Recommendations of Logistics and Supply Chain Management

Question: Discuss about the Recommendations of Logistics and Supply Chain Management. Answer: Introduction: Established in 1916, Boeing became a market leader in the field of designing aircrafts. It has been in the business of offering commercial and cargo rockets, aircrafts inclusive of military ones along with security and systems. In the United States Boeing is the largest cross-border exporter and stands second in the segment of defense contractors in the world. Boeing has been on the path of innovation since 1969 and some of its aircrafts as 737, 747-800, 777, 767 and 787 are pretty well known names in the aircraft industry. In the present scenario, Boeings commercial aircraft is among the largest business generating unit, producing around 52 billion dollars as revenue (Kotha and Srikanth 2013). The stocks of Boeing are being traded in the New York stock exchange under the symbol BA. It faces a stiff competition from Airbus but still has maintained enough composure to come up with aircrafts that are magnificent in designs along with the required comfort level so that clients as well a s consumers have nothing to complain too (Petrick 2014). Boeings Marketplace: There is a low entry threat as the costs of capital are very high in the segment of commercial jet pitch. New entrants need backups of government for this huge cost. In case of strict control on the value chain, quality is maintained in a high manner with costs being moderately low. This assists companies like Boeing and Airbus in redirecting costs and sharing the expense with the suppliers. There are plenty of substitutes in the aircraft making industry too. ATR and EB have come up with midrange aircrafts for commercial aviation. Boeing and Airbus have created duopoly in commercial jet market having same kind of quality good products. Both have seating arrangements that ranges from 180 to 600 seats. It is a duopoly market and both Boeing and Airbus have gone into a tag of war on things like pricing, capabilities and designing of their aircrafts. Both the companies have been responsible for developing newer models which has the ability to cover up long distances and are very fuel efficient in nature. Boeings need for 787: In 1994, Boeing made its most important decision of building the worlds biggest commercial passenger jet, where it send its designers back to the drawing board for redesigning its 747 model in order to fly more passengers. The 747-8 was designed to carry 468 passengers as compared to Airbus A380s 525 passengers. Both these commercial flights were nearly on the same page when it came down to fuel savings and cost related matters (Sodhi and Tang 2012). Two major players, Boeing and Airbus that have been reining this segment over the years now in a market that is hugely duopoly with intense competition shown from both the parties in order to gain the largest market share (Wisner, Tan and Leong 2014). Big jets have always worked well for the core system but the future of flying depends on the point-to-point structure for reasons like passenger comfort, overcrowded traffic controls and delays. Such reasons led to the birth of Boeings 787. The Boeing 787 went on to become the most fuel-efficient jet the world has ever seen with the use of the latest materials. 787 have the capability of carrying around 330 passengers over a distance of 8500 miles, much more than what the A380 or 747 does (Gudmundsson 2015). The fuel efficiency of this jumbo saw a lift of 25-30% and it is greater than any other jet in its category. The cabin pressurization increased to 8000 feet from a meager 6000 feet, making the flight more pleasurable and the aircraft remained as fast as the A380 or 747 (www.boeing.com 2016). 787 were created to generate value for the Airline industry. Boeings International Supply Chain: Boeings thought of speeding up the construction of 787 while lessening its financial exposure led to a new way of seeing at its supply chain options. According to Norris (2013), actions were commendable as Boeing set out on a track of building an airliner which would be different from the older models and at the same time innovative and consumer friendly. Developments in consumer comfort and improving competence was the prime factor in the agenda of Boeing. In the past years Boeing had to rely on dozens of suppliers for providing it with parts and arrangements for the plane, which was then assembled by Boeing itself in the facility provided at Everett Washington Assembly (Slayton and Spinardi 2016). Boeings plan was to come up with a new supply chain and assembly modus operandi for its 787 jet. The general idea of Boeing was to allocate the Tier 1 suppliers more sovereignty to blueprint and structure the major portions of 787. The sections would be effective cutouts of the 787 jet integral for electronic cabling, inner walls, seat and control. The job of the Tier 1 suppliers is to accumulate the sections of parts supplied by Tier 2 suppliers before the 787s pre assembled section gets shipped (www.boeing.com 2016). Those fully assembled sections of 787 were flown in back from its global