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The Dreamliner :for Boeing’s New Future

The Dreamliner :for Boeing’s New Future. Nahyun , An Jiyoon , Kang Soohwan , Kim Margeum , Kim. Agenda. 787 Project Business Objectives Boeing 787 Dreamliner. 787 Project Problems & Solutions Problems and Reactions

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The Dreamliner :for Boeing’s New Future

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  1. The Dreamliner :for Boeing’s New Future Nahyun, An Jiyoon, Kang Soohwan, Kim Margeum, Kim

  2. Agenda • 787 Project • Business Objectives • Boeing 787 Dreamliner • 787 Project Problems & Solutions • Problems and Reactions • Lessons Learned from 787 Project • New Challenges • Competing against Airbus • Competing against New Entrants • What’s Next for Boeing after the 787? • Market Forecast and Strategic Direction

  3. 787 Project

  4. 787 Project BUSINESS OBJECTIVES

  5. Business Objective Our objective here is to: Regain our position as an industry leader in the commercial aircraft industry, by delievering our customers innovative aircrafts faster than our competitors and offering them after service of quality

  6. Business Objective

  7. 787 Project BOEING 787 DREAMLINER

  8. Boeing 787 Dreamliner By launching 787, Boeing aimed at obtaining market leadership under changing Environment. Challenges for aircraft manufacturers Change in the airline industry Cutting the price? Change the supply chain World airline fleets to double Improve flight operational efficiency The number of airline companies increase → Fierce competition Creating new value? Improve end-user comfort OUTSOURCING Needs of a differentiated aircrafts PRODUCT INNOVATION

  9. Boeing 787 Dreamliner Boeing’s role changed to serve as a master planner leveraging its knowhow in order to respond the market request. OUTSOURCING PRODUCT INNOVATION Change in OUR ROLE: Assembly Integrator Master Planner INNOVATION THROUGH GLOBAL COLLABORATION • How to Implement: • Managing GLOBAL SCM • Leveraging Customer Knowledge

  10. Boeing 787 Dreamliner Boeing’s supply chain has been different with 787 project as the starting point. BEFORE 787 AFTER 787 Outsourced 35~50% of Process Outsourced 70% of Process Parts Parts Sections Sections Parts Customers Customers Parts Sections 30days for final assembly 3days for final assembly Parts Parts *Major Role Tier2 : Producing parts for Tier1 Tier1 : Developing and producing sections Boeing as a Master Planner :Coordinating sections snap-together *Major Role Boeing as a Final Manufacturer :Assembling all the parts Thousands of Suppliers : Build to detailed print by Boeing *Relationship Strategic Partnership :Risk-sharing Contract based *Relationship Traditional Supplier Relationship :Fixed-Price Contract based

  11. 787 Project problems & solutions PROBLEMS AND REACTIONS

  12. Problems and Solutions Boeing suffered from delays in production. DELAYS in production due to problems in Global Supply Chain First Flight Apr.-June-09 Aug-07 Mar-08 June-08 Oct.-Dec.-08 Dec-09 Succeeded Original TImeline Repeated delays First Delivery May-08 Nov.-Dec.-08 Left open Jul.-Sep.-09 Jan.-Mar.-10 Nov.-Dec.-10 (expected)

  13. Problems and Solutions Categories addressed below are major reasons for delayed schedule. DELAYS PROCESS SUPPORTING SYSTEM CUSTOMER DISTRUST PARTNERS BOEINGINTERNALLEADERSHIP

  14. Problems and Solutions Process System DELAYS PROCESS SUPPORTING SYSTEM CUSTOMER DISTRUST PROCESS SUPPORTING SYSTEM PARTNERS BOEINGINTERNALLEADERSHIP

  15. Problems and Solutions Causes, actions taken and further suggestions related to process supporting system are shown below. Cause Actions Taken Further Suggestions • Improvement of EXOSTAR • Adoption of RFID PROCESS SUPPORTING SYSTEM • Inefficiency of Information System • Risk Sharing System • - Financial Contract - Moral Hazard • Financial Aid (Spirit) • Introduction of Incentive System

  16. Problems and Solutions Partners DELAYS PROCESS SUPPORTING SYSTEM CUSTOMER DISTRUST PARTNERS PARTNERS BOEINGINTERNALLEADERSHIP

  17. Problems and Solutions Causes, actions taken and further suggestions related to partners are shown below. Cause Actions Taken Further Suggestions • Heightened Level of Control • - Acquired Vought • - Sent Boeing engineers to partners’ sites • Involvement in 2nd and 3rd Tier Selection • Part Shortage • - 1st tier’s lack of • capability • - 1st tier partners’ • arbitrary contracts with unqualified 2nd and 3rd tiers PARTNERS YET, Benefits: Qualified partners, Network with potential buyers & Tech learning effect • Improvement of Information System • - Overcoming Language problem • (ex. Codes) • - Education of IS and Sharing Boeing Global SCM culture • Inefficiency in Outsourcing Overseas • - Problems in comm. • (Language & Culture)

