the dreamliner :for boeings new future nahyun, an jiyoon, kang soohwan, kim margeum, kim

The Dreamliner :for Boeing’s New Future

Nahyun, An Jiyoon, Kang Soohwan, Kim Margeum, Kim

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787 Project Business Objectives Boeing 787 Dreamliner

What’s Next for Boeing after the 787? Market Forecast and Strategic Direction

New Challenges Competing against Airbus Competing against New Entrants

787 Project Problems & Solutions Problems and Reactions Lessons Learned from 787 Project

787 PROJECT

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787 PROJECT

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BUSINESS OBJECTIVES

Business Objective

Regain our position as an industry leader

in the commercial aircraft industry,

by delievering our customers innovative aircrafts faster than our competitors

and offering them after service of quality

Our objective here is to:

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Business Objective

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787 PROJECT

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BOEING 787 DREAMLINER

Boeing 787 DreamlinerBy launching 787, Boeing aimed at obtaining market leadership under changing Environment.

Change in the airline industry

World airline fleets to double

The number of airline companies increase

→ Fierce competition

Needs of a differentiated aircrafts

Cutting the price?

Creating new value?Improve end-user comfort

Improve flight operational efficiency

Change the supply chain

Challenges for aircraft manufacturers

OUTSOURCINGPRODUCT INNOVATION

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Boeing 787 DreamlinerBoeing’s role changed to serve as a master planner leveraging its knowhow in or-der to respond the market request.

OUTSOURCINGPRODUCT INNOVATION

INNOVATION THROUGH

GLOBAL COLLAB-ORATION

Change in OUR ROLE:Assembly Integrator

Master PlannerHow to Implement: Managing GLOBAL SCM Leveraging Customer Knowledge

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Boeing 787 Dreamliner

Parts

Parts

Parts

Customers

Outsourced 35~50% of Process

30days for fi-nal assembly

Thousands of Suppliers: Build to detailed print by Boeing

Boeing as a Final Manufacturer:Assembling all the parts

*Major Role

*Relationship

Traditional Supplier Relation-ship : Fixed-Price Contract based

*Major Role

Parts

Sections

Parts

Parts

Sections

Sections

Customers

3days for final assembly

Outsourced 70% of Process

Tier2: Producing parts for Tier1

Tier1: Developing and producing sections

Boeing as a Master Planner:Coordinating sections snap-together

*Relationship

Strategic Partnership : Risk-sharing Contract based

BEFORE 787 AFTER 787

Boeing’s supply chain has been different with 787 project as the starting point.

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787 PROJECT PROBLEMS & SOLUTIONS

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PROBLEMS AND REACTIONS

Problems and Solutions

Boeing suffered from delays in production.

DELAYS in production

due to problems in

Global Supply Chain

First FlightAug-07 Mar-08 June-08 Oct.-Dec.-08 Apr.-June-09 Dec-09

First Delivery

May-08 Nov.-Dec.-08 Left open Jul.-Sep.-09 Jan.-Mar.-10

Original TIme-line

Succeeded

Repeated delays

Nov.-Dec.-10(expected)

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Categories addressed below are major reasons for delayed schedule.

PROCESSSUPPORTING

SYSTEM

PARTNERSBOEING

INTERNALLEADERSHIP

CUSTOMERDISTRUST

DELAYS

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Process System

PROCESSSUPPORTING

SYSTEM

PROCESSSUPPORTING

SYSTEM

PARTNERS

CUSTOMERDISTRUST

DELAYS

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BOEINGINTERNAL

LEADERSHIP

Problems and SolutionsCauses, actions taken and further suggestions related to process supporting sys-tem are shown below.

PROCESSSUPPORTING

SYSTEM

Cause Actions Taken FurtherSuggestions

Inefficiency of Information System

Risk Sharing System - Financial Contract - Moral Hazard

Financial Aid (Spirit)

Improvement of EXOSTAR Adoption of RFID

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Introduction of Incentive System


Partners

PARTNERS

PROCESSSUPPORTING

SYSTEM

PARTNERS

CUSTOMERDISTRUST

DELAYS

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BOEINGINTERNAL

LEADERSHIP

Involvement in 2nd and 3rd Tier Selection

YET, Bene-fits: Qualified

partners, Network with potential buyers & Tech learning ef-

fect


PARTNERS


Part Shortage - 1st tier’s lack of capability - 1st tier partners’ arbitrary contracts with unqualified 2nd and 3rd tiers

Inefficiency in Outsourcing Overseas - Problems in comm. (Language & Cul-ture)

Heightened Level of Control - Acquired Vought - Sent Boeing engineers to partners’ sites

Improvement of Information System - Overcoming Language problem (ex. Codes) - Education of IS and Sharing Boeing Global SCM culture

Causes, actions taken and further suggestions related to partners are shown be-low.