partners to the Everett base on a specially designed cargo 747-8. Both shipping and assembling got down to just 6-7 days and also reduced the implementat ion and developmental cost by 7-8 billion dollars (West 2013). Boeings financial risk also got reduced through offering the initial cost of assembling the sections to the Tier contributors. Boeing influenced its extended supply chain and partnered the mechanized resources as a competitive improvement in reducing cost through developing the time-to-market. The Boeing witnessed it the first time in its History where global partners fabricated the bulk of an airplane. Boeing came up with some strategies for achieving the best results: -Establishing the model of shared risk between Boeing and its supply partners. -Synchronizing the supply, order and information related to inventory across the supply partners. -Moving to the partner-led manufacturing and fabrication model for the 787 Dreamliner. -Investing in visibility tools of logistics and specific transport apparatus for moving large subassemblies across the world. The building of 787 saw an important shift in the supply chain of Boeing 787. Boeing has around 140 different suppliers positioned in various parts of the world having different time zones which required it putting a supply chain management software system for communicating schedules, needs of supply, and shipping events. 1 suppliers late delivery could have jeopardized the whole assembling and building process. Difference between outsourcing of Boeing 787 and its earlier aircrafts: Component Earlier Aircraft 787 Dreamliner Sourcing Type 35% 45% is being outsourced 75% is outsourced Supplier relationships Contractor Strategic Partner Supplier Role Parts are being produced Developing and producing 787 sections # of Suppliers Thousands 40-50 Tier 1 partners Contracts Fixed price with delay Penalty imposed Risk sharing model Assembly 30-90 days 3 days Source: (Shenhar et al. 2016) Boeings Problems in Outsourcing: Over the years Boeing has been in the process of developing engineering and assembly teams, tooling specialists and certain other departments in handling the complex procedure of building aircrafts with components which is more than millions. However, Boeing did have the capability of getting things done, though costly, but it had some excellent workers in its kitty to attain those objectives. Boeing used the assistance of an outside contractor once in a while for keeping down the costs. It so happen that, when 747 was in use, only 5% of the parts of the airplane were outsourced. The era of 777 saw this number get increased over time to 30%. A strong bond, a good partnership with suppliers is build over the years. The blueprint designs and engineering was carried out at the home office of Boeing and parts were made to be outsourced provider to those provisions (Tang and Zimmerman 2013). As per Shenhar et al. (2016), the in-house assembling factory of Boeing 747 saw parts being brough t back where they were put under supervision and compared to the original blueprints. In case any error did happen from suppliers part, it was wedged before it got amassed into the jet. Competition has always been of the fierce level with Airbus emerging as not just a contender but a real threat that looked to sweep off Boeing. This fierce competition saw airlines cutting down costs and profits becoming smaller. Each and every airline company negotiated with both the Boeing and Airbus to cut the margins. Boeings idea of building a 787 Dreamliner was more seen as a specimen of value for its consumers, delivery speed and measures of cost cutting. Outsourcing was the only way that Boeing thought of as a probable solution for both (Schwartz and Busby 2014). The outsourcing of 787 as thought by Boeing was decentralized and global, where 70% of its parts would be outsourced (Nolan 2012). Boeing entered into contracts with Tier suppliers, but issues emerged when some of those suppliers of 787 were not delivering parts on time. Certain suppliers were stressed out with the technical requirements and lacked certain level of expertise in creating certain parts. As per the Boeing contract, the company decided to help the suppliers with issues having contracts (Qazi et al. 2015). One of the major suppliers of Boeing did not possess a department of engineering at the time it entered into the contract, the situation was handled with Boeing calling its in-house engineers to assist the contracted suppliers in fixing costs at the expense of Boeing (Denning 2013). This problem grew big and it led to Boeing buying out contracts and moving parts in-house at a staggering 1 billion dollar. There were certain technical problems too which included fasteners of plane skin that was not correctly seated due to a bevel in the clasp itself. An embarrassing issue which did emerged in the first 5 planes that were built after the pressurization of jumbos uncovered the defect. Another flaw that cropped up in the assembly was when it was comprehended that the seam between fragments ran right through an opening of a window and the windows required being detached (Russo 2016). Airlines