Fouad Mahmoud Ragai Okasha

Seminar in Strategic Management

Boeing Case : The DreamLiner

 TABLE OF CONTENTS

Introduction ................................................................................................................................................ 3
The history and current position............................................................................................................... 6
The strategy and MAKING HIERARCHY ............................................................................................. 8
Diversification strategy .............................................................................................................................. 8
Hierarchy scheme of strategy .................................................................................................................... 9
Organizational structure.......................................................................................................................... 10
Dreamliner and A380 size comparison ................................................................................................... 11
Dreamliner features with benefits ........................................................................................................... 12
PESTEL Analysis ..................................................................................................................................... 13
The Porter`s Five forces analysis ............................................................................................................ 14
The SWOT analysis .................................................................................................................................. 15
Problems Statement.................................................................................................................................. 17
Objective.................................................................................................................................................... 17
Methodology.............................................................................................................................................. 17
Problem Analysis ...................................................................................................................................... 17
Hypothesis Development & Analysis ...................................................................................................... 19
The Dreamliner's supply chain risks ...................................................................................................... 22
Boeing's reactive risk mitigation strategies ............................................................................................ 24
Conclusion ................................................................................................................................................. 25
INTRODUCTION

Since the U.S. government deregulated air travel in 1977, more airlines have entered the
market causing fierce price competition. As airfares continued to decline, the total
number of U.S. passengers per year has risen from approximately 240 million to 640
million from 1977 to 1999. At the same time, U.S. commercial aircraft manufacturers
have faced major competition from European companies. After losing market share to
Airbus (owned by EADS) in the late 1990s, Boeing was under pressure to decide between
two basic competitive strategies: reduce the costs (and the selling prices) of existing
types of aircraft or develop a new aircraft to raise revenues through value creati on.
When the aviators start to talk, the first thing they begin is the aircraft. The newest and
innovative, the largest and efficient. The airplane, which makes the aviation industry
different, from others. The flying aircraft, carrying tonsof cargo and hundreds of
passengers to long distances in short time. The manufacturing most innovative and
progressive product, such the airplane is, might be possible for few real strong
companies, who made their names by manufacturing the best aircraft in the world. The
Boeing Company is the leader between them.

The Boeing Company (BA) is an American multinational corporation that designs,

manufactures and sells airplanes and related parts. It is largest company and leading in
jetliners, aerospace, defense and security systems. The BA provide all kind of support
service for it products. The company is largest global aircraft manufacture, and the
quality of Boeing made aircrafts is higher, than competitors’ (between passenger type a/c
manufactures).
Boeing has about 141,322 (Jan 1, 2018, Wikipedia) numbers of employees and has
presentation almost worldwide. The company has five divisions, all related with aviation:
 Boeing Commercial Airplanes (BAA);
 Boeing Defense, Space & Security (BDS);
 Engineering, Operations & Technology;
 Boeing Capital;
 Boeing Shared Services Group
The company revenue by ending the December 31, 2017 is $ 93,3B.
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 to improve their travel
experience through redesigning the aircraft and offering significant improvements in
comfort. For instance, relative to other aircrafts, over 50% of the primary structure of
the 787 aircraft (including the fuselage and wing) would be made of co mposite materials
(Hawk, 2005).
As compared to the traditional material (aluminum) used in airplane manufacturing, the
composite material allows for increased humidity and pressure to be maintained in the
passenger cabin, offering substantial improvement to the flying experience. Also, the
lightweight composite materials enable the Dreamliner to take long -haul flights.
Consequently, the Dreamliner allows airlines to offer direct/nonstop flights between any
pair of cities without layovers, which is preferred by most international travelers (Hucko,
2007).

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 (Mach
0.85).3 This efficiency would allow airlines to offer economical nonstop fli ghts to and
from more and smaller cities.