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Involvement in 2nd and 3rd Tier Selection

YET, Bene-fits: Qualified

partners, Network with potential buyers & Tech learning ef-

fect


Causes, actions taken and further suggestions related to partners are shown be-low.

PARTNERS


Part Shortage - 1st tier’s lack of capability - 1st tier partners’ arbitrary contracts with unqualified 2nd and 3rd tiers

Inefficiency in Outsourcing Overseas - Problems in comm. (Language & Cul-ture)

Heightened Level of Control - Acquired Vought - Sent Boeing engineers to partners’ sites

Improvement of Information System - Overcoming Language problem (ex. Codes) - Education of IS and Sharing Boeing Global SCM culture

Does Boeing have the right partners?

Has too much been outsourced overseas?

No

No

: Lack of Capabilities and Ownership

: Adjustable Inefficiency vs. Huge Benefits

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Boeing Internal Leadership

BOEINGINTERNAL

LEADERSHIP

PROCESS SUPPORTING

SYSTEM

PARTNERSBOEING

INTERNALLEADERSHIP

CUSTOMERDISTRUST

DELAYS

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Feasible Timeline for Next Product Development


BOEINGINTERNAL

LEADERSHIP


Difficulties in Timeline Management - Risk in Global SCM - New technology

Labor Problem - Job security issue

Appointed Pat Shanahan Adjusted Product Features

Convincing Employees of the Needs for Outsourcing Delving into a Win-Win Solution

Increased Wage Drew a limit in Degree of Outsourcing

Causes, actions taken and further suggestions related to Boeing internal leader-ship are shown below.

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Problems and SolutionsCustomers’ dissatisfaction and distrust would be resolved by executing followings.

PROCESSSUPPORTING

SYSTEM

PARTNERSBOEING

INTERNALLEADERSHIP

CUSTOMERDISTRUST

DELAYS

Given that No further delays promised, Penalty paid, and Spare airplane during delay provided,

Actions below would be of help to convince customers:

Sharing Information on System Improvement Visibility: Real-time Tracking System

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787 PROJECT PROBLEMS & SOLUTIONS

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LESSONS LEARNED FROM 787 PROJECT

Lessons Learned from 787 Project

Huge volume of salesProves the customer oriented approach based on Customer Knowledge is the right thing to do.

Problems caused and our solutionsMUST Dos:

More control on partners Efficiency in information flows Guarantee of open communication

Obtain knowhow in System Integration

CUSTOMER KNOWLEDGE

SYSTEMINTEGRATION CORE

COMPETENCIES

We could make it obvious what are our core competencies.

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NEW CHALLENGES

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NEW CHALLENGES

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COMPETING AGAINST AIRBUS

Competition It is expected that a current major competitor, Airbus, and new market entrants would drive competition.

AIRBUS

CHINAJAPAN

BOMBARDIEREMBRAER

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Competing against AIRBUSAIRBUS announced the launching of A350 which is in the same segment with 787 and is a test model for more aggressive outsourcing strategy than ever.

AIRBUS

CHINAJAPAN

BOMBARDIEREMBRAER

A direct competitor of 787 (Same segment) Stretched outsourcing

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Competing against AIRBUS

AIRBUS’ Factories in 4 European Countries

Final Assembly lines In France and Germany

Strategic Partners

2nd Tier

AIRBUS’ Factories in 4 European Countries

Final Assembly lines In France and Germany

and China

Strategic Partners 2nd Tier

More Outsourcing to Strategic Partners

Less Reliance on In-house Production

From A350, Airbus has assigned more roles to its strategic partners while increas-ing the number of global outsourcing partners.

AIRBUS: Supply Chain

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Competing against AIRBUS

Boeing’ competitive advantages over Airbus would be process efficiency.

VS.

CUSTOMER KNOWLEDGE

SYSTEMINTEGRATION Process Efficiency obtained through

Boeing’s global collaboration model

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NEW CHALLENGES

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COMPETING AGAINST NEW ENTRANTS

Competing against New Entrants

China and Japan are said to be new entrants.

AIRBUS

CHINAJAPAN

BOMBARDIEREMBRAER

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Competing against New EntrantsChina and Japan emerged as future competitors due to the global collaboration strategy of Boeing and willingness to forward integration.

- Experience learned from outsourcing partnership

- Open structure enabled by Boeing’s global collaboration model

- Any parts and components are now available on market: All you need to do is assembly.

