Global Operations and Supply Chain Management: Airbus vs. Boeing Final Assignment - Jamar Johnson

GMBA+ BLENDED 2

GLOBAL OPERATIONS AND SUPPLY CHAIN MANAGEMENTPROFESSORLUIS EDUARDO SOLÍS GALVÁN

TEAM CLARO!CHAVES GUILLERMO,

GOMME, JOHNSON, LANGKAMMER,

LÓPEZ RIVERA, PAPADELLIS

Competing in Commercial Aviation for the Airlines

Case in point : Airbus A380 vs. Boeing 787 Operations and SCM

Page 2Team Claro!– Chaves Guillermo, Gomme, Johnson, Langkammer, López Rivera, Papadellis

1. Industry Context and Competitive Environment

Headquarters: Chicago

Business areas: Manufacturer of commercial jetliners and military aircraft. Additionally, designs and manufactures rotorcraft, electronic and defence systems, missiles, satellites, launch vehicles and advanced information and communication systems.

Global Reach Provides products and support services to customers in 150 countries.

Employees: Boeing employs more than 170,000 people across the United States and in 70 countries

Supply Chain: Hundreds of thousands more skilled people working for Boeing suppliers worldwide.

2012 Net income: $3.9 billion

2012 net orders: 1203

Market Share: 59%

Company Overviews

Headquarters: Toulouse, France

Business areas: Aerospace and defence related services.

Global Reach: Fully-owned subsidiaries in the United States, China, Japan and in the Middle East. More than 150 global field offices.

Employees: 59,000 globally.

Supply Chain: Has a network of 1,500 suppliers in 30 countries

2012 Net income: $1.59 billion (parent company EADS)

2012 net orders: 833

Market Share: 41%


Primary customer for Boeing and Airbus is global airline industry. To understand their market position we need to establish the current state of the global Airline business.

• Demand in the airline industry generally correlates with global economic activity which drives spending on air travel.

• The growing global “middle class” and increased levels of urbanization are generating sustained levels of demand.

• Passenger traffic rose 5% between 2011 and 2013 and this trend is expected to continue in the long term. Boeing predicts that there will be 35,000 new aircraft in circulation in 20 years.

• The majority of this growth will be driven by emerging markets.

• One of the most important considerations for the airline industry is fuel price (represents 30% of global airline operating costs)

• Technological advances are making aircraft much more fuel efficient and cheaper to run. As a result, airlines everywhere are looking to replace older planes and update their fleets.

• Combined with enhanced demand, this is good news for manufacturers like Boeing and Airbus. Are looking at sustained long-term market growth and a boom in sales.

• The Airbus A380 and the Boeing 787 Dreamliner, represent efforts to take the initiative and tap into the demand for more efficient models.

Strong Prospects for Growth

Fuel Price – Driving innovation



Threat of new entrantsRivalry among existing competitors

Bargaining power of buyersBargaining power of suppliers

Threat of substitute products

• Industry is currently in a state of duopoly. US-based Boeing and European Airbus dominate the global market.

• Extensive rivalry exists between these two players.

• A380 vs 787 Dreamliner is the latest embodiment of this rivalry.

• The sustained growth in the industry is starting to attract new entrants.• However risk of entry is very high due to

high level of investment required to undertake the necessary R&D and production.• Strong barriers to entry:

i. High costs involvedii. Takes time to build product – long

time before saleiii. Large degree of technical expertise

required.

• Manufacturers engage a huge variety of subcontractors to develop end product

• The power of the supplier depends on the nature of the component being supplied. Suppliers of rare resources, such as carbon fibres, or highly specialized techniques have a certain degree of influence

• Ultimately the power rests with the duopoly.

• Again, the duopolistic nature of the industry at present does not present airlines with a great deal of choice or influence.

• However bargaining power is increasing due to emergence of more manufacturers a combination of more manufacturers.

