A supply chain is a series of integrated processes within and across a company that produce a product or service to meet the demands of a consumer (Krajewski, et. al. , 2013). Every company has a specific supply chain design and this design is implemented to meet the company’s competitive priorities. Supply chain management refers to the coordination of the company’s processes with those of customers and suppliers to match the flow of services, materials, and information with customer demand.
In today’s global market companies are choosing to outsource many of their processes in order to save time and money. While outsourcing and decentralizing many supply processes may seem to be more cost effective, this will also come with many new challenges. The Boeing Company is the world’s largest aerospace company and one of the top aircraft manufacturers in the world (Boeing, 2014). The company employs over 170,000 people across 70 countries and exports products to 150 countries. In 2003, Boeing decided to adopt Toyota’s supply chain strategies for production of a new aircraft, the Boeing 787.
This strategy involved moving all manufacturing to its Tier 1 suppliers who would be responsible for coordinating with all Tier 2 and Tier 3 suppliers and then the finished parts would be shipped to Boeing for assembly and distribution (Collins, 2010). This created an extreme shift in Boeing’s supply chain causing some significant issues for the company. They struggled with quality, delivery, communication, and control. This paper will outline the shortcomings of the 787 project and explore the significant changes Boeing has implemented as a result.
The Boeing Company decided to outsource close to 70 percent of their supply chain for the 787 project (Denning, 2013). This was nearly a fifty percent increase from previous production of the 737 and 747. The company projected that this approach would significantly decrease development time and save the company over 4 billion dollars. The supply chain strategy was supposed to be modeled after Toyota’s supply chain model however the implementation of the new strategy fell short. Some of the key elements of Toyota’s supply chain model are control, trust, and communication. Toyota only works with
“suppliers who have proven their ability to deliver with the required timeliness, quality, cost reduction and continuous innovation” (Denning, 2013, para. 22). In addition to this, Toyota maintains significant control over the design and engineering of their products. They have established a mutual trust relationship by responding to issues and concerns of their suppliers with integrity and mutual respect. Boeing did not properly implement these key elements into their supply chain model, resulting in inconsistent quality, missed deadlines, and a loss of billions of dollars for the company.
Boeing envisioned a supply chain strategy that would cut costs and improve efficiency while maintaining quality and reducing the companies risk. They planned to achieve this by transferring responsibility, cost, and risk to their Tier 1 suppliers. The tier one suppliers where to collaborate and communicate with Tier 2 and 3 suppliers in order to coordinate all manufacturing of all Boeing 787 parts. The Boeing Company ran into many different issues with this strategy. First the company chose a logistic software called Exostar network to communicate and synchronize their supply chain (Collins, 2010).
While Exostar is designed to help manage challenging and complex supply chains, the company’s suppliers were not properly trained on the implementation of this system (Exostar, 2014). Many of these suppliers did not have the means nor the know how to solve issues with the program and Boeing did not anticipate these logistical problems (Dennings, 2013). The Exostar network is designed to increase visibility and control across the entire supply chain. The problems did not lie with the system itself but with the implementation of the system. Suppliers were not properly trained due to lack of oversight and communication with Boeing.
This resulted in suppliers who did not input accurate and timely information, in part due to cultural differences and lack of trust. Neither Tier 1 suppliers nor Boeing became aware of problems in a timely fashion which was time consuming and costly. The second set of problems with the 787 project arose from a lack of oversight and quality control (Denning, 2013). The Tier 1 suppliers were put in charge of coordinating Tier 2 and 3 suppliers however there were no funds or manpower set aside to assist these suppliers with issues or concerns.
Tier 1 suppliers ran into issues surrounding time zone differences, language differences, and cultural differences. Many of the Tier 1 suppliers did not possess the necessary skills to manage Tier 2 suppliers nor the know-how to develop different sections of the aircraft. This resulted in significant delays and costly training sessions with the Tier 1 suppliers. Boeing did not anticipate the additional costs associated with these issues. The company ran into quality issues early as some of the parts did not fit together properly as a result of improper quality control and training (Hiltzik, 2011).
With the past production of the aircraft 737 and 747, Boeing gave suppliers detailed blueprints of parts in order to assure proper specifications and quality. Instead of following this old model for the 787, Boeing gave suppliers less detailed specifications and required them to create their own blueprints for the parts. In addition to this some of the contractors used subcontractors to engineer the blueprints which resulted in parts that did not meet quality and manufacturing specifications.
As a result the company spent millions of additional money shipping large engine parts to suppliers across the world to ensure proper design and fit. The aircraft also had quality issues with their lithium-ion batteries, which continually overheated causing them to ground the entire fleet until the issue was resolved (Denning, 2013). The majority of the supply issues were not a result of a poor supply chain strategy rather ineffective implementation of the tools necessary to make such a strategy work.
Effective communication and collaboration with suppliers is essential with any supply chain (Krajewski, 2013). Suppliers must be chosen based on performance a criterion that has been predetermined by the company. Supplier selection is one of the most critical decisions for supply chain manager. Suppliers are a direct reflection of the company for which they supply and as a result should be chosen carefully. The supplier must be able to ensure consistent quality, timely delivery, cost efficiency, and reliability. According to Denning (2013), ”What we do know is that the cost-cutting way
that Boeing went about outsourcing both in the US and beyond did not include steps to mitigate or eliminate the predicted costs and risks that have already materialized” (para. 9). Boeing did not choose suppliers who had a proven history of consistent quality, cost efficiency, reliability, or timely delivery. They instead left the majority of oversight with Tier 1 suppliers who were responsible for selecting the rest of the supply chain (Denning, 2013). The Boeing Company did not initially plan for on-site support for suppliers.
When the Tier 1 supply chain failed to properly coordinate the other supply chain contractors Boeing had to send hundreds of engineers to all suppliers in order to properly train and coordinate production. The lack of initial oversight resulted in inefficiency, degraded quality, and increased cost. These costs could have been mitigated if Boeing had taken a more substantial roll in supplier selection and oversight of production. As a result of these supply chain issues Boeing has decided to minimize their current supply chain and stream-line production of the 787 and future aircrafts.
Boeing has moved much of their production back to the U. S. in order to more effectively manage quality and delivery time. All parts that are manufactured overseas are shipped directly to Everett or North Charleston to be assembled. Stan Deal, the Boeing executive in charge of the entire commercial airplanes supply chain, stated that “There has been a shift of view, of philosophy"(Gates, 2012, para. 2). Boeing has more than doubled their Tier 1 suppliers resulting in fewer Tier 2 and 3 suppliers which gives the company more control over supplier selection.
Boeing has implemented a stringent supplier procedure and contract which is highly competitive (The Boeing Company, 2010). This new procedure requires suppliers to meet certain performance criteria in order to even be considered by the company. The suppliers are then pitted against each other to ensure the lowest cost possible (Gates, 2013). Boeing is also rewarding superior supplier performance with monetary incentives and recognition (Boeing 2013). These changes are sure to make a positive difference in for Boeing’s supply chain and provided the company with improved quality and efficiency.