Global Collaboration Strategy of Boeing

- China: Government driven

- Japan- Kawasaki Heavy Industries(KHI)- Mitsubishi Heavy Industries(MHI)

Willingness to Forward Integration

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China and Japan has future plans leverage their strengths as below.

CHINA: Low labor cost (20-25% lower than developed countries)Huge domestic demand

AS-IS: Concentrating on producing parts: Producing regional jet ARJ21

TO-BE: By 2016, planning to produce C919- 150-seat, big aircraft

JAPAN: Knowhow to producing

AS-IS: Producing 35% parts of B787 include important part - wings

TO-BE: Kawasaki Heavy industries(KHI) to enter the large civil aircraftMitsubishi heavy industries(MHI) to enter the regional market

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Bombardier and Embraer are also said to be new entrants.

AIRBUS

BOMBARDIEREMBRAER

CHINAJAPAN

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Canada: Bombardier

AS-IS: 4th largest commercial aircraft manufacturer (Yearly delivery): Focused on business jets: Mainly 50 to 100-seat airplanes

TO-BE: By 2013, planning to produce 149-seat airplane

AS-IS: 3rd largest commercial aircraft manufacture (Yearly delivery) : Commercial, military, and corporate aircraft: Focusing on 50 to 120-seat airplanes

TO-BE: Possible to enter larger airplane market

Brazil: Embraer

Canadian and Brazilian aircraft manufacturers, who are now focusing on regional jets, are possible entrants into larger airplane market.

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Boeing’ competitive advantages over new competitors lie on its ability to read and satisfy customer needs and wants as well as brand equity and loyalty.

CHINA

JAPAN

Canada: Bombardier

Brazil: Embraer

VS.

CUSTOMER KNOWLEDGE SYSTEM

INTEGRATION

Brand equity and loyaltyfrom product and service quality Product concept development

based on customer knowledge36

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WHAT’S NEXT FOR BOEING AFTER THE 787?

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MARKET FORECAST AND STRATEGIC DECISION

WHAT’S NEXT FOR BOEING AFTER THE 787?

Market Forecast and Strategic Direction

Market trend reports that there would be considerable needs for small-sized and efficient products from quality brands.

Airlines’, needs:

Market Trend

EFFICIENT OPERATION

End Users’ needs:

POINT-TO-POINT TRAVEL

Considerable needs for

small-sized and efficient aircrafts 39


Market competition map now and strategic direction for Boeing is as below.

Design Range, (nmi)

1000 2000 3000 4000 5000 6000 7000 8000 9000 Long-haul aircraft

No. of Seats

250

150

50

550

450

350

Short &Medium-haul aircraft

Airbus320Boeing 767

Airbus330

Boeing 777

Boeing 747

Airbus 380

Bombardier, Embraer, Boeing737

Leverage customer knowledge and brand equity based. Produce efficient both in function and price based on system integration. Take first-mover’s advantage in the competition with air-bus in this segment

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Financial forecast says that entering new market shall pay off in 2 years when 200 orders are taken.

+ Breakeven point : 200 aircraft, 2 years

: No. of orders is assumed on the basis of past data of current regional jet manufacturers.

No. of orders for breakeven

Breakeven Point

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Thank you for listening.

APPENDIX

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Appendix

The 787 project

: why Boeing start it?

Product differentiation

: How Boeing serve what customers want?

Outsourcing 1

: outsourcing way Boeing did before 787

Outsourcing 2

: changed outsourcing way Boeing do-ing now

Causes of delay

: what cause delay in new outsourcing process?

Core competencies

: condition for core competencies and analyze Boeing’s the one

Manufacture line

: what Boeing and competitors produce

Breakeven point 1

: basic info about breakeven point in regional jet market

Breakeven point 2

: Info about how Boeing’s breakeven point calculated

Things needed to more explain

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The 787 Project

To obtain market leadership, Boeing launched new aircraft model, 787.

• Changes in Industry Dynamics

IndustryRivalry

SupplierPowerBuyer

Power

Threat ofEntry Threat of

Substitute

High- Boeing vs. Airbus: Not much dif-ferentiation in terms of the com-petencies between the two play-ers. Competiting on price and technology - Future competition expected with Canada, China, Japan and Brazil

Midium-low-Forward integration threat by suppliers-Canada, Brazil, China…-Still, high entry barrier due to safety re-gulations, high switching costs, high ca-pital requirement, and high economics of scale

Low-Buyer propensity to substitute (no al-ternative)- Price and performance (no alternative)

Midium-low-Fewer manufactuere choices(Still chance to bargain with Airbus)

High-High technology (difficult to duplicate)

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Product differentiation

Feature Values to Airlines(Immediate Customers)

