Case study: Boeing’s Dreamliner

The story: When Boeing delivered its new Dreamliner 787 to All Nippon Airlines last month, it was the culmination of a long and drawn-out process. The first delivery came more than three years after the revolutionary aircraft – its innovation coming both from its use of composite materials and in terms of how the supply chain was managed – was first scheduled.

The challenge: One reason for the delay was an industry-wide shortage of aerospace fasteners, the nuts, bolts, rivets and washers that hold aircraft together. Although fasteners comprise only about 3 per cent of the cost of an aircraft, they became a serious supply-chain issue.

The worldwide downturn in the aircraft industry caused by the terrorist attacks of September 11 2001 led to consolidation among fastener makers, along with reduced capacity and smaller workforces. Although demand began to increase again, the fastener makers resisted adding capacity because of the continuing uncertainty over just how much demand there would be. So by the end of 2006 the fastener sector was running at only 80-90 per cent capacity.

The problem: In 2007 Boeing’s analysis of the shortage confirmed that there were fundamental ordering and scheduling problems. Because fasteners are used by Boeing as well as its partners, and each had its own way of procuring them, the fastener makers were unable to get a clear picture of demand. Above all, the process was not geared to forecasting demand.

Boeing’s study also revealed that the shortages might continue into 2012, even if fastener makers had increased capacity.

The response: Boeing decided to implement a programme that would change the fastener sector.

The most important changes would be better signalling of demand and the aggregation of supply-chain management in one place for Boeing and its six main production partners.

The new system, which Boeing named the Fastener Procurement Model (FPM), would use a central purchasing system to manage orders and inventory. It would also enable Boeing to negotiate a price directly with fastener makers to ensure more favourable pricing, both for itself and its partners. This was seen as key to encouraging the latter to implement the FPM.

In addition, Boeing and its production partners would make daily updates on inventory levels in a central web portal, which would help stabilise the supply chain.

The fastener makers would be responsible for replenishing inventory between set minimum and maximum levels. Boeing would also develop a forecasting algorithm to help smooth demand.

What happened: Challenges in rolling out the FPM quickly emerged.

Boeing’s main partners were worried that they would not benefit financially.

To deal with this, Boeing sent a formal request to the fastener makers asking for preliminary pricing data. But many manufacturers were both unhappy at sharing information on pricing and confused by the amount of information requested.

Moreover, Boeing had overlooked how important distributors were to the supply chain. The aircraft maker realised it had to consider more partners when planning FPM.

Boeing also met internal obstacles. It found that middle managers were sceptical of the claimed benefits and were worried about unintended consequences.

Key lessons: A lack of attention to commodity items such as fasteners can put a company at risk.

At Boeing, the effort to ensure fastener availability turned into something completely different as more parties than expected had to be extensively consulted and reassured. So, when planning and implementing a radical new procurement model – or any similar programme – it is vital to factor in all partners involved.
- Financial Times, 10 Oct 2011