companies were not convinced with this and were concerned the difficulties that the customers might face. It is fascinating to learn how big companies like Boeing commit mistakes of such large scale. Boeing could not deliver its 787 Dreamliner to its clients on schedule because of the industry wide scarcity of fasteners related to aerospace. The company boasts of one of the most efficient inventory management system based on the ordering system called the Min/Max; information were conveyed daily on the levels of current inventory and the level of inventory that needs to be preserved for each floor beam part within the factory of Boeing. Boeings inventory system was a huge success and it was implemented in the fasteners as well. However, the supply chain of 787 could not exploit its partners for speeding up procurement of 80% fasteners. Boeings mistake was that it did not realize the issue would take a big turn and cause problems. A thorough investigation suggested that Boeings Min/Max system of managing inventory showcased variance in prices. Boeing had its suppliers based all across the globe which sometimes hampers timely delivery of the parts need to be assembled at its factory for manufacturing the jumbo jet. It has happened many a times that due to this transportation issue of its, the company has lagged behind sometimes from its competitors. Boeings U.S budgetary cost saw a decline of 24% due to severance or on automatically spending cuts. However, it is not the only one that was expecting a cut down on its budget though it has other commercial plane models for producing the military products. The Boeing officials thought of building a jetliner factory outside Washington for the first time. But then the cost associated with it was much more than expected by the management. They estimated the cost to be around $ 1.5 billion, but currently the company has already spend around $28.5 billion more than the revenues it has earned in delivering the first 370 Dreamliners. No matter how much the Boeing executives say that the cost of making a 787 is manageable but the company is yet to recover the $28.5 billion. However, there was lack of any facility cost issue in Boeing. Boeings Avian chief, Jim Albaugh, commented that Boeing has spend a lot of money in recovering than they would have ever spend if all the key technologies were being kept closer to the company. He also admitted their fault in positioning people to areas where they were experiencing such technologies for the first time and Boeing did nothing to provide those people with the required supervision. Another issue with the Boeing 787 was its weight, most of its sections were built by the suppliers and because of that the weight climbed up, heavily affecting the final weight lift of 787 and its fuel economy (Das et al. 2016). Boeing was not the only part in the process of supply chain that was under the scrutiny to trim down the costs. As per Williard, Hendricks and Pecht (2013), Boeing put its Tier 1 suppliers under a lot of pressure too in cutting costs. The suppliers even complained that the initiative of Boeings Partnering for Success was benefitting the company more than the suppliers. It also had some issues with the Lithium-ion battery packs which grounded the 787 jets for over a period of 3 months. Inadequate design and improper testing led to a situation of that sort, where the National Transportation Safety Board burdened Boeing for not being able to anticipate how the power packs might have failed and alluded to the battery producer, GS Yuasa Corp. for poorly manufacturing of the same (Zhao 2015). Boeings estimation was that there is chances of failing a single cell on one of its 787 batteries are one in 10 millions, but that was not the real picture. Failures were happening thick and fast and it led to the NTSBs report where 787 became the longest grounding commercial aircraft by the regulators of US since inception of jets in 1950s (Messina et al. 2016). The interested fact was that GS Yuasa Corp.s tested batteries were not the same as the ones fixed on the fleet of Dreamliner, and the tests of the same did not anticipate the severe conditions as seen in service (Heller 2013). In 2016, Boeing sent supply chain shockwaves, alerting that the total production output and deliveries of this year would be much lower than that was achieved the previous year. It has faltered in its ability to scale-up the current and future production volume output. Association of Risks: Chances of addressing the risks were a galore for Boeing as it was building its 787. It lacked any kind of contingency plan if the Tier supplier system failed to work. The Tier system was posed with lot of challenges and difficulties where the executives of Boeing did not lessen the risk of the supplier parts being inferior or not designed in a proper manner (Schofield 2013). Boeing did not felt necessary to substitute the suppliers having issues. Most of its problems were not from the outside, but from within the corporate houses. The Boeing executives believed that their concepts were well on track and would eventually work out. However, eventually nothing worked out