• Extremely low. No direct substitutes to air travel. • High speed rail cannot compete





2. Key Corporate Objectives - Airbus

Airbus Industrie Headquarters: Toulouse, France

Vision: “Creating the Best and Safest Aircraft”

Mission Statement: “Meet the needs of airlines and operators by producing the most modern and comprehensive aircraft family on the market, complemented by the highest standard of product support”

Long Term Goals:• Deliver strong results in a

sustained manner• Market Share: at least HALF

of the world commercial aircraft over the long term

Key Objectives: • Further internationalization• Focus on Key Geographic Markets• Expand Customer Service Offering• Restore Competitive edge• Flexibility• Efficiency


2. Key Corporate Objectives - Boeing

Boeing Headquarters: Chicago, Il, USA

Vision: “People working together as a global enterprise for aerospace leadership”

Mission Statement: “Be the leader among the premier industrial concerns in terms of quality, profitability and growth”

Objective: Attain the following Core Competencies:

• Customer Knowledge and Focus• Large Scale system integration on a global level by outsourcing• Lean Enterprise


3. Marketing Strategies - Airbus

Airbus believes in Hub-and-Spoke

o Airbus expects high traffic between international hubs

o Large airports with constraints of airport slots

o A380 maximizes yields per slot for connecting flight

Strategy: Airbus wanted to break Boeings stronghold in long range, big capacity Airplanes with the new A380 and new technology

Delivers efficiency through economies of scale

o Large airplane offers economies of scale (-20% cost per seat than Boeing 747)

o New seat 840 seat configuration cuts cost by 70%-80%

o Most luxurious cabins in the industry; adds to the image of high quality airlines

o I+D: Risks and Innovation


Strategy: Boeing wanted to meet its need to have a product to compete in the market for mid-long range air transport

Delivers economy through technological innovation

o B787 Dreamliner competes in the mid-long range aircraft

o Fuel-efficient twin engines

o Lightweight composite materials

o Availability of different cabins for different classes: Moodlight function allows differentiation of cabins without physical walls

3. Marketing Strategies - Boeing

Boeing bets on Point-to-Point Model

o The plane travels directly to a destination, rather than going through a central hub

o New market segment: long-haul aircraft but average size

o Secondary airports with no facility to accommodate large aircrafts

o Make it simple and cost-effective for airlines to operate


4. Order Qualifiers and Order Winners

• ReliabilityThe Company has to be as reliable as their aircraft. Boeing and Airbus sell multi-million dollar products to their civil aviation customers. Airlines base their operations in this aircrafts and reliability is expected.

• ConformanceProduct conformance is a must in the civil aviation industry. Safety standards and Aviation regulatory bodies establish very clear rules that have to followed.

• Perceived QualityHow the product is perceived is very important in this industry. Current events are a clear example

• Dependability (Delivery Time)So much as it might sound weird... Yes, it is a qualifier.

Order Qualifiers Order Winners

Durability (15%) Oh yeah!! And it has to last

Serviceability (20%) Make it easy for my operations and give me support

in time, every time

Performance (65%) Do better than the rest, with less fuel


5. Main Transformation Process - Boeing

• Organizational Transformation: Global Supplier Coordination through Supply Chain ManagementBoeing’s supply chain had to be transformed to accommodate management of suppliers through four continents. Timing is critical, and so are specifications and technical coordination when we talk about tolerances of up to 1/5000th of an inch.

• Operational Transformation:o From integrating separate designs to

design with suppliersComponents had to be built from scratch, and compatibility had to be gained from the design phase.

o From manufacturing for customers to manufacturing with customersCustomers were asked to come onboard during the assembly process. Insight is gained on both sides.

• Technical Transformation : From Aluminum to CompositeThe hardest change. Weight reduction means one thing: Aluminum alloys, the lightest aircraft manufacturing metal is just too heavy for the 787.

