SAVING COST AND REDUCING TIME AT BOEING 18
Running head: SAVING COST AND REDUCING TIME AT BOEING 1
Saving Cost and Reducing Time at Boeing
By
Mike Pawlak, Oscar Rojas, Paul Singrossi
A Research Paper
Submitted to the Worldwide Campus
In Partial Fulfillment of the Requirements Of Course MGMT
420, Introduction to Aeronautical Science,
for the Bachelor of Science in Aviation Degree
Embry-Riddle Aeronautical University
January 2019
Saving cost and reducing time at Boeing
Introduction
The Boeing Company is a multinational corporation based in the United States that manufactures, designs, and sells rotorcrafts, airplanes, rockets, missiles, and satellites across the globe. The company also provides support services and leasing of the products. It is among the largest aircraft manufacturers worldwide and the top five largest contractors for defense equipment based on the 2017 revenue statistics.
Moreover, the company is the largest exporter of airspace equipment in the U.S. by dollar value (Hensel, 2016). However, Boeing Company had been experiencing issues that have hampered its smooth operations and production management, thus leading to slow growth and development as well as stagnant profits. As such, this research paper investigates the way Boeing Company experienced production and operation issues while trying to save the costs and reduce the time of manufacturing.
Boeing Commitments
Boeing Company has different commitments that drive its strategic operations and management of its manufacturing, maintenance, and sale of airspace products. Among the commitments include believing in technologies, focus on carbon dioxide emissions and fuel efficiency, believing in aviation system efficiency, and globalization. The company believes that the technology can unlock the future development of airplanes such as reduction of weight or advanced aerodynamics that are aimed at ensuring fuel efficiency. The company conducts research and development continues to improve the products and their performance, as well as improving the environment. The company also focuses on developing alternative processes and materials for maintaining and manufacturing airspace products.
The Boeing Company is also focused on improving carbon dioxide emissions and fuel efficiency for every airliner that are being developed. The good example of the recent airplanes include the 747-8 and 787 Dreamliner that are exemplarily focused on the sustainable environment. The company used four innovative approaches including the modern aerodynamics, new engines, efficiency systems, and increased usage of lightweight materials.
The inefficiency of the aviation system, the company is focused on improving the global air transportation systems as a reality and the priority. A good example is the “Tailored Arrival” that increases the arrival efficiency of airplanes through the establishment of predictable descent that is continuous as compared to the normal step-down descent. In the usage of the globalization approach, the Boeing Company recognizes environmental issues as a major challenge that needs global solutions for continuous technological innovation and performance improvement. The strong working relationship between the actors in the aviation industry such as scholars, governments, and aviation firms would help come up with global solutions that lead to carbon-neutral growth and carbon free environment.
Issues faced by Boeing
According to Denning (2013), Boeing Company blundered in making management and operation decisions, as part of initiating projects that are aimed at saving costs of operations and reducing the time of maintenance. The article shows that Boeing made errors in handling outsourcing and off-shoring. Conceptually, outsourcing can lower the cost and time to produce a product as it reduces and simplifies business processes of the company. Boeing wished to lower the manufacturing time of the 787 from six to four years and lower cost from $10 billion to $6 billion. Fact, Boeing was billions over budget and three years behind the estimated schedule of its manufacturing activities.
Another production issues experienced by Boeing Company is the use of recycled carbon fiber that was introduced in the composite 787 Dreamliner. In previous years, Boeing has been relying on other technology firms to recycle the aerospace composites until their research showed that carbon fibers are recyclable, especially in high end manufacturing applications involving the electronics casings that need shielding of radio frequencies as well as high end automobile components. Moreover, Boeing initiated testing of the recycled carbon fiber in both non-structure components of military and commercial aircraft. New carbon material would allow more comfort, better fuel economy to fly nonstop with no layovers. Composite material and new electrical system would reduce fuel consumption by 20 percent, also resulted in 10 percent better cost-per-seat mile. The costs of the carbon fiber reduced while the maintenance costs also lowered. Comparatively, the costs of manufacturing the carbon fiber reduced in terms of materials used and energy consumed. For instance, virgin carbon fiber costs between the US $15 and 30 while recycled ones cost between the US $8 and $12 per pound. The energy used is approximately 25 Kilowatt hours and 1.3-kilowatt hours for virgin carbon fiber and recycled carbon fiber, respectively.