  18. Problems and Solutions Causes, actions taken and further suggestions related to partners are shown below. Cause Actions Taken Further Suggestions Does Boeing have the right partners? • Heightened Level of Control • - Acquired Vought • - Sent Boeing engineers to partners’ sites • Involvement in 2nd and 3rd Tier Selection • Part Shortage • - 1st tier’s lack of • capability • - 1st tier partners’ • arbitrary contracts with unqualified 2nd and 3rd tiers No PARTNERS : Lack of Capabilities and Ownership YET, Benefits: Qualified partners, Network with potential buyers & Tech learning effect • Improvement of Information System • - Overcoming Language problem • (ex. Codes) • - Education of IS and Sharing Boeing Global SCM culture Has too much been outsourced overseas? • Inefficiency in Outsourcing Overseas • - Problems in comm. • (Language & Culture) No : Adjustable Inefficiency vs. Huge Benefits

  19. Problems and Solutions Boeing Internal Leadership DELAYS PROCESS SUPPORTING SYSTEM CUSTOMER DISTRUST BOEINGINTERNALLEADERSHIP PARTNERS BOEINGINTERNALLEADERSHIP

  20. Problems and Solutions Causes, actions taken and further suggestions related to Boeing internal leadership are shown below. Cause Actions Taken Further Suggestions • Appointed Pat Shanahan • Adjusted Product Features • Feasible Timeline for Next Product Development • Difficulties in Timeline Management • - Risk in Global SCM • - New technology BOEINGINTERNALLEADERSHIP • Increased Wage • Drew a limit in Degree of Outsourcing • Convincing Employees of the Needs for Outsourcing • Delving into a Win-Win Solution • Labor Problem - Job security issue

  21. Problems and Solutions Customers’ dissatisfaction and distrust would be resolved by executing followings. DELAYS PROCESS SUPPORTING SYSTEM CUSTOMER DISTRUST • Given that • No further delays promised, • Penalty paid, and • Spare airplane during delay provided, • Actions below would be of helpto convince customers: PARTNERS BOEINGINTERNALLEADERSHIP Sharing Information on System Improvement Visibility: Real-time Tracking System

  22. 787 Project problems & solutions LESSONS LEARNED FROM 787 PROJECT

  23. Lessons Learned from 787 Project We could make it obvious what are our core competencies. Huge volume of sales Proves the customer oriented approach based on Customer Knowledge is the right thing to do. Problems caused and our solutions • MUST Dos: • More control on partners • Efficiency in information flows • Guarantee of open communication Obtain knowhow in System Integration CUSTOMER KNOWLEDGE SYSTEM INTEGRATION CORE COMPETENCIES

  24. New challenges

  25. NEW CHALLENGES COMPETING AGAINST AIRBUS

  26. Competition It is expected that a current major competitor, Airbus, and new market entrants would drive competition. AIRBUS CHINA JAPAN BOMBARDIER EMBRAER

  27. Competing against AIRBUS AIRBUS announced the launching of A350 which is in the same segment with 787 and is a test model for more aggressive outsourcing strategy than ever. AIRBUS CHINA JAPAN BOMBARDIER EMBRAER • A direct competitor of 787 (Same segment) • Stretched outsourcing

  28. Competing against AIRBUS From A350, Airbus has assigned more roles to its strategic partners while increasing the number of global outsourcing partners. AIRBUS: Supply Chain AIRBUS’ Factories in 4 European Countries AIRBUS’ Factories in 4 European Countries Less Reliance on In-house Production More Outsourcing to Strategic Partners Strategic Partners Strategic Partners 2nd Tier Final Assembly lines In France and Germany and China Final Assembly lines In France and Germany 2nd Tier

  29. Competing against AIRBUS Boeing’ competitive advantages over Airbus would be process efficiency. VS. SYSTEM INTEGRATION • Process Efficiency obtained through • Boeing’s global collaboration model CUSTOMER KNOWLEDGE

  30. NEW CHALLENGES COMPETING AGAINST NEW ENTRANTS

  31. Competing against New Entrants China and Japan are said to be new entrants. AIRBUS CHINA JAPAN BOMBARDIER EMBRAER

  32. Competing against New Entrants China and Japan emerged as future competitors due to the global collaboration strategy of Boeing and willingness to forward integration. • Global Collaboration Strategy of Boeing • Willingness to Forward Integration • - Experiencelearned from outsourcing partnership • - Openstructureenabled by Boeing’s global collaboration model • Any parts and components are now available on market: All you need to do is assembly. • China: Governmentdriven • Japan • KawasakiHeavy Industries(KHI) • MitsubishiHeavy Industries(MHI)

  33. Competing against New Entrants China and Japan has future plans leverage their strengths as below. CHINA: Low labor cost (20-25% lower than developed countries) Huge domestic demand AS-IS : Concentrating on producing parts : Producing regional jet ARJ21 TO-BE : By 2016, planning to produce C919- 150-seat, big aircraft JAPAN: Knowhow to producing AS-IS : Producing 35% parts of B787 include important part - wings TO-BE : Kawasaki Heavy industries(KHI) to enter the large civil aircraft Mitsubishi heavy industries(MHI) to enter the regional market