for them and they lost touch with the economic risk of 787s supply chain and the reputation it has gained over the years (Chen and Lee 2016). Boeings reputation is still under the fire and it is finding ways to put everything back on track. Recommendations: An official of the Boeing commented that the global supply chain of the company is well under control and that the management is looking to ratchet up the process of production. The company should try and make up for the earlier delays based on the difficulties in administrating 325 suppliers for building parts or sections of the 787 model around the 5000 factories it has worldwide. The management needs to identify the production work at a minimum amount and keeping it in house so that there is enough cash in the kitty for future projects. The company should also look for retaining sufficient in-house production so that their engineers have the time and scope to acquire the skills required for developing of the new products. Moreover, Boeing should keep in mind that outsourcing should be done focusing on the better facilities as provided by different outsourcing companies and not on the basis of the lower labor rate that companies sometimes indulges into for saving cash, but in most situations the productivity gets hampered as those labors do not possess the skill to get things done in the same manner as perceived by the company. Moreover, companies need to understand that outsourcing leads to increase in total time and cost in transportation, eliminating profit which is associated with the work. It is important in identifying the precision of suppliers in the earlier tasks which will either eliminate or help reducing the larger costs in the later stages. Boeing needs to understand that cost saving techniques like outsourcing and working in high volume industries are inappropriate for the low volume industries such as Aerospace. Boeing would be better off in finding work to fill the surfeit capability instead of closing down or selling things off to boost the bottom line. 787 is the most outsourced in the history of Boeing, with Japanese companies like Mitsubishi Heavy industries and Fuji Heavy Industries accounting for more than one third of its components. Boeing named Fuji Heavy as the supplier of 2011, buying mechanism from 160 companies in Japan and overseas. Boeing needs to communicate more frequently with its suppliers, allocation of information about its own forecasts and plans in production. It needs to increase its scrutiny on its suppliers in evaluating their own vendors. Boeing has introduced Lean manufacturing principles which are bringing in great results for the company where it is relying mostly on its suppliers in achieving the results of the demand of the customers. Boeings Lean principles like just-in-time and point of use delivery for streamlining its production process is all about asking its suppliers to manufacture and deliver components using those techniques of just-in-time. In recent days, Boeing along with its suppliers has set the levels of inventory focusing on the rates of consumption required for supporting production. This technique has helped Boeing in forecasting things in a proper manner and improving on the cash flow. In order to improve the rate of efficiency Boeing has reduced the core supply base of its and have substituted them with high-performing suppliers. An overall reduction of 78% in the number of suppliers is what Boeing has come up with to enhance its supply chain. The idea of working with the best suppliers has also ensured timely delivery of its parts which was a big issue. Transportation problem have been well sorted out by the company management in order to keep pace with the competition. Boeing has kept its focus on customers through the use of its intellectual capital. Its idea of working with best suppliers ensures highest quality performance and lowest unit costs for its customers. Conclusion: There were plenty of reasons for Boeing to build on its 787 Dreamliner in the way they actually did. Boeing is trying to reduce the costs and spread the financial responsibilities in being relevant and exploring new technologies so as to compete with Airbus in the best way. Boeing would have still made profits had it not built the 787 jet but then in order to compete and be viable the move was a necessary one. Boeing has been responsible for building some of the magnificent planes, and then it was questionable on why it left the building of the plane to certain new comers in the supply chain. Another area of concern is that why Boeing gave away profits to its Tier 1 suppliers in building parts which it could have easily done in-house. Building in-house would have cost a bit more but then the wastage in opportunities of profit making, batteries catching fire and suppliers delivering problematic projects added up to Boeings miseries. Estimation was that the new supply chain process wou ld have saved Boeing around $1.5 billion; however, it ended up $12 billion over the budget. Boeing has outsourced on previous occasions too for its 747 and 777 models. 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