Boeing Suppliers, from four continents to Everett, WA, USA

General Electric Genx Engine, Created for and with the 787


5. Main Transformation Process - Airbus

• Organizational Transformation: European-centered Supplier Coordination• Construction of Port facilities• Development of new roads• Oversized road convoys• RORO fleet ship and barges

• Operational Transformation:o Design

A3XX project / Not just a copy – paste productDouble digit operating cost reductionMore range, quieter and more cargo volume

o ProductionMain fuselage, wings, fins and control surfaces manufactured all over Europe. Assembly takes place in Toulouse, France. Interiors & further testing in Hamburg, Germany.

• Technical Transformation• Systems Integration• Control / System redundancy• Size / Performance• Active load alleviation • Digital mock up systems• Advanced composite materials• Central wing box• Smoothly contoured wing cross section

A380 Parts, on their way to Toulouse, France

Timeline, A380


6. Major Infrastructure Dimensions of the Operation Strategies - Airbus

• 1.500 suppliers in 30 countries

• Five spare part centers

• 120 field sites

• Three training centers

• Six Center of Excellence (CoE)

Streamline and unify design and production processes

• Reinforce cross-national relationships

o Operations: Six CoE are responsible for manufacturing components and final assembly

o UK: Wings in UK

o Germany: Forward, tails and fuselage

o France: Pylon and Nacelle

o Spain: Horizontal tail

o Toulouse / Hamburg: Final assembly

o US: A350



• Chose suppliers on best-value basis

• First-tier suppliers are involved in concept and product development

• Information systems to streamline communication within the network

• Supplier portal to share documents & specifications and to manage inventory levels and orders

•RFID technology to trace parts, make maintenance easier

• New R&D capabilities & financial backing

• Full supplier responsibility

• Globalization (spread financial risks, open new markets)

Efficient and integrated

supply chain



Risk of loosing competitive edge

• Suppliers are less willing today to take risks

• After 9/11 many suppliers cut back their risk sharing agreements

• Difficult to efficiently manage its overall supply chains

• Long-term risk of loosing competitive edge

Supply Chain risk sharing partnerships

• Significant risk for Airbus of economic crisis or terror attacks on airplane demand

• Risk bearing-contracts a central tenet of Airbus growth strategy

• Risk-sharing partnerships with 30 key supplier

• 3.1 US $ / approximately 25% of non-recurring costs of A380 covered by suppliers


6. Major Infrastructure Dimensions of the Operation Strategies - Boeing

• The entire Boeing supply network includes some 28,000 suppliers

• 783 million parts are procured each year

• The Company also has 6 R&D centres and relationships with over 50 international universities.

• There are more than 500,000 people caught up in the supply chain

Stanley DealVice President and General ManagerSupply Chain Management & Operations

Supply chain management is therefore a vital part of Boeing’s operations. They have invested heavily in establishing close relations with suppliers and infrastructure that involves constant dialogue and feedback.

Web portal developed exclusively for suppliers to give them constant access to evolving standards & developments

Hold an annual “Supplier of the Year” ceremony where all suppliers come together and best performers are recognized for their efforts


Air Cruisers Escape slidesAlenia Aeronautica Centre Fuselage, horizontal stabilizerBridgestone TiresC&D Zodiac Windows, DoorsDassault Systemes Tools/softwareDelmia Corp. SoftwareDiehl Aerospace Main cabin lightingDonaldson Air purification systemEaton Aerospace Pumps, valves, hydraulics etc.Esterline Flight deck control panelsFuji Heavy Industries Centre wing boxGE Aviation Landing gear actuation and control system, etcGE Engines EnginesGKN Aerospace Composuite mat for wing ice protectionGoodrich Engine nacelles, numerous systems

Hamilton Sundstrand Auxilliary power unit, environmental control systems

Honeywell NavigationIntercim Software

Intertechnique & Avox Oxygen systems

Ipeco Flight deck seatsJamco Lavatories, galleys, bar units etc

Kawasaki Heavy Industries Fixed trailing edge, forward fuselageKidde Technologies Fire protection systemKorean Airlines Wing tips, stringers, nose wheel wellSafran Labinal WiringLatecoere Passenger doorsMessier-Bugatti Electric brakesMessier-Dowty Landing gear structureMitsubishi Heavy Wing boxMonogram Systems Water & waste systemsMoog Flight control actuation systemPanasonic Cabin services systemParker Aerospace Hydraulic subsystemPFW Metallic tubing and ductingPPG Aerospace Dimmable windows

