THE FUTURE OF FLIGHT April 17, 2010 & CONSULTING Nick Martin Celine Junke Margeaux Girardin Daniel Schacter

THE FUTURE OF FLIGHT

April 17, 2010

&C O N S U L T I N G

Nick MartinCeline Junke

Margeaux GirardinDaniel Schacter

AGENDA

Current SituationSupply Chain OpportunitiesFuture Competitive AdvantageConclusion

BRIDGING THE GAP

APR 2004Announced the Launch of 787

SEP 2005Firm

Configuration Completed

JUN 2006Major Assembly Began

JAN 2008 Revision

OCT 2007Revision

APR 2008 Revision

END OF 2010First 787 delivery expected

DEC 2009851 Confirmed Orders

First Flight

2000

33,000 suppliers

2010

12,000 suppliers

Current Situation Supply Chain Future Advantage

Conclusion

THE CHARGE

1. Create a recommendation to address Boeing’s supply chain difficulties

2. Create a recommendation to address Boeing’s corporate vision in the long-term


Conclusion

EXECUTIVE MANDATE

By optimizing our existing supply chain and

leveraging our 787 knowledge, we will be able to

reduce Boeing’s supply chain related costs from

$0.5B to $1.4B per year and generate an

additional $141B in firm orders over the next 20

years.

OPTIMIZING THESUPPLY CHAIN

SUPPLY CHAIN STRUCTURE

PARTNERS CUSTOMERSBOEINGSUPPLIERS

Build subassemblies

Piece together subassemblies

Receive completed

plane

Manufacture components


Conclusion



One supplier can halt the supply chain

Kawasaki Wheel Well

Brake Pads Lifting Motors

Landing Gear

Suspension


Conclusion



Subassemblies may not arrive

completed

Everett Boeing Plant

Kawasaki Wheel Well

Alenia Center Fuselage

Mitsubishi Wing


Conclusion



Customers may lose confidence

due to 787 delays

2009: Loss of 59 orders

2010: $6.9B in penalties


Conclusion

3 PRONG SUPPLIER STRATEGY

1

Implement a solution

23

Find the problem

Evaluate the situation


Conclusion

RFID

CONSULTING

Enforce supplier requirementAccess real time information Adapt to production delaysUtilize 2nd supplier if needed

Proactively react to delaysImprove supplier’s operations

Capitalize on Boeing knowledge

IMPROVED INFORMED AUDITING

INSPECTIONS Maintain yearly auditPerform informed audit

SUPPLIER CONTROL


Conclusion

RFID AUDITING

ScrewsMounts

BoltsFrameMotors

Glazing Sealant

Fuji Mitsubishi

Spirit

BOEING

WingBox

Wing

AssemblyForward Fuselage

PARTNERS

SUPPLIERS

Supply chain becomes 20% more efficient

Optimized supply chain means

savings on delay penalties


Conclusion

RFID Financial

Pessimistic (3%) Optimistic (5%) Savings $ 1,428M $ 2,380MTotal Cost $ 953M $ 953M

Gross Savings $ 475M $ 1,427M

Assumptions:Based on 3-5% average savings for firms adopting RFID provided by Alinean Research

Total COGS (M) $ 47,600

Savings 3% $ 1,428

Savings 5% $ 2,380

RFID Implementation and Usage CostsParts per plane (767) 3.1M

cost per RFID Tag $0.50

Cost per plane $1.6M Planes Delivered 432

Total Variable Cost $670M

Total Infrastructure Cost (Wal Mart) $3,000M Size comparison (based on PPE) 9.5%

Total Infrastructure cost to Boeing $285M

Total RFID Cost in First Year $955M Additional Cost to our Supply Chain $2,000M

Savings

DELAYS & PENALTIES

2008 2009 2010 2011 2012 2013 20140

20

40

60

80

100

120

140

160

180

Projected Delivery

Due Date

Total Penalty:$6.9B7

87

s D

eliv

ere

d


Conclusion

CONSULTATION AUDITING

WHY?

HOW?

WHO?