Boeing also experienced issues with the new lithium-ion batteries overheating. Problems with outsourcing include quality control. Boeing had no intent to provide on-site support during production, instead gave responsibility to the sub-contractors. When sub-contracts fell through, Boeing would ultimately have to provide the support they did not plan for. A lot of the material and technology used in the new 787 were new to being used in such aircraft. Where Boeing should have been more involved with overseeing production, they instead chose not to have a lot of involvement in overseeing production leading into delays and increased cost. Boeing outsourced the 737 and 747 at 35-50 percent; the 787 increased to 70 percent outsourcing. The 787 had used over 30 percent of its components from overseas, which includes the 747 used only and 5 percent of foreign components (Jaballah, 2011). Outsourcing needs to have more planning to ensure overall fit and assembly of the aircraft. Before the 787 was defined and relative costs established, the construction and engineering were outsourced, which were deviational for the project. Boeing ended up delivering its first 787 over three years late.
Boeing used a supply chain based on a tiered structure, as shown in the tier figure below. Tier-1 strategic partners used by Boeing would assemble different parts and systems that were produced by Tier-2 and Tier-3 subs. Some of the Tier-1 partners weren’t able to manage Tier-2 suppliers, among other issues. Boeing was forced to purchase Vought Aircraft Industries, the key Tier-1 supplier, and pay for potential profit loss from production delay. Boeing never maintained control over their engineering and design.
Communication issues were also part of the challenging issues faced by the company. As part of the solution, Boeing attempted to use a web-based communications tool, Exostar, instead of communicating face-to-face during production. Boeing uses Exoster to continuously measure, monitor, and mitigate cybersecurity risks using its multi-tier supply chain. There are increased concerns over the latest cyber attacks of the aerospace companies. The attacks involve leaking critical product and company data via the supply chain used. Exostar was supposed to flag any problems when used by data imputed by the suppliers. Suppliers did not input data causing Exostar to fail and problems not being caught or addressed in time.
Boeing did not use a project management team with a lot of experience or knowledge on supply chain risk management on the 787 projects (Denning, 2013; Tang & Zimmerman, 2009).
The research paper by Hart-Smith (2001) noted that Boeing management uses outsourcing concept as a tool of reducing cost, but this is not always going to be the case. Outsourcing can be beneficial but needs to be recognized as an added cost to a project not a reduction in cost. “Make-buy decisions” should not be done before defining the product and establishing cost. If outsourcing, ensure there is extra up-front planning in all subassemblies to ensure adequate fit during their final assembly. Outsourcing can increase the number of steps and man hours needed to complete a project. In aviation outsourcing components such as the engines, avionics, and systems due to aircraft manufacturers are not equipped to do this work themselves. The supplier benefits the most from outsourcing, not the prime manufacturer.
An issue with outsourcing is recognizing related tasks which are no longer necessary or being used to new internal tasks which did not exist before the project. Contemporary accounting doesn’t take the additional costs against the item of work on the project since it is not considered an in-house task. The allocation of cost is a misrepresentation of true costs for the project. There is a though of outsourcing being cheaper than in-house production, which is not always the case. Additional task example associated with outsourcing include being more precise and complete in specifications of the product then you would need to be for in-house productions — the needs for an increase in time and transportation cost for off-site production. Improper fit of subassemblies is costly and need to be reworked; new contracts need to be drafted, overall with a high cost to fix the issues.
To prevent issues with subassemblies, on-site quality control and support can help. Suppliers want to maximize profits on minimized investments; suppliers likely have higher interest rates on borrowers over the prime manufactures. Suppliers have no incentive for cost-savings from improved designs for this reason suppliers do not design assembly tools that allow minimized rework for derivative products since there are no guarantee corrections will be made nor the supplier be awarded the work in the first place. The study showed 90 percent of suggestions could have saved cost if in-house over outsourcing (Quinn, 1999). The study revealed some problems in the assembly sequence. A common issue in assembly issues arises when money and time are tiring to be saved by not completely planning the assembly of the entire project, leading to issues later on in the production of the project.