In addition, with a capacity between 210 and 330 passengers and a range of up to 8,500
nautical miles, 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 (Murray, 2007).
Comparison of select Boeing and Airbus aircraft
THE HISTORY AND CURRENT POSITION

The history of successful company starts in March 1910, when the founder, William E.
Boeing bought Heath's shipyard in Seattle on the Duwamish River, which became later
his first airplane factory. He incorporated the company on July15, 1916, and started wi th
manufacturing of seaplanes.

The first big order Boeing received was from the Navy, for 50 seaplanes. After World
War1 company faced with stagnation in business, therefore, temporary became
manufacturer of different products like a dresser, counters and furniture along with flat
bottom boats called Sea Sleds.

Beginning by 1919 the Boeing Company opened new horizons wi th first flying boat. That
boats began to use for airmail delivery local and international. Later Boeing entered
competition with other manufacturers for developing the fighters for US Army Air.
During period 1925-1947 Boeing developed different models for civil and military
market. In 1947 it flew first military jet aircraft, from that moment company launched
new era in jet airplane constructing.

Since that, the company became the worldwide famous airplane manufacture. The
Boeing`s airplanes fly in every part of world. Almost all airline companies worldwide
have Boeing in the fleet. Some of fleet contains by only Boeing airplanes.

The company manufactures different types of aircraft. The current popular civil series:
737,747,767,777,787. Besides that, Boeing manufactures military aircrafts and produces
the engines for space rocket and electronic spare part used in space programs by NASA.
The Boeing Company is the second largest defense contractor in the world and the largest
exporter in US. It located in Seattle, Chicago Company, placed in S&P 100 and S&P500.

The Boeing Company has plans for future.

The company work on possibility of using the biofuel for aircraft engines.

They also determine the hybrid electric engine technology, as the best choice for
subsonic design. The developing technologies that way, will keep company improving in
future.
THE STRATEGY AND MAKING HIERARCHY

The Boeing Company successful performance based on newest technology. Even in 1916,
when W. Boeing started to create first sea planes, it was new technology based for that
time; despite to the fact that first planes was made from wood.
The owner chooses the strategy to develop his company using the progress. He decided to
build quality, not expensive airplanes and sell them firstly to the government and after to
market. That way he differentiated his company from others manufacturers. He builds his
plant in Seattle to have access main material the spruce wood.
During the World War and after W. Boeing, was able to adjust his strategy of developing
accordingly to requirements. The planes for Army or civil staff for daily using. His
approach was to prevent the stoppage.

DIVERSIFICATION STRATEGY

Boeing aimed to fill the fleets of every airlines with its Boeing airplanes, therefore the
line of products include all kind of airplanes, from short -range to long and extended-
range with added tail tanks.
In addition, Boeing manufactures corporate jet: BBJ (Boeing Business Jet), very
luxurious, highly equipped aircraft with special characteristics for private use. Thus the
BA develop its strategy to answer to all kind of needs. Total commercial aircraft orders
for 2018 is 642, delivered aircraft for 2017 is 763, with net orders 912. Beside, BA
encompasses the development of missiles, helicopters and wide range of other technical
products used in the defense and security segment. The revenue from diversification
supported the company during the fluctuations in market.
HIERARCHY SCHEME OF STRATEGY

Boeing hierarchy scheme of strategy consists from the next distinction:

1. Corporate strategy:

Was established from zero and continued to grow first locally but later it became
international. I think W. Boeing planned to enter different market, as it happened
after his leaving the company in 1933. The company diversified from defense
aircraft to commercial became manufacture of not only civil airplanes, but also
fighters and bombers for Army, missile and rocket engines.

2. Business strategy:

From the beginning Boeing emphasized the research and developing for creating
the quality product and distinguishing from others. Running ahead, the financial
analysis reveals serious investment in R&D procedures. The company developed
different models of airplanes for any type of operations, with possibility to change
the configurations. That favorably distinguishes it from its closest and strongest
rival: an Airbus. The BA provides lease opportunity for customers, the spare part
chain, technical documentation and information updating. The BA also has
educational centers for certification the technical centers. After certification those
centers allowed to perform the special maintenance, inspection procedures, and
configuration change procedures. Thus enhance the service network of Boeing and
support the requirements of periodical aircraft maintenance check.