Rockwell Collins Displays, pilot control systems, communications

Rolls-Royce EnginesSaab Cargo doorsSecuraplane Emergency lighting systems

Spirit Aerosystems Forward fuselage, flight deck, engine pylons etc

Toray Prepreg compositesUltra Electronics Wing ice portection

The 787 brings together more than 40 diverse suppliers – more than any other model in Boeing’s history.



Centre FuselageItaly

Forward FuselageJapan

Cargo access doorsSweden

Landing GearUK

Passenger entry doorsFrance

Forward FuselageKansas

WingJapan

Wing tipKorea

Tail fin Washington, US

StabilizerItaly

Aft FuselageCharleston, US

EnginesUK & Ohio, US

Moveable trailing edgeAustralia

Picture of a Truly Global Supply Chain



Ensuring Quality in the Supply Chain

Boeing have implemented infrastructure that guarantees the highest standards throughout their supply chain

• In order to become a Boeing supplier, organizations must certify that their production systems meet Boeing’s Quality Management System requirements – an extensive set of international standards and criteria covering almost every aspect of their operations.

• All suppliers must also have their systems approved by the Federal Aviation Administration before Boeing will accept them as a supplier.

• Suppliers are audited regularly, undergoing full site visits by Boeing audit teams.

• Boeing personnel are embedded within supplier organizations globally to monitor quality, work with suppliers on process improvements, and ensure adherence to Boeing standards and schedules



Diligence in Handling Design Changes

Design changes to commercial airplanes such as the 787 Dreamliner often have to be made to improve efficiency or performance, meet new regulations or address evolving customer demands.

When they required to make design changes, Boeing follows a very rigid process to ensure that the overall integrity of the aircraft is not compromised. This redesign is a process that involves participation from representatives throughout Boeing’s operations and its supply chain.

Develop change proposal

Obtain program approval

Develop plan

Execute change

Certify change

• When the need for a product change is identified, representatives from throughout the entire of Boeing come together to analyse the potential change options.

• When a solution is decided upon a change proposal is drafted which must then be approved by management. All groups who the change will affect are duly notified

• Senior engineers for all different parts of the aircraft go over the proposal to determine how the proposed change it will affect their section.



7. Companies Culture and Values - Airbus

AFCs, Airbus Key Competencies, a set principles within Airbus that encapsulates the mission statement of the organization.

The skill of Airbus employees are cultivated through regular workshops and training, ultimately leading to career advancement and staff retention.

ISO 14001Certified. Environmental awareness and responsibility permeates the procedures and processes associated with R&D.

Suppliers and vendors must adhere to the CSR philosophy of Airbus. Regular audits occur to check compliance.

Company’s Culture: “Airbus’ day-to-day operations are guided by a strong commitment to integrity, transparency and professionalism across its operations: each and every employee is committed to defending high ethical standards in business relations inside as well as outside the company.”

Values: “The Airbusway”

• Deliver Customer Value• Develop Oneself and Others• Drive Improvement and Innovation• Practice Teamwork


7. Companies Culture and Values - Boeing

Company’s Culture: “Proud, but not satisfied. Continuous innovation, aspiration and imagination”

Our Values: “At Boeing, we are committed to a set of core values that not only define who we are, but also serve as guideposts to help us become the company we would like to be. And we aspire to live these values every day”

1. Leadership2. Integrity3. Quality4. Customer Satisfaction5. People Working Together6. A Diverse and Involved Team7. Good Corporate Citizenship8. Enhancing Shareholder Value


8. Major Capabilities Developed - Supply Chain Management

• The Organizational Transformation has led to improvements in the Supply Chain Management

o Information Control Currently, throughout the production process, performance, operations, financial aspects and strategy are continuously monitored, which provides extremely important information on all levels of the supply chain

o Better management of infrastructure, facilities and work flowsClear improvements support the complete process related to material, logistics and suppliers, thanks to a flexible value-adding material management service that fits with customer needs.