Suppliers that are delaying subassemblies halt supply chain

Former Boeing workers specialized in each particular fields

RFID system displays which suppliers are falling behind and teams are sent


Conclusion

CUSTOMER RELATIONS

What Maintain Transparency

Highlight Positive Milestones

Communicate Innovative

Design Features

IncreaseCustomer Relation Channels

Account Manager Communication

RSS Feed on Customer Portal

How


Conclusion

Online Sources

2010 2011 2015

Trainworkforce

Establish workforce

2012 2013

SUPPLY CHAIN IMPLEMENTATION

Deploy consultancy services

2014

IBMconsultation Local implementation within

Boeing

Assist supplier RFID implementation

IBMconsultation

Consulting

RFID


Conclusion

FUTURE COMPETITIVE ADVANTAGE

FUTURE TRENDS

44%

47%

7%

Single Aisle Twin-Aisle747 or Larger Regional

Increased demand for single-aisle planes in next 20 years

Push for greater fuel efficiency due to rising fuel prices

Increased short haul point to point travel


Conclusion

*Source: Boeing, 2010

*

FUTURE OPPORTUNITIES*Source: Boeing

New Airplanes:

7,690Market Value:

$680B

3.2% growth*60% Short

Haul

Replacement Strategy

New Airplanes:

7,330Market Value:

$800B


Haul

Replacement Strategy


Conclusion

New Airplanes:

8,960Market Value:

$1,130B


Haul

Expansion Strategy

CREATING AN ADVANTAGE

CREATE COMPETITIVE ADVANTAGESupply Chain

LEVERAGE CURRENT CORE COMPETENCIES1. High end design2. Engineering3. Systems integration

ADAPT FOR THE FUTURE1. Capitalize on supply chain2. Embrace future trends


Conclusion

DIVISION ALTERNATIVES

Cargo

Commercial

Division to focus on going forward

Airbus A400M disaster - $11B over budget

Airbus legal disputes over government contracts

Military


Conclusion


Cargo

Commercial

Division to focus on going forward

5.4%

4.9%

$170 Billion

$3.2 Trillion

Even though larger growth, not

comparable in size

GROWTH SIZE


Conclusion


CommercialDivision to focus on

going forward


Conclusion

PROJECT DECISION MATRIX

S M L

Models A320 737 A350 787 A380 747

1st Roll Out ‘88 ‘68 ‘13 ‘10 ‘07 ‘70

Growth Potential (K)%

11.5K 24K 3.5K 8K 0.9K 1K

110% 130% 10%

Competition

AirbusBombardier

EmbraerChineseRussia

High-Speed Rail

Airbus Airbus


Conclusion

TIME FOR A CHANGE

1992

1994

1996

1998

2000

2002

2004

2006

2008

0

50

100

150

200

250

300

350

400

450

BoeingAirbus

Un

its p

rod

uced

(A

32

0/7

37

)

26% drop in 737 annual sales since 2007

737 NG Debuts


Conclusion

THE NEW 737 GREEN LINER


Conclusion

Leverage the 787 experience in advanced

materials

Capitalize on future growth in short-haul flights

Leverage pre-existing customer infrastructure

737 Next Generation GR

EEN

L

INER

FIRST MOVER ADVANTAGE

NEW 737

787

A380

A400M

AIRBUS

A350

BOEING

Airbus will not be able to respond?

OCT 2007

DEC 2010 DEC 2010

2016

2013

$33B R&D

$21B R&D

$20B R&D

$10B R&D

$1 = €.74


Conclusion

FINANCES

0

500

1000

1500

2000

Market Valuein Billion US $

Market Value

Optimistic Expected Pessimistic

Total Market Value $1410B $1410B $1410BExpected Market Share 44% 30% 20%

Firm Order Value $620B $423B $282BVariance $383B $141B

= Air Insights forecast for Single Aisle market share over next 20 years due to increased competition and possible upgrades to 737


Conclusion

IN CLOSING

IN CLOSING

.

Improve information flow throughout supply chain

Capitalize on future trends when developing the new 737 Greenliner

Regain leadership position in commercial aviation

SUCC

ESS


Conclusion

QUESTIONS?