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 3. Functional Area Strategies:

Other difference from an Airbus, that BA build it products in one place. Thus,
company is able to control the manufacturing process better and avoid unnecessary
transportation expenses. The BA invest to its personnel, hiring the high skilled
professionals. The contracting with government for military orders, provide also
the subsidizing from government.

4. Operating strategy:

The company create new type aircraft and sells them to national and international
airlines companies. It has representation in 70 countries, communicating with
major and local airlines regionally. That foster supply chain which is highly
convenient for airlines, in terms of short time for spare part delivery, and very
profitable for Boeing

ORGANIZATIONAL STRUCTURE

Boeing uses the matrix structure, each department has the vice president:
 Business development and strategy
 Communications
 Finance
 Engineering, Operations and Technology
 Human resources and administration
 Internal Governance
 International
 Law department
 Public policy

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Boeing has its corporate headquarters in Chicago, Illinois. The company is led by
President and CEO Dennis Muilenburg. The BA organization consists from five primary
divisions:
 Boeing Commercial Airplanes(BAA);
 Boeing Defense, Space & Security (BDS);
 Engineering, Operations & Technology;
 Boeing Capital;
 Boeing Shared Services Group.

DREAMLINER AND A380 SIZE COMPARISON

Due to the unique value that the 787 provides to the airlines and their passengers, the number of
orders exceeded expectations. The Dreamliner is 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.
The Dreamliner program has been considered a model endeavor combining novel technology
and production strategies. As of November 16, 2008, Boeing received orders from more than 50
airlines for a total of 895 Dreamliners. The overwhelming response from the airline industry
about Boeing's 787 has forced Airbus to quickly redesign its competitive wide-bodied jet, the
A350, to make it even wider, which was later re-released as the A350XWB as an "extra wide
body”.
Boeing is currently the second-largest global aircraft manufacturer (behind Airbus) in terms of
revenue and deliveries (though having received more orders than Airbus), the second largest
aerospace and defense contractor in the world (behind Lockheed Martin), and the single-largest
exporter in the United States. Sales in 2007 amounted to $66.4 billion with a net income of $4.1
billion. Besides sales, the stock market responded favorably when Boeing launched its “game-
changing” 787Dreamliner program in 2003.
Between 2003 and 2007, Boeing's stock price increased from around $30 a share to slightly over
$100 a share. However, Boeing announced a series of delays beginning in late 2007 and the
market has reacted negatively. The negative market response is somewhat expected as publicity
of Boeing's supply chain problems have become increasingly evident. Airbus shared a similar
fate after announcing a series of delays for the delivery of its A380 in early 2006.
Despite significant capital investment and management effort, Boeing is currently facing
continual delays (for more than two years) in its schedule for the maiden flight and plane
delivery to customers as of this writing. After numerous failed attempts to get its 787's composite
rear fuselage supplier back on track, Boeing finally decided to acquire Vought's South Carolina
facility at a cost of $1 billion on July 8, 2009 (Sanders, 2009a). This occurrence motivated us to
examine the underlying causes of Boeing's challenges in managing its 787's delivery schedule.

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DREAMLINER FEATURES WITH BENEFITS

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PESTEL ANALYSIS

Boeing is worldwide known and operating company. Its clients located in every country
that has air fleet. The Pestel analysis will support in understanding the factors which
affect the operation of company
Political:
For foreign markets the new airplanes fleet purchasing is almost everywhere controlled
by local government. Partly because some governments have ownership in of airlines,
partly because the airline operations regulated by law. Another reason could be the high
cost of airplane; at the end this amount of money leaves local market. Therefore, airlines
must conform the order. That aspect is quite significant for BA. It requires good relation
between BA and US government for backup in case of necessity. Another important
issue stated in “The Boeing Company 2017 Annual Report, pg.8”. The BA contracts with
US government are subject to modify, curtail or terminate, in any numbers and turns. The
changes in defense budgeting levels might affect BA in very negatively way. That factor
implies the risk for future planning of company.