Airbus Managed Inventory: Automated Component Replenishment

Airbus Beluga: Air Transport of large A380 fuselage components


8. Major Capabilities Developed - Technical and Operational

Boeing Gold Care Program: Lifecycle maintenance and consulting

• Operational Transformation has led to Improved Services to Customers :

o Offering Telemetric Services for their Aircraft See the performance of your Aircraft real time, all the time. Immense advantage for airlines in terms of operation efficiency.

o Offering a more comprehensive After-Market ServiceFull service during all the Aircraft lifecycle has been improved due to all the eventualities found during the development of these projects

• Technical Transformation has led to mastery of complicated new techniques

o Solving Composite Structural Problems Many unforeseen problems occurred after the design phase. Engineering took care of it through test after test.

o Developed Worker Expertise and Internal Know-howBoth Companies have learnt the fast and hard way

o Environmental AdvancesEmissions and Noise standards are more stringent.

Boeing Everett: Assembly of Composite main Structures


9. Level of Alignment

- +35% seating

- +49% more floor space

- -15-20% cost per seat

- -13% less fuel

- Cheaper and efficient airplanes

- -20% less fuel & -10% costs/seat

- -20% operating costs

- -30% maintenance costs

- Use of 25% composites

- High quality standards

- Use of >50% composites

- High quality standards

- Adds capacity for bottleneck routes

- Downtime because of safety issues

- -30% airframe maintenenace

- Interchangable engines easier to maintain

- Downtime because of saftey issues

Order Winners

Durability (15%)

Serviceability (20%)

Performance (65%)

Order Qualifiers

- Severall safety issues with fuel leaks and battery fires

- July 2013 787 fuselage fire in Heathrow, London, UK

- Engine blowout Quantas in 2010


2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total

Orders 78 0 34 10 10 24 33 9 4 32 19 9 0 262

Deliveries 0 0 0 0 0 0 1 12 10 18 26 30 9 106

• First time in 2011 delivered according to schedule / As of July 2012 three aircraft per month

• Selling price as of 2013: $403 Mn

• Production cost will be equal to selling price at 2015

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total

Orders 56 235 157 369 93 -59 -4 13 -12 82 930

Deliveries 0 0 0 0 0 0 0 3 46 17 66

• Up until 2009 announced 5 consecutive delays / 787 was first certified in August 2011

• Selling price as of 2012: $206.8 Mn (787-8) and $243.6 Mn (787-9)

• Production cost at 2013: $200 Mn

9. Level of Alignment - Orders and Deliveries


10. Future Challenges

• Internal:

o Safety Standards

As of late, there have been noticeable lapse in the enforcement of safety standards. Which reduces brand reputation and customer confidence

o Supply Chain Management Outsourced

In the future, the efficiency of outsourcing the various parts of a these aircraft may no longer be as cost efficient . The cause might be the increasing competitiveness of external manufacturers due to the advent of globalization and changes within the global economic landscape

Internally, domestic sentiment may compel Airbus/Boeing to produce greater manufacturing capabilities within Europe/the U.S. in direct contrasts to the current manufacturing trend.

o Vanishing Technological Advance

Other manufacturers may catch up to the technological advances that Boeing or Airbus currently provide to end-customers, thereby reducing their competitive strengths within the market. They must keep the internal progress of R&D.


10. Future Challenges

• External:

o Tight margins and capital intense projectsnegatively affect the economic performance of Boeing. Boeing relies more on market efficiencies to translate its value propositions

o Fuel priceAlthough fuel prices are purchases on margins, the cost of fuel has increased in volatility

o CO2 quota reductionRising awareness in regards to environment fronts requires Boeing to allocate significant R&D to comply with increased standards of environmentally friendly aircraft

o Politics:Cut budgets to defense purchases threaten the jobs markets of local communities where Boeing offices are located.

o New Competition:New market entrants may vie to compete with Boeing on a quality and technological front while reducing prices to increase its viability in the market.