  34. Competing against New Entrants Bombardier and Embraer are also said to be new entrants. AIRBUS CHINA JAPAN BOMBARDIER EMBRAER

  35. Competing against New Entrants Canadian and Brazilian aircraft manufacturers, who are now focusing on regional jets, are possible entrants into larger airplane market. Canada: Bombardier AS-IS : 4th largest commercial aircraft manufacturer (Yearly delivery) : Focused on business jets : Mainly 50 to 100-seat airplanes TO-BE : By 2013, planning to produce 149-seat airplane Brazil: Embraer AS-IS : 3rd largest commercial aircraft manufacture (Yearly delivery) : Commercial, military, and corporate aircraft : Focusing on 50 to 120-seat airplanes TO-BE : Possible to enter larger airplane market

  36. Competing against New Entrants Boeing’ competitive advantages over new competitors lie on its ability to read and satisfy customer needs and wants as well as brand equity and loyalty. CHINA Canada: Bombardier JAPAN VS. Brazil: Embraer • Brand equity and loyalty • from product and service quality • Product concept development • based on customer knowledge CUSTOMER KNOWLEDGE SYSTEM INTEGRATION

  37. What’s NEXT for boeing after the 787?

  38. What’s NEXT for boeing after the 787? MARKET FORECAST AND STRATEGIC DECISION

  39. Market Forecast and Strategic Direction Market trend reports that there would be considerable needs for small-sized and efficient products from quality brands. Market Trend End Users’ needs: Point-to-point travel Airlines’, needs: Efficient operation Considerable needs for small-sized and efficient aircrafts

  40. Market Forecast and Strategic Direction Market competition map now and strategic direction for Boeing is as below. No. of Seats Airbus 380 550 450 350 Boeing 747 Boeing 777 • Leverage customer knowledge and brand equity based. • Produce efficient both in function and price based on system integration. • Take first-mover’s advantage in the competition with airbus in this segment Airbus330 250 150 50 Airbus320 Boeing 767 Bombardier, Embraer, Boeing737 Design Range, (nmi) 1000 2000 3000 4000 5000 6000 7000 8000 9000 Short &Medium-haul aircraft Long-haul aircraft

  41. Market Forecast and Strategic Direction Financial forecast says that entering new market shall pay off in 2 years when 200 orders are taken. + Breakeven point : 200 aircraft, 2 years : No. of orders is assumed on the basis of past data of current regional jet manufacturers. Breakeven Point No. of orders for breakeven

  42. Thank you for listening.

  43. Appendix

  44. Appendix Things needed to more explain The 787 project : why Boeing start it? Product differentiation : How Boeing serve what customers want? Outsourcing 1 : outsourcing way Boeing did before 787 Outsourcing 2 : changed outsourcing way Boeing doing now Causes of delay : what cause delay in new outsourcing process? Core competencies : condition for core competencies and analyze Boeing’s the one Manufacture line : what Boeing and competitors produce Breakeven point 1 : basic info about breakeven point in regional jet market Breakeven point 2 : Info about how Boeing’s breakeven point calculated

  45. The 787 Project To obtain market leadership, Boeing launched new aircraft model, 787. • Changes in Industry Dynamics • Midium-low • Fewermanufactuerechoices • (Still chance to bargainwith Airbus) • High • High technology (difficult to duplicate) Buyer Power Supplier Power High - Boeing vs. Airbus: Not much differentiation in terms of the competencies between the two players. Competiting on price and technology - Future competition expected with Canada, China, Japan and Brazil Industry Rivalry • Low • Buyerpropensity to substitute(no alternative) • Price and performance (no alternative) Threat of Entry Threat of Substitute • Midium-low • Forwardintegrationthreat by suppliers • Canada, Brazil, China… • Still, high entry barrier due to safetyregulations, highswitchingcosts, high capital requirement, and higheconomics of scale

  46. Product differentiation With their detail customer knowledge ability, Boeing serve exactly what immediate and end customers want

  47. Outsourcing 1 Before 787project, Boeing assembles all ‘parts’ from thousands of suppliers

  48. Outsourcing 2 After 787 project, Boeing assembles semi-manufactured from 1sttier suppliers

  49. Causes of Delay

  50. Core competencies Condition for core competence and analyze the Boeing’s one on the basis of that Condition for core competence - good for customer - can be adopted to other area - hard to imitate Analyze Boeing’s core competencies • System integration - with cost saving and innovation Boeing can bring better services - can be used to produce any other segments - it need big risk taking which we can lost technology advantage, no one can imitate easily 2. Detail Customer Knowledge - reason we can serve exactly what customers want - can be used to variety area wherever it is need to meet customer’s needs - It is not just one system or department, it begins from mindset. So it can not be imitated easily

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