Economic:
Boeing manufactures different products but main product is airplane, which planned to be
used by airlines. The airline industry is high competitive part of transportation market.
The airplane with better characteristics, than made by BA, will have more demand in
market, hence adversely affect the profitability of company. The changes in customer
requests also will affect the sales of new aircraft. Boeing direct depends to the economic
fluctuation in the world. The exchange rate in foreign countries, local airlines economic
conditions and load factor, affect the Boeing as the manufacturer.
Social:
This factor might affect Boeing in markets, where US antipathy, might be caused by
some economic embargo or by military conflicts in past. Those markets are mainly in
Asia, which are developing and becoming significant.

Technological:
Airplane manufacturing industry based on extremely high-end technology. The expenses
for Research and Development (R&D) including the experimentation, design,
development and test activities in 2017 was $3.2B. (2017 Annual report). Those
expenditures are required to be competitive in the market. The level of this costs is not
subject to decrease, because airlines require new options to be presented in new airplane
(Wi-Fi, new safety options, less fuel consume engines)

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Environmental:
This factor has one of the most significant effects to Boeing. Aircraft engines are
subject for regularly up-to-dating restrictions and regulations. Those are related not only
with air pollution, but also with noise abatement requirements. This regulation might
restrict the purchasing and exploitation of certain type of aircraft or will require the
modifying the existing one.

Legal:
Any incident or an accident happened with Boeing airplanes worldwide, automatically
involves the manufacturer into the investigation. The responsible governmental agency,
who performs those investigations, have power to suspend the whole flights of
investigating aircraft type. The airplane industry regulates by the federal and state laws,
so any changes, might limit or make illegitimated the airline operation, performing by th e
certain type of aircraft. Which will affect the manufacturer production line.

THE PORTER`S FIVE FORCES ANALYSIS

The substitute products threat:

Used to be low, until the main competitor an Airbus, started to build the A380. That was
moment changed the level to moderate, because with this aircraft Airbus received
significant amount of orders and became real competitor. However, there are no others
manufacturer with same quality level in market. The Airbus and Embraer (only for short
range aircraft type) are only, who able to provide the same or close to similar products
The buyers force:
The threat is moderate because: despite to the usually, high power of the customers in any
industry, the airline industry is different, thus the buyers have very high swi tch costs.
Therefore, customer is now willing to change the aircraft brands. Besides, while the
Boeing will continue to build high end technology equipped and quality aircrafts, with
required fuel consuming characteristics, this threat will remain moderate
Potential new entrants force:
This threat is extremely low. The airplane manufacturing depends not only to huge
financial investments, but also to high skilled, professionally and well educated human
resources. The technology research, innovations and legal regulations are other aspects,
which rise the entry barriers to this market. In case with Boeing, it took 102 years to
come to current level.

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Supplier force:
Boeing is famous and strong firm with ability to pay, therefore it could choose the
suppliers, accordingly to own quality and stock requirements. The suppliers of Boeing are
also well known, technology firms. Therefore, the threat is moderate. Thus, the suppliers
provide with quality parts (engines: Roll Royce, GE) and raw materials (titanium,
composite material), those, Boeing will not be able to buy somewhere else. However,
financial strength levels of the treat to moderate level

Rivalry force:
this threat is moderate to high. Despite to fact, that the Airbus is only one significant
competitor (moderate threat), it has the same line of airplane types, even larger, with
A380 (to high threat). Boeing does not have the same type of airplane. The second
players of market: Embraer, Bombardier and others, also follow the line of quality of
leaders, thus becoming the noticeable rivals.

THE SWOT ANALYSIS

This analysis will provide with information of current position of Boeing on market, its
threats, strong and weak aspects. In addition, internal analysis will be base for create the
recommendations using the opportunities.

