The Boeing Challenge - Can They Increase Production Rates?
By Ann Grackin
on Jul 27, 2010
Boeing has a huge order book that promises ten Dreamliners per month. Can they do more?
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As the final product issues get addressed in the Dreamliner, demand increases with over 860 orders currently on the books. Current production plans are 10 per month with goals to do 13 planes per month by 2013. Of course, Boeing’s ROI gets pulled in if they can produce more quickly. North of $200M per plan—now that is a worthy goal. Great for Boeing, great for all their partners! James McNerney, Boeing chairman & CEO, was interviewed by CNBC's Phil LeBeau on Squawk Box. LeBeau asked McNerney “Can they build more planes per month?” Boeing also feels that if they can produce faster, they can capture more demand and more market share.
Customer demand for flying seats has increased modestly as the economy has improved, but the airline industry has managed capacity very tightly to assure performance.
However, Dreamliner is a case on how to create demand in a small growth market. Dreamliner and other innovations in the industry address the turnover of old equipment, plus provide a more economical, greener, and ROI-based purchase for the airlines. Longer range flights and more flying hours per plane mean more passengers with less expense, less take offs and landings, less gate congestion, less fees in airports and more. Fuel consumption reductions are targeted at 20%. That adds up to great cost reductions in each route and each plane and also allows Boeing and the airline flying a Dreamliner to boast a “greener footprint.”
In addition, they are claiming a 30% reduction in maintenance costs. Again, no small expense. With a better flying experience promised, such as more on times due to less maintenance (we are looking forward to the cleaner air, more cabin baggage space, and leg room), owners of Dreamliner expect savvy passengers to adjust their itineraries to fly Dreamliner routes vs. others—a very likely prospect if the plane is delivered as marketed, unless the ultra cheap airlines demand more seats and cram the cabin.
So this can be blue skies for a challenging industry going forward.
So, for us Supply Chain types, the outstanding question is, “Can Boeing increase their production rates?”
Using the carbon composite, Dreamliner uses fewer parts. Fewer moving parts, fewer things to test, to configure, to move. To see an interactive view of the plan and its components you can go to this Boeing site. Having said that, Albaugh states that they do have some challenges installing equipment in the plane and also challenges with suppliers.
BBC News' Jorn Madslien (left) takes us on a fascinating tour inside the factory where the Boeing 787 Dreamliner was being built.
Supply Chain design seems to be the big gotcha here. Rather than a feeder to an assembly line, Boeing is having sub-assemblies manufactured all over the world, and then shipped for final assembly in the US. This is not the semiconductor business where tiny chips, costing virtually nothing to ship, can make their way around the word, but big fuselages, engines, mega components criss-crossing the globe.
We all know the challenges in longer leaner supply chains. Tribal wisdom tends to favor localization/proximity of suppliers when the size/weight (i.e. cost of transportation) is large. You only have so many options with transportation. With cost as no object, even heavy components can be flown (and Boeing surely has airplanes to move their cargo). But cycle time is still the factor. Getting through airports, customs, from plant to port, etc., all eat up time.
Though manufacturing personnel are wizards when it comes to cycle time reductions within their own plants, when you stretch complex products that require fits that are accurate within microns, shuttling components between Italy and Washington, Korea and Washington, UK to Korea, etc., eats up time. What to say of the holism from team work and problem solving that you get in one campus in one time zone! Even with the latest shareware, web meetings etc., it is still substandard vs. calling a mid-morning meeting to resolve a problem. It just can’t happen remotely, even with the best of intentions. Wouldn’t supplier parks be a better option for Boeing?
Now let’s add the complexity/low volume factor. Repetitive high volume businesses have the edge at winnowing down cycle times. Nothing like doing things a few times, to see the opportunity for systemic improvement. No doubt, with sheer experience things will absolutely get better.
But with low volume, and at this point low experience, it will be hard—at the worker level—even at the plant level—to determine what time can actually be wrung out of the process.
However, the more strategic question becomes: is producing an additional billion per month of revenue worth making a more structural change with the supply chain?
That is the question that Boeing executives and their suppliers should be asking right now. With the annual sales increases potential of $9B to $12B (that is a ChainLink guess), I would think that the answer is forthcoming.