Value to Passengers(End Customers)

Composite material -Faster cruising speed, which en-ables city-pair nonstop flights- Fuel efficiency 20% (lighter ma-terial lowers operating cost)- Corrosion resistance (lower maintenance cost)- Stronger components that re-quire fewer fasteners (lower ma-nufacturing cost)

-Faster cruising speed, which en-ables city-pair nonstop flights- Higher humidity in the cabin air is allowed, which increases com-fort level

Modular design that allows for two types of engines (General electric Genx and Rolls-Royce Trent 1000)

-Flexibility to respond to future circumstances (market demand) at a reduced cost)- Simplicity in design allows for rapid engine changeover

- Cost savings with cheaper and faster engine changeover may be passed on to passengers

Large and light sensitive win-dows

- Lower operating costs due to less ened for interior lighting

- « Smart glass » window panels work like transition lens – control-ling the amount of light automa-tically – decreasing glare and in-creasing comfort and conve-nience

Redesigned chevron engine nozzle (serrated edges)

- Reduction in community noise levels

- Reduction in interior cabin de-cibel level

Easy preventive maintenance - Boeing provides service so planes are in operation for longer periods of time

- Fewer delays due to mechani-cal problems

With their detail customer knowledge ability, Boeing serve exactly what immedi-ate and end customers want

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Outsourcing 1Before 787project, Boeing assembles all ‘parts’ from thousands of suppliers

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Outsourcing 2After 787 project, Boeing assembles semi-manufactured from 1st tier suppliers

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Causes of Delay

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Core competencies

Condition for core competence

- good for customer

- can be adopted to other area

- hard to imitate

Analyze Boeing’s core competencies

1. System integration

- with cost saving and innovation Boeing can bring better services

- can be used to produce any other segments

- it need big risk taking which we can lost technology advantage, no one can imitate easily

2. Detail Customer Knowledge

- reason we can serve exactly what customers want

- can be used to variety area wherever it is need to meet customer’s needs

- It is not just one system or department, it begins from mindset. So it can not be imitated easily

Condition for core competence and analyze the Boeing’s one on the basis of that

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Manufacture line

Line 737 747 767 777

737-100

737-200

747-100

747-200B

747-300

747-400/400ER

767-200

767-200ER

767-300

767-300ER

767-400ER

777-200

777-200ER

777-200LR

777-300

777-300ER

Seats 85~96

97~124

366~452

366~452

412~496

416~524

181~224 218~350 245~375

301~400 365~550

Max.Range(nmi) 1540

1900~2300 5300 6850 6700 7260 3950 6590 3950 5975 5625 5235 7700 9380 6015 7930

Line A320 A330 A380

320-200

330-200

330-300

380-800

Seats 150~180

253~293

295~335

525~853

Max.Range(nmi) 3200 6750 5650 8200

C Series

CS100 CS100ER

100~125

2200 2950

E-Jets

E-170 E-190

80 110

1800~2100

1800~2400

BOEING

AIRBUS BOMBARDIER EMBRAER

Source:http://www.bombardier.com Source:http://www.embraercommercialjets.comSource:http://www.airbus.com/

Source:http://www.boeing.com

Specification of aircrafts of 4 major players in the market

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Appendix for Breakeven 1

<Development cost>

Before Global col-laboration

After Global Collabora-

tion

Ratio

B787 case $ 10 billion $ 6 billion 0.6

CRJ700 case *1

$ 1.5 billion $ 0.9 billion *2 0.6*1 : one of Bombardier aircraft, in here used as a standard*2 : we calculate it by using ratio

<Breakeven point>In Regional Jet Market, breakeven point is usually 200Proof : CRJ700’s cost = 24m, price = 32m revenue = 8m 1.5 billion / 8 million = 187.5

Resource : * Magazine aerospace America 4. 2004 * Article ‘managing new product develop-ment and supply chain risks : the Boeing 787 case

Basic info about breakeven point of regional jet market

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Appendix for Breakeven 2

Calculating Boeing’s breakeven point

<expected demand by size 2009 to 2028>

Size New airplane Value

Large 740 220

Twin aisle 6700 1510

Single aisle 19460 1420

Regional jet 2100 70

Total 29000 3220

Resource : Boeing home-pageDuring 5 years after they received orders about B787, they got 850 orders. This is 48 percent of expected orders.

Take the fact that regional jet market is four times smaller than twin aisle market into consideration, we assume that we will get 12% of all expected orders per years.

Info about how Boeing’s breakeven point calculated

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the dreamliner :for boeings new future nahyun, an jiyoon, kang soohwan, kim margeum, kim

Documents

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