Strengths:
 Worldwide known, global positioned, high technology quality product
manufacturer
 Diversified product supplier
 Large market
 Backlog for $488B
 High backlog proves the customer`s trust
 High investment to R&D, will further diversify the markets for Boeing, to the
aerospace niche, improve the airplane characteristics, stronger positions in
defense/military market
 High skilled, professional Human resources
 Large line of commercial airplanes, satisfying all kind of customer`s n eeds
 Focus on enlarging the product line
 Strong positions in domestic market

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Weaknesses:
 Backlog for orders by $488 (it can be the reason of penalties as the result of late
delivery)
 High expenses for retired personnel (pensions, etc...)
 Significant cost of research and development
 High costs of skilled personnel
 Wrong planning of B787 Dreamliner, resulted with increased costs
 Limits in fuel type for engine, limited by today’s technology.
 High reliance (31%) on US government contracts
 Reliance on suppliers products, strong bargaining power of suppliers
 Fixed-price contracts, possible losses if overrun

Opportunities:
 Only one real competitor
 Airline transportation markets growth: domestic and worldwide(Asia -Pacific,
Middle East, Africa)
 Defense and aerospace orders growth
 Wide backlog($488B), and new orders
 Narrow body aircraft demand growth: B737 Max series
 New B787 aircraft
 Expansion in domestic and international markets

Threats
 Increasing in retired and resigned compensation costs
 Market condition impact on demand for commercial aircraft and related services
 Possible changes in defense spending by U.S. government
 Possible modifying, curtail or terminating of U.S. government contracts
 Possible U.S. government inquires, investigation and audits related with
reimbursable cost
 Risks related with performing business in other countries
 Increasing the competition level between airplane manufacturers

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PROBLEMS STATEMENT

Delay in planed scheduled of Boeing 787 and the Heavy loss (about 4 Billion USD)
incurred to Boeing because Of that.

OBJECTIVE

Find the reasons, which caused the delay and analyze them, suggest the probable
solutions for the prevention and corrective action of this problem.

METHODOLOGY

Analyzing the problem from Supply Chain Management (SCM) perspective and tackling
the problem by studying the implication of various suggestions suggested and
implementing the same in the present scenario. Keeping in mind the cost of implementing
this suggestion should not exceed the cost of penalty paid by Boeing, time and
complexity.
As I am not having exact data, I will only be discussing the different approaches, which
can be used for analyzing & solving the problem faced by Boein g 787 program.

PROBLEM ANALYSIS
If we read the case we can find that there was more than one problem which cumulatively gave
rise to this delay. Will be discussing each one by one:

1. Unexpected Shortages of Fasteners

Unexpected Shortage of fasteners made Boeing to pressurized suppliers for quick delivery and
they rushed to make the fasteners as a result they did not properly documented the work as
required by federal authority.

2. Underestimation of work content in the task of writing flight control codes

Both Boeing and Honeywell initially underestimated the work content, which was there in
writing these codes as a result they were now scrambling to write them.

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3. From bleeding edge to leading edge
Boeing introduced first time a game changing innovation which they call “Bleeding edge” in
order to have a “Leading edge”.
This innovation was the extensive usage of carbon fiber (composites) technology.
787 used as much as 50% of its total weight of composited as compared to 12% in 777.

This helped to reduce the weight of aircraft and hence improve the fuel efficiency. But if the
components of the aircraft are too light which was the case with central wing box needed
strengthening. To overcome this, engineers devised a patch for first 6 aircraft and will change the
design after seventh one.
Designing patch caused Boeing months delay and re‐designing the central wing box, which was
the responsibility of Boeing’s partner, now became Boeing’s concern.
This is a big problem unless the flight tests are cleared.

4. Boeing’s business strategy

Boeing out sourced a large amount of responsibilities to overseas (Spain, Italy, France, Australia
and Japan). This project has the maximum number of outsourced components. There are as many
as risk sharing 50 partners. This caused delay in fuselage assembly because of the breaking of
supply chain between the suppliers.
Vought received parts from Japan & Australia where else Israel Aircraft Industries was doing all
things by itself for similar parts and another was the lack of aerospace experience of workforce
among some suppliers.

