COURSE: INTERNATIONAL PURCHASING MANAGEMENT

MGT - 634

BATCH: MBA EVENING – VITH TERM

MANIPAL UNIVERSITY - DUBAI

ASSIGNMENT 2 – THE BOEING 787 CASE STUDY

Submitted By:

1. Jis Sara Varghese

2. Aishwarya Mohan
3. Shihabudheen. N

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 BOEING 787 – INTRODUCTION

In 2003, Boeing decided to focus on creating additional value for its customers (airlines) and their
passengers by developing an innovative aircraft: the 787 Dreamliner

First, Boeing's value-creation strategy for the passengers was:

1. Firstly, to improve their travel experience through redesigning the aircraft and offering significant
improvements in comfort.
2. Secondly, Boeing's value-creation strategy for its key immediate customers (the airlines) and its
end customers (the passengers) was to improve flight operational efficiency by providing big-jet
ranges to midsize airplanes while flying at approximately the same speed.

This efficiency would allow airlines to offer economical nonstop flights to and from more and smaller
cities.

In addition, the 787 Dreamliner is designed to use 20% less fuel for comparable missions than today's
similarly sized airplanes. The cost-per-seat mile is expected to be 10% lower than for any other aircraft.

Also, unlike the traditional aluminum fuselages that tend to rust and fatigue, the 787's fuselages are based
on composite materials, which reduce airlines' maintenance and replacement costs

1. Need for change in Boeing’s procurement strategy

 Due to the above mentioned unique value that the 787 provides to the airlines and their
passengers, the number of orders exceeded expectations.
 The Dreamliner was the fastest selling plane in aviation history with carriers attracted to its new
largely composite design and innovative next generation jet engines that will allow the wide-
bodied plane to fly further on less fuel.
 Boeing received orders from more than 50 airlines for a total of 895 Dreamliners.
 Despite significant capital investment and management effort, Boeing faced continual delays for
more than two years in its schedule for the maiden flight and plane delivery to customers.
 There were also numerous failed attempts to get its 787's composite rear fuselage supplier back
on track.

 The Dreamliner was delayed by almost three years. Instead of 2008, it made its first flight in
2011. Despite the delay, not all issues were fixed. The plane was grounded due to the fire in the
batteries.
 To reduce the 787's development time from six to four years and development cost from $10 to
$6 billion, Boeing decided to develop and produce the Dreamliner by using an unconventional
supply chain new to the aircraft manufacturing industry.
 One of the biggest decisions of the operations management that Boeing had to make was how to
much to make and how much to buy. As a result of which, outsourcing was adopted as a strategic
measure.

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 The aircraft manufacturing was delayed and the company had to pay huge penalties to the
customers. Huge expenditure had to be incurred as the company sent the engineers all over the
world to help the suppliers in providing the required material.

 The management was reshuffled completely to take care of the issue.

 Therefore, it is in order to expedite its development and production processes and to resolve the
above mentioned delay and to reduce the development cost, that the procurement strategy of
Boeing had to be revamped.

2. Tools that Boeing used in the procurement for 787 Dreamliner

A. Cost estimation – A cost estimation is the approximation of the cost of a program, project, or
operation.
a. Boeing has utilized the cost estimation tools for their process. They have decided the
break-even techniques based on the cost estimation techniques in case of Boeing 787
Dreamliner project.

B. Supplier Management – Supplier management is the act of identifying, acquiring and managing
the resources and suppliers that are essential to the operations of an organization.
a. Boeing follows a stringent policy for supplier management. Regular audits of the
suppliers are done and the risk of the project is transferred to the suppliers. Before
finalizing the supplier, due care is taken to ensure that the supplier is technically
acceptable and meets quality standards required.

C. Project Scheduling – Project schedule is the tool that communicates what work needs to be
performed, which resources of the organization will perform the work and the timeframes in
which that work needs to be performed.
a. Boeing used Project Scheduling as a plan to manage the operations.

D. Planning and forecasting – Efficient forecasting equips the company to overcome challenging
situations that may arise because the company would be prepared accordingly to tackle the
situation.

3. Outsourcing as a Strategy in Boeing:

Boeing outsourced design and manufacturing of aircraft sections to an international portfolio of

vendors.

The 787 was the first major aircraft to make use of a predominantly carbon fiber structure,
projected to enable a 20% fuel efficiency improvement over comparably sized vehicles of the
current generation and a 30% reduction in maintenance costs. The composite materials would
allow relative simplicity of assembly. Boeing’s leadership envisioned snapping together
Dreamliner in as little as three days, much like plastic model airplanes. To enable this, a portfolio
of parts suppliers would design and build major sections, which Boeing would then consolidate at
its Seattle-area facility.

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Advantages:

1. Focus on 'core': This outsourced paradigm would allow Boeing to focus on those activities it
saw as its core competencies and outsourcing would eliminate distractions. Their core
competencies included:

 Large-scale systems integration,

 Lean and effective global design and production,
 Working with exotic metals like titanium and composites, and interpreting the needs of
the airline industry.

2. Access to new capabilities or knowledge: Outsourcing need not be about replicating existing
functions. The outside vendors/parties could offer competencies that were simply not
available in any other way. Boeing sought quick access to capabilities that fell beyond
existing capital constraints.

3. Cost Efficiencies|: With the promise of reductions in development time, cost, and capital
investment, Boeing's approach was poised to usher in a new way of designing and producing
commercial aircraft.

Disadvantages:

1. Its partners’ factory workers lacked requisite skills: low-wage, trained-on-the-job

workers, no previous aerospace experience.

2. Difficulty of communication and coordination: The complexity, fragmented decision

making and broken information flows was often countered by process redesign and
investments in additional human and information technology resources

3. Insufficient materials: Some of its suppliers could not produce enough parts and there was
consistent insufficient supply of frame, clips, brackets and floor beams.

4. Inability to control the 787 production schedule: Deferred work was found to be
incomplete or lost in transfer and parts that did arrive complete to final assembly required
rework

5. Inadequate quality assurance process: Lack of qualified nondestructive inspection/quality

assurance personnel and equipment at Tier-2 and -3 suppliers.

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4. While adopting a certain process from other organizations it is better to know the principles and rules
that are involved and needed to examine the process implementation. I would have recommended the
same implementation process as of Toyota with pre-defined steps for Boeing which would have saved
billions of dollars for the firm.

 For any industry that intends to develop a new product with innovative materials instead of
traditional ones, it is mandatory for the industry to perform research and experiments on the new
materials to analyze its' characteristics. Boeing's research lacked detailed analysis of composite
materials used for a major part of the aircraft production which led to the delays caused due to
rise of air bubbles on the fuselage section and the nose section of the aircraft.

 I would have recommended recruitment of high skilled workers who have had prior experience
in the aircraft industry to be sent to the vendor location for strong guidance regarding standards
followed by Boeing.
 Boeing had overestimated the ability of its suppliers. Boeing's supervision of these suppliers was
insufficient, failing to prevent problems such as unauthorized subcontracting to unqualified
vendors. Regular inspection by the firm at every phase of project completion is required in order
to prevent major failures towards the end of the project deadline.
 The suppliers should provide technical support in certification requirements. Both the authority
and the prime manufacturers should take more audit on the suppliers' developments.

 The prime manufacturer may build suppliers' problems database and share it with the authority.
This database should include the reason, the problem solution, final result, position and the
actions of the suppliers.
 The firm needs to know the suppliers' design system more deeply. The prime manufacturers
should be very familiar with the products whose failure will directly result in safety or
performance issues.