Return on Net Assets (RONA), is a performance metric, helps make the most of all the assets in an organization. If in a performance metric, as a ratio, it can be enhanced by either increasing the numerator or decreasing the denominator. Use of RONA can’t alone tell if a course of action is good or bad. The issue will incrementally change in capital facilities or other assets be a beneficial or undesirable change in revenues and profit. There is no guarantee a reduction in assets will increase in RONA or profits. RONA can be a goal but is a bad performance metric. Heart-Smith (2001) states RONA is a good is a good metric for an in-house company that has no out-sourcing, the airlines who relied on a majority of outsourcing and looked at RONA are misled in performance.
Outsourcing comes with a greater cost of man hours. Automation is effective if the prime manufacturer can profitably use facilities that house automation equipment if it is not cost effective for the manufacturer then outsourcing could be looked. Outsourcing reduces the profit margin on sales which may or may not reduce cost. Outsourcing can be looked at throughout an organization as downsizing. Heart-Smith (2001) outsourcing can lead to loss of profit and increase the value of inventory as well as the time of a project. Additional internal work can be associated with extra overhead. There is work which should be done in-house even if outsourcing. Heart-Smith (2001) states for a company to survive there is a minimum amount of work that must be done in-house before outsourcing.
Boeing Supply Chain
The article by Zimmerman and Tang (2009) show that Boeing decided to use an unconventional supply chain for the production of the 787, the intent was to reduce the cost and timeframe of the project. At the time the effort Boeing made led to major delays to deliver the 787 to its customers. There are several reasons why Boeing Company decided to use unconventional supply chain.
Boeings uses two strategies including reducing the cost and selling prices of existing aircraft and developing new aircraft to raise revenues or value addition. Boeings value-creation strategy was to improve air travel for its passengers by redesigning the aircraft for improved comfort. By using composite material on the 787 over aluminum there is an increase in humidity and pressure in the passenger cabin, this makes the flight more comfortable for the passengers (Zimmerman & Tang, 2009; Hawk, 2005). Fewer weight aircraft offer better endurance and longer time in the air, no more stop to refuel or layovers for long flights. Secondly, the value-creation strategy is to offer “improved flight operational efficiency by providing big-jet ranges to midsize airplanes while flying at approximately the same speed (Mach 0.85)” (Zimmerman & Tang, 2009). Improved range helps the airlines who purchase the planes; the efficiency can be passed to the passenger’s overall travel experience. 787 was designed for 20 percent less fuel consumption over same sized aircraft. Expected cost-per-seat mile was expected to be lowered by 10 percent. Composite offers less maintenance, rust, and fatigue.
Boeing received a total order of 895 Dreamliners, in late 2007 Boeing announced delays
Challenges Boeing faced.
Boeing hoped to use the supplier’s expertise and leverage the supplier’s ability to develop different parts at the same time to reduce cost. Boeing hoped to reduce direct supply base by working with the tier-1 suppliers instead of dealing with the raw material subassembly. For Boeing to achieve such aspects, there is a need for managing the communication in the right way. Boeing believed by having different suppliers working parallel to each other it would reduce the development time which would potentially save costs.
Boeing’s unconventional supply chain
The vision to reduce the time from six to four years and cost from $10 to $6 billion was to keep the cost of manufacturing and assembly low and spread the financial risks of development to the suppliers. Traditionally Boeing would be a key manufacturer who assembled different parts and subsystems produced by thousands of suppliers (fig 1.), the supply chain used for the 787 would use partnerships of approximately 50 tier-1 strategic partners which assemble parts and subsystems produced by tier-2 suppliers (fig 2).
(Fig 1.) (Zimmerman & Tang, 2009).
(Fig 2.) (Zimmerman & Tang, 2009).