5. Revised plan
Responding quickly to the delay Mr.Shanahan revamped 787 executive team and reorganized
into:
a) Airplane development
b) Global Supply Chain
c) The final assembly and delivery
Also Boeing sent its employees stationed at each suppliers factory in order to have better control
over the supply chain. Vought’s & GA’s plant problem is fixed by Ex-Boeing managers in each
plant. Production activities were rationalized and areas of responsibilities were re drawn to speed
up aircraft production.

6. Potential Treats
Strikes by Labor and Engineers are threatening Boeing now. The labor strike is basically against
the outsourcing done by Boeing and the pressure caused by Boeing on the employees to start
assembly of aircrafts with thousands of shortages. And the engineers want to reduce the number
of contract jobs created by Boeing. Both of the unions want more Jobs and are against the
business strategy of Boeing, The strike is such a big problem that if there are three strikes and it
will be very difficult for Boeing to run the show

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HYPOTHESIS DEVELOPMENT & ANALYSIS
In hypothesis development I will try to solve the listed problems with each one of the below
states strategy

A. Lean Management

BASIC PRINCIPLES OF LEAN

Specify the value desired by the customer
Indentify the value stream for each product
Make the flow continuously
Introduce pull between all steps where continuous flow is possible
Manage towards perfection

Principle behind lean management is to reduce waste. Above stated matrix shows how we can
implement LEAN concept. If we consider the problem faced by Boeing and try to solve them
one by one we will find if Lean is useful for us.
Problem with LEAN is that it is basically works at tactical or operational level and it takes time
to implement. Implementation of LEAN leads to:
 Speed up the value chain
 Waste elimination
 Value system redesign

1) Unexpected Shortage of Fasteners

First question arises why the fasteners felled shortage?

There can be two scenario’s either less quantity was ordered or they were wasted during
assembly. The first scenario may be due to the mistake during ordering which is generally
negligible. Second scenario may be possible that the available quantity of fasteners were
wasted during assembly. LEAN Management can address this. By giving limited number
of fasteners to an operator whose job is only to do that particular job in a lean production
line.

2) Underestimation of work content in the task of writing flight control codes

This is a lapse, which can contribute to a strategic level forecasting & planning failure. In
this case we can implement LEAN at operation level by speeding up the coding process
which can be said as a Corrective action rather than preventive action. Hence we cannot
solve this problem by LEAN.

3) From bleeding edge to leading edge

Boeing has tried some innovative technology and this problem aroused during R&D phase
and LEAN concept can’t help us much in solving this problem.

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 4) Boeing’s business strategy

The difficulty to manage the supply chain among the suppliers and Boeing. The problem
was regarding the balancing of supply chain and ensuring that product flows continuously.
Lean would have helped at operational and at most tactical level but not strategic level.

5) Revised plan

We can see the role of LEAN when Mr.Shanahan revamped 787 executive team and
reorganized into
1) Airplane development.
2) Global Supply Chain
3) The final assembly and delivery.
4) Sending Boeing representatives to supplier’s location.

6) Potential Treats

The major reason for strikes stated is the anger due to the number of jobs Outsourced.
Hence here also Lean concept can’t be applied. Thus we can see that we can help us in
fixing some issues (2 out of 6) but not all by LEAN Concept. Main drawback is cannot be
used as a tool for strategic supply chain improvement tool. We can achieve Island of
excellence in an organization by implementing only LEAN and will take lot of time to
yield results.

B. SIX Sigma
SIX SIGMA METHODOLOGY
D Define the customer, Critical to quality issues, business process
M Measure the performance of business of the business process
A Analyze to determine the root cause and opportunities for improvement
I Improve the process, Develop and deploy implementation plan
C Control the improvement to keep on new course

By implementing Six Sigma we can achieve:

1. Variation Reduction.
2. Stability & Accuracy

In this problem we and attack the problem at microscopic level, we can standardize various
processes and reduce the variations. We will try to solve each problem by Six sigma and see
how efficient is it in present case

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 1) Unexpected Shortage of Fasteners

If we assume that the shortage rise was due to the bad quality of fasteners supplied by
supplier. Six Sigma would had help the supplier to reduce its variation so that the fasteners
would had been standardized and this problem would had been prevented. In other words
Boeing can demand its suppliers and its own factory to adhere to Six Sigma level in
critical processes.