Comac, Chinese Aerospace Manufacturer

CO2 emission reduction initiatives will gain greater public support.

GMBA+ BLENDED 2

GLOBAL OPERATIONS AND SUPPLY CHAIN MANAGEMENTPROFESSORLUIS EDUARDO SOLÍS GALVÁN

TEAM CLARO!CHAVES GUILLERMO,

GOMME, JOHNSON, LANGKAMMER,

LÓPEZ RIVERA, PAPADELLIS

Competing in Commercial Aviation for the Airlines

Case in point : Airbus A380 vs. Boeing 787 Operations and SCM

Thank You!!

Main Sources1. Industry Context and Competitive Environment

http://www.srr.com/article/aerospace-industry-overview-and-update-fall-2011http://travel.cnn.com/explorations/life/boeing-747-8-and-airbus-a380-death-match-152563http://www.boeing.com/boeing/commercial/cmo/

2. Key Corporate ObjectivesAirbus vs. Boeing: Strategic Management Report - Sacha Mayer, 2007

3. Marketing Strategieshttp://www.airbus.com/aircraftfamilies/passengeraircraft/a380family/http://www.boeing.com/boeing/commercial/787family/index.page

4. Order Qualifiers and Order Winners

5. Main Transformation ProcessBoeing: The Dreamliner Quiet Revolution, Smithsonian Air & Space, July 2012 http://

www.airspacemag.com/flight-today/The-Quiet-Revolution.html?c=y&page=1Airbus: http://www.airbus.com/innovation/

6. Major Infrastructure Dimensions of the Operation Strategies “The Airbusway” http://www.airbus.com/work/why-join-airbus/our-culture/

7. Companies Culture and ValuesBoeing: http://www.boeing.com/boeing/aboutus/culture/#visionAirbus: http://www.airbus.com/company/people-culture/company-culture/

8. Major Capabilities Developed

9. Level of Alignment

10. Future Challengeshttp://www.boeing.com/aboutus/environment/environmental_report_09/carbon-dioxide-emissions.html , Boeing,Carbon Dioxide Emissionshttp://www.eci.ox.ac.uk/research/energy/downloads/jardine09-carboninflights.pdf, Calculating The Carbon Dioxide Emissions Of Flightshttp://www.faa.gov/news/updates/media/2013_02_22_10_00_10.pdf, Official U.S. Government Notice of Budget Cuts

http://www.srr.com/article/aerospace-industry-overview-and-update-fall-2011

http://www.srr.com/article/aerospace-industry-overview-and-update-fall-2011

http://travel.cnn.com/explorations/life/boeing-747-8-and-airbus-a380-death-match-152563

http://www.boeing.com/boeing/commercial/cmo/

http://www.boeing.com/boeing/commercial/cmo/

http://www.airbus.com/aircraftfamilies/passengeraircraft/a380family/

http://www.airbus.com/aircraftfamilies/passengeraircraft/a380family/

http://www.boeing.com/boeing/commercial/787family/index.page

http://www.airspacemag.com/flight-today/The-Quiet-Revolution.html?c=y&page=1

http://www.airspacemag.com/flight-today/The-Quiet-Revolution.html?c=y&page=1

http://www.airbus.com/innovation/

http://www.airbus.com/work/why-join-airbus/our-culture/

http://www.boeing.com/boeing/aboutus/culture/

http://www.airbus.com/company/people-culture/company-culture/

http://www.boeing.com/aboutus/environment/environmental_report_09/carbon-dioxide-emissions.html

http://www.eci.ox.ac.uk/research/energy/downloads/jardine09-carboninflights.pdf

http://www.faa.gov/news/updates/media/2013_02_22_10_00_10.pdf

Data & Analytics

Global Operations and Supply Chain Management: Airbus vs. Boeing Final Assignment - Jamar Johnson