Underlying supply chain risks included IT systems, labor, supply and demand, and technology (Lueke, 2014). The 787 was attempting to use unproven technologies in the new plane like 50 percent of the fuselage made of composite, carbon fiber reinforced plastic (CFRP), also aluminum and titanium. The use of so much composite led to safety concerns like lightning strikes which could penetrate the fuselage (Zimmerman & Tang, 2009; Wallace 2006).
There are issues with interchanging engines (Rolls-Royce and GE) between the different Dreamliner models (Quinn, 2000). Concerns with the Dreamliners electronics network being shared between passengers and the flight control system. Boeing had an issue with parts shortages and software challenges delaying the project. If one of Boeing’s tier-1partners had a delay, it would delay the whole program. Boeing did not initially develop a management team experienced enough in such an unconventional supply chain. Boeing employees were concerned about the massive outsourcing leading to a strike of over 25,000 of its workers in 2008. The strike of the Boeing employees brought a concern to the tier-1 partners who reduced work on the project which could of lead to delays. Customers had concerns about production and delivery delays leading to some order cancelations, from 895 Dreamliners in November 2008 to 850 planes in July 2009.
Lessons learned when designing supply chains for new product development.
Impact of Aircrafts Turn-Times
Economically, the optimization of airplane use includes having efficient airplane turn-time to maximize capital investments. Efficient utilization of airplanes needs close coordination of airline’s ground operations, fleet planning, and maintenance systems, as well as the airport authorities and traffic controllers. Reducing the turnaround time at the gate can be beneficial economically, especially for short distance flights.
Plane usage is a key execution pointer for aircraft activities and a huge differentiator for some plans of action. Plane usage is a function of various components, including plane structure highlights and attributes, aircraft upkeep programs, plane specialized dependability, carrier business theory, showcase request qualities, and accessibility of available skilled workers. Traditionally, various airlines used to rely on efficient plane usage based on a faster airplane and point to point services for quick turnaround time at the gate. Improved airplane turnaround time helps in spreading the fixed costs of ownership, as it is directly related to increased trips, reduced costs per trip or per seat-mile. Availability of airplane accessibility is all out some days in a given period, less downtime required for plane upkeep. Support check interims and check substance are key drivers for generally upkeep program proficiency, which thus impacts plane accessibility. Plane frameworks and segments unwavering quality further impact the downtime required for extra maintenance. The aging airplanes prompt expanded needs of maintenance necessities and lower the availability of airplanes or their accessibility. As a planning benefit, the decreased turnaround time is beneficial in converting the availability of the plane from the number of days it travels to the increased number of trips, which means increased profits to the airlines.
The average turn-time of the airplane determine the number of trips of the airplane. Before making another trip, the airplane must remain at the gate to have the baggage and cargo offloaded, passengers disembark, airplane to be serviced, load baggage and cargo, and passengers to board for the next trip (Rizal, 2016). The time taken for such activities is regarded as average turn time. However, the unequal distribution of traffic may affect airplane availability, which might be caused by extreme constraints, unlimited traffic demand, and conditions. The issue arises when the airline does not use efficient turn-time and utilization model, which may provide important information for fleet planning, schedule planning, financial and economic analysis, as well as operational planning.
Strategies of risk mitigation
Boeing redesigned its fuselage by adding copper mesh for safety, looked at alternate ways to reduce weight due to the addition of the new materials, and design a secure computer network separating the electronic passenger system from the navigation computer system. Boeing would also regain its control of the project; example Boeing acquired units of Vought Aircraft Industries to gain direct control of the fuselage development (Zimmerman & Tang, 2009; Ray 2008; Sanders, 2009). Boeing would also pay more money to strategic partners to counter potential threats of a work stoppage. Boeing would end up sending its employees to be on-site for supply and manufacturing issues. Boeing would replace Mike Bair (the program director of the 787) with Patrick Shanahan to provide better supply chain management to ease customer concern. Boeing would end the strike of its employees by offering them a 15 percent wage increase throughout four years and limit its outsourcing for job security concerns.