2) Underestimation of work content in the task of writing flight control codes

We can’t help this problem just using Six Sigma.

3) From bleeding edge to leading edge

Design by Six Sigma technique would have helped in preventing this problem. And also
for redesigning we should follow the same.

4) Boeing’s business strategy

Six Sigma can’t help business strategy, as Six Sigma is operation level concept not a
strategic level.

5) Revised plan

Revised plan can take help of Sig Sigma when the Boeing representatives stationed at
supplier premises pressurize them to improve their critical processes to Six Sigma level.

6) Potential Treats

Sig Sigma may not help us in solving the threat of strikes.

In brief we can say that thought at operational level we may improve the scenario but at strategic
level we cannot do by utilizing Six Sigma.

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THE DREAMLINER'S SUPPLY CHAIN RISKS

Although the 787 supply chain has great potential for reducing development time and cost, there
are various underlying supply chain risks. There are many types of supply chain risks ranging
from technology to process risks, from demand to supply risks, and from IT system to labor
risks. In this section, we shall present some of the risks and actual events that caused major
delays in the Dreamliner's development program.
The 787 Dreamliner involves the use of various unproven technologies. Boeing encountered the
following technical problems that led to a series of delays.

1) Technologies
Composite Fuselage Safety Issues: The Dreamliner contains 50% composite material
(carbon fiberreinforced plastic), 15% aluminum, and 12% titanium. The composite
material has never been used on this scale and many fear that creating an airplane with
this mixture of materials is not feasible. Also, lightning strikes are a safety concern for
wings made out of this composite material because a lightning bolt would potentially
travel through the wing-skin fasteners (Wallace, 2006).
Engine Interchangeability Issues: One of the key benefits of the 787's modular design
concept was to allow airlines to use two different types of engines (Rolls-Royce and GE)
interchangeably. Due to recent technical difficulties and part incongruity, it would take
15 days to change engines from one model to the other instead of the intended 24 hours
(Leeham Co., 2005).
Computer Network Security Issues: The current configuration of electronics on the
Dreamliner puts passenger electronic entertainment on the same computer network as the
flight control system. This raises a security concern for terrorist attacks (Zetter 2008).

2) Supply Risks
Boeing is relying on its tier-1 global strategic partners to develop and build entire
sections of the Dreamliner that are based on unproven technology. Any break in the
supply chain can cause significant delays of the overall production. In early September
2007, Boeing announced a delay in the planned first flight of the Dreamliner citing
ongoing challenges including parts shortages and remaining software and systems
integration activities. Even using Exostar, a web-based planning system, to coordinate the
supplier development activities, coordination is only possible when accurate and timely
information is provided by different suppliers]For example, one of the tier-1 suppliers,
Vought, hired Advanced Integration Technology (AIT) as a tier-2 supplier to serve as a
system integrator without informing Boeing. AIT is supposed to coordinate with other
tier-2 and tier-3 suppliers for Vought (Tang, 2007). Additionally, due to cultural
differences, some tier-2 or tier-3 suppliers do not often enter accurate and timely
information into the Exostar system. As a result, various tier-1 suppliers and Boeing were
not aware of the delay problems in a timely fashion, which makes it difficult for Boeing
to respond to these problems quickly.

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3) Process Risks
The underlying design of the 787 supply chain is likely to cause major delays because its
efficiency depends on the synchronized just-in-time deliveries of all major sections from
Boeing's tier-1 strategic partners. If the delivery of a section is delayed, the delivery
schedule of the whole aircraft is delayed. Unless Boeing keeps some safety stocks of
different complete sections, it is likely that Boeing will face late delivery. Also, under the
risksharing contract, none of the strategic partners will get paid until the first completed
plane is certified for flight. As strategic partners recognize the potential of being
penalized unfairly if they complete their tasks before other suppliers, the risk-sharing
contract payment may actually entice these strategic partners to work slower, which
undermines the original intent of the risk-sharing contract (Kwon et al., 2009).

