierDassault AviationEmbraerEADSFinmeccanicaGE AviationGeneral DynamicsGoodrich Corp.KamanLockheed MartinNorthrop GrummanRaytheonRockwell CollinsTextronThalesUnited Technologies
40Appendix: SWOT (1/2) Strengths Strong growth prospects Sustained business due to strong order backlogLeading market positionWell-diversified and broad product rangeWeaknessesDeteriorated liquidity positionDeclining operating marginDeclining market shareStrikes
41Appendix: SWOT (2/2) Opportunities Development of Asia-Pacific Region Aircraft financing market gradually improvingLong-term outlook of aviation industryThreatsDependence on U.S. budget spendingGlobal economy still fragileIntense competitionCurrency exchange rates
42Appendix: 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)
43Appendix: SWOT Strengths (2/3) Leading market positionCommercial airline industry: one of the two major manufacturers of airplanesDefense airplane industry: second largest contractor in the U.S.Well-diversified and broad product range:Four segments:Commercial airlinesIntegrated defense systemsBoeing Capital CorporationOthers (e.g. air traffic management)decline/stagnation in one business can be offset by another segment
45Appendix: SWOT – Weaknesses (1/3) Deterioated liquidity position:Weaker financial position than competitorscurrent 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
47Appendix: SWOT-Weaknesses (3/3) StrikesStrikes of the IAM in 2008 resulted in a slowdown and substantial decline in deliveriesLost revenues amounted to $6.4B
48Appendix: SWOT-Opportunities Development of Asia-Pacific RegionExtraordinary defense acquisitions (e.g. India, China, Japan)Market liberalization: enablement of low-cost airlines to gain market sharedemand for planes as well as MRO servicesAircraft financing market gradually improvingLong-term outlook of aviation industry(next 20 years)
49Appendix: 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)
50Appendix: SWOT-Threats Dependence on U.S. budget spendingIntegrated Defense system business represents largest fraction of generated revenuesGlobal economy still fragileIntense competitionCommercial aircraft: AirbusIntegrated defense systems: EADSCurrency exchange ratesPurchases, sales, borrowings: many different local currencies as well as different marketsFluctuations in exchange rate affect Dollar value and thereby have a considerable impact on profitability
53Appendix: 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 performanceReverse causality possible: company performance results in incentivesPfP increases motivation only for simple, well measurable tasksBadly designed PfP systems can have negative effects:With “multiple tasks” concentration on tasks that lead to monetary incentivesShort-term orientationImbalance of exploration and exploitation
54Appendix: 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
55Appendix: Future Outlook Difficulties of integrating suppliersEstablish Knowledge Management System and product platform comprising complete supply chainAirbus is able to launch a comparable plane in approximately three yearsImprove efficiency and decrease costs of 787 to stay ahead of AirbusChina: need for commercial and defense aircraft and barriers to market entryEstablish joint ventures in ChinaNewly arising demand for aerospace technologyBecome a leader in knowledge and technology to foster company based attractiveness