QUESTION & ANSWER PERIOD

EXPECTED ORDER

SCHEDULE

TEN SUPPLIER CATEGORIES

BOEING PROCUREMENT

POLICY

SUPPLIER REQUIREMENTS

BOEING & IT

SUPPLIER REWARDS

CONSULTING

TIMELINE

CONTRACT ENFORCEMENT

SUPPLIER EXPECTATIONS

AIRLINE CHALLENGES

LEGAL FRAMEWORK

EXPECTED ORDER SCHEDULE

2008 2009 2010 2011 2012 2013 2014 2015 37 37

3 65 7 75101 31 132

89 75 16489 75 164

Revised Delivery 0 0 40 65 108 120 164 164 Original Delivery 37 75 132 164 164 164Months Delayed 924 1560 2676 3252 2700 2700 13812

Additional Information: you will be 2.4 years behind schedule 13812 X 0.5M = 6.9B

10 General Categories of Suppliers

Aerospace support Major Structure fuselage

Avionics/Avionics components Non production goods and services

Common aerospace commodities Propulsion systems

Electrical, hydraulic and mechanical systems Purchased outside production

Interiors Technology

BOEING PROCUREMENT POLICY

• Right quality• Right quantity• Right time• Right price• Right sources

SUPPLIER REQUIREMENTS

• Understand benefit of solutions

their products provide

• Share commitment to performance: cost, quality, delivery

• Maintain financial health

• Participate in knowledge shareCREATE ADDITIONAL VALUE BY FOCUSING ON

YOUR CORE COMPETENCIES

General Provisions

Revised 2009

Special Provisions

Revised 2009

Boeing Commercial

AirlinesRevised 2009

Demanding contract but not enforced due to communication lag

Able to improve auditing with RFID amendment in contracts

CONTRACT ENFORCEMENT

SUPPLIER EXPECTATIONS

• Ability• Capacity• Integrity• Financial Status• Geographical location• Performance• Reliability• Delivery• Customer-Supplier relations

BOEING & IT

• E-enabled tools• Information sharing• Exchanging technologies• Work better with suppliers• Exostar• Product Lifecycle Management

(PLM)

General Provisions

Special Provisions

Boeing Commercial Airlines

GP1: Fixed price goods

GP2: Fixed price services

GP3: Labor hour/time and

material GP4: Cost

reimbursement

GP6: Public college and

university fixed price

SP1: Representation

and certifications

SP2: Bailment agreement

SP3: international provisions

Long Beach

Winnipeg

LEGAL FRAMEWORK

CHALLENGES FACING AIRLINES

• Financing issues• High fuel costs• Unions• Fixed costs of planes• Price wars• Low cost airline

SUPPLIER REWARDS

• 12,000 active supplier• 2009: 14 “supplier of the year”•“Supplier of the year award” in 15 categories• “Boeing performance excellence award”

CONSULTING

• Desire: Be able to deal with 10% of supply chain per year

• Supply Chain Size: 12,000• Goal: 1,200 jobs per year

• Avg. time per job 1 month for team of 3• 1,200Jobs /12 months*3employees= 300 employees

per year• Avg. Engineering consulting Salary 121K to 198k

(CBSalary.com)

• Total cost of consulting: $47.9M USD• % of Delay penalties: 47.9M/6.9B= 0.7%

JUNE 2010 DEC 2010 JUNE 2012

Require new RFID training programsInform suppliers of RFID implementation

JUNE 2011 DEC 2011

Implement new RFID training in all Boeing buildings


RFID IMPLEMENTATION TIMING

Hire IBM to assess supply chain needs

IBM begins RFID implementation design

Apply incentive programs for RFID compliance

JUNE 2012 JUNE 2013 FUTUREJUNE 2014 JUNE 2015

Require RFID training programs


RFID IMPLEMENTATION TIMING

Apply penalty programs for RFID defiance

RFID DUE

Rehire IBM to assess RFID implementation

JUNE 2010 DEC 2010 JUNE 2012

Hire industry experts to refresh consultants skills

Establish workforce

JUNE 2011 DEC 2011

CONSULTING IMPLEMENTATION TIMING

Inform suppliers of consultant services

Deploy consultancy services

Documents

THE FUTURE OF FLIGHT April 17, 2010 & CONSULTING Nick Martin Celine Junke Margeaux Girardin Daniel Schacter