4) Management Risks
As Boeing used an unconventional supply chain structure to develop and build its
Dreamliner, it is essential for Boeing to assemble a leadership team that includes some
members who have a proven supply chain management record with expertise to prevent
and anticipate certain risks as well as to develop contingency plans to mitigate the impact
of different types of risks. However, Boeing's original leadership team for the 787
program did not include members with expertise on supply chain risk management.
Without the requisite skills to manage an unconventional supply chain, Boeing was
undertaking a huge managerial risk in uncharted waters.

5) Labor Risks
As Boeing increased its outsourcing effort, Boeing workers became concerned about their
job security. Their concerns resulted in a strike by more than 25,000 Boeing employees
starting in September 2008. The effects of the worker strike were also felt by Boeing's
strategic partners. For example, anticipating that the strike at Boeing would trigger order
cancellations and delivery delay of certain Boeing aircrafts, Spirit Aero-systems, a key
supplier of Boeing, reduced its work week for employees who develop and manufacture
various Boeing aircrafts. This reduced work schedule could potentially delay the delivery
schedule of certain fuselage parts for the 787 (Rigby & Hepher, 2008).

6) Demand Risks
As Boeing announced a series of delays, some customers lost their confidence in
Boeing's aircraft development capability. In addition, there is a growing concern about
the fact that the first 787s are overweight by about 8%, or 2.2 metric tons, which can lead
to a 15% reduction in range (Norris, 2009). In response to Boeing's production and
delivery delays and the doubt about 787's long range capability, some customers have
begun canceling orders for the Dreamliner or migrating towards leasing contracts instead
of purchasing the airplane outright. As of July 2009, the orders for the Dreamliner have
been reduced from 895 (reported in November 2008) to 850 (reported in July 2009) (see
Sanders, 2009b, for details).

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BOEING'S REACTIVE RISK MITIGATION STRATEGIES

To manage various disruptions as presented earlier, we now present Boeing's reactive response for
reducing the negative impact of the current problems and for avoiding further complications resulting in
additional delays

Risk Factor Reactive Risk Mitigation Strategy

Technology Modify Design
Supply Purchase company at the bottleneck stage (Vought aircraft industries)
Process Send hundreds of engineers to solve issues with underperforming
partners at their sites

Management Reorganize top management – Replaced program manager with supply

chain expert

Labor Concede to labor unions – increased pay and decreased outsourcing

Demand(Customer) Paid penalties for delivery delays

To improve the safety of its composite fuselage, Boeing is redesigning its fuselage by using additional
material to strengthen the wing structure; however, this additional material will increase the aircraft's
overall weight. Boeing management has continued to assure its customers that it will work diligently to
reduce the weight of the final version of the plane. Boeing is redesigning its installation process with the
hope of reducing its changeover time from one engine model to the other. Finally, to ensure that the
computer network is secure, a proper design is being required that allows for the separation of the
navigation computer systems from the passenger electronic entertainment system.

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CONCLUSION

Boeing's Dreamliner program involves dramatic shifts in supply chain strategy from
traditional methods used in the aerospace industry. In addition, Boeing boasted about its
novel manufacturing techniques and its technological marvels. Such dramatic shifts from
convention involve significant potential for encountering risks throughout the process.
Boeing's ongoing issues with meeting delivery deadlines are a direct result of its decision
to make drastic changes in the design, the development process, and the supply chain
associated with the Dreamliner program simultaneously without having the proper
management team in place. Further, this team did not proactively assess the risks that
were later realized and did not develop coherent strategies for effectively mitigating
them. Although it may be impossible to identify all potential risks and create contingency
plans for all eventualities before a project begins, Boeing could have done many things
differently. It is instructive for managers in any industry to view the issues that Boeing
faced and analyze how these issues were handled so that they can learn from mistakes
that were made before engaging in similar supply chain restructuring.

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