The article written by Eastern Worker (2014), Boeing employees were concerned with the amount of outsourcing for the 777 Dreamliner, employees ended up on strike. Boeing workers agreed, 51 percent, on terms to keep assembly on the body and the composite wing in the Washington State region (Worker, 2014). Boeing’s terms brought the contract to an eight-year extension keeping production in the Puget Sound area; this meant Boeing would not select another site for manufacture (Worker, 2014).
According to Lind (2006), Boeing has come up with new processes for managing enterprise-level research and development (R&D). Boeing’s new process is the Global Enterprise Technology System (GETS), which is a “strategically-driven and systems-engineering-based” approach to managing innovation (Lind, 2006). GETS took the experiences from the different technological areas and provided an understanding of the innovation for the large enterprise (Lind, 2006). GETS focused on long-term strategic planning, reduced travel and meetings by 80 percent, reduced meeting time to make decisions, reduce complexity and process in new areas. GETS was a good basis for the use of outsourcing for external R&D.
The article by Agrell and Bogetoft (2017) illustrates the ways to improve the lead-time, cost, and quality of a project; a firm needs specific investment in its supply chain. Decisions had to be made on using centralize or delegate investments for optimal performance (Agrell & Bogetoft, 2017). Agrell and Bogetoft (2017) revealed poor performance in delegating investment in tier-1 strategic-partners. Agrell and Bogetoft (2017) show how effective partnerships in enterprises are applied in supply chain management (SCM).
According to Agrell and Bogetoft (2017), SCM is close partnerships to gain greater economic benefits for a long-term relationship between partners in a supply chain. Collaboration in SCM involved contributing to decision making in a project jointly maximize benefits. Agrell and Bogetoft (2017) focus on what coordination tools to use in the planning and investments phase of a supply chain rather than the operation of the chain. The decision-making for joint investments takes into account different risks involved between manufacturer and supplier (Agrell and Bogetoft, 2017). A classical single-tier supply chain placed the contracting element, like Boeing, at the center of the suppliers (Agrell & Bogetoft, 2017). The classical supply chain offered better control but was more time consuming and labor intensive. According to Agrell and Bogetoft (2017) industries like automotive and technological use a two-tier structure which reduces direct interactions on the coordinator, Boeing, and allowed the control for the tier-2 supplier to be delegated to the tier-1 supplier leading to decreased direct downstream and contracting costs. Agrell and Bogetoft (2017) address the importance of establishing direct communication between the relationships between information and control early on in a project. Agrell and Bogetoft (2017) show delegation of investments to tier-1 and two suppliers lead to poor performance due to underinvestment.
Regularly, Boeing Company performs terminal operations to assess the efficiency for the convenience of the customers. The assessment involves identifying the areas of interests, benchmarking the technical status of the airlines, improving the awareness of ramp safety, and exploring various methods for implementing any strategized changes. In evaluating the performance of the airplane, Boeing engineers take a gander at all parts of an aircraft’s slope methods to distinguish chances to improve security and productivity while endeavoring to wipe out the danger of harm to planes. The group surveys hardware, methodology, and the time required to turn a plane. The objective is for the administrator to accomplish a proficient, efficient, safe, and repeatable procedure. Regularly, the arrangements created in an assessment can be connected to different planes and different areas. Various studies can be directed for any air terminal and all models of Boeing planes.
Conclusion
In summary, this research paper has found various management, operation, production, and manufacturing issues that are related to saving costs and reducing time at Boeing Company. The issue of maintaining environmental pact through its commitments has challenged Boeing from achieving its overall objectives. The company is committed to utilize technologies for future uplifting, focus on carbon dioxide emissions and fuel efficiency, improve aviation system efficiency, and globalization of aviation activities. Among the noted issues facing Boeing Company include off-shoring and outsourcing the services to third parties, using green technologies to re-use its products, over-heating lithium-ion batteries, and use of tiered-based supply chain. Others are communication challenges, poor project management strategies, and lack of an efficient method to assess the performance of airlines that may boost turn-time.
References
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