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Situation

Boeing has to define its core competences and tackle severe supply chain issues. Situation. Complication. Question. Answer. Industry leader until 2003 Highly successful manufacturer of aircrafts Core competence within R&D. Transition to ”Built to Performance” has been challenging

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Situation

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  1. Boeing has to define its core competences and tackle severe supply chain issues Situation Complication Question Answer Industry leader until 2003 Highly successful manufacturer of aircrafts Core competence within R&D Transition to ”Built to Performance” has been challenging Boeings' future competitive advantage is unclear How can Boeing avoid or reduce supply chain challenges? How can Boeing leverage the 787 experience to create long term competitive advantage? “Build to Fly”, a new supply chain strategy Boeing BIO1000, a fuel efficient medium sized aircraft

  2. Agenda Agenda 1. Situational analysis 2. “Build to Fly” 3. The Boeing BIO1000 4. Timeline and financials 5.Wrap-up

  3. Agenda Agenda 1. Situational analysis 2. “Build to Fly” 3. The Boeing BIO1000 4. Timeline and financials 5.Wrap-up

  4. Boeing has transformeditself from an aircraftmanufac-turer to a master planner – not withoutcomplications The transformation from manufacturer to master planner has cost two years delay and close to $2,5 billion

  5. Shift from “Build to Print” to “Print to Performance” has been problematic In theory Developer skills Higher innovation Risk sharing Reality Miscommunication Delays Lack of control = Best = Worst

  6. Airbus and Boeing could potentially lose 50% of the single aisle market to new entrants Current Market Situation Threats High costs affiliated with market entry Boeing/Airbus are fiscally strong Globally supported infrastructure Increased competition in the Large Carrier Aircraft (LCA) market Estimates state that Airbus/Boeing could lose 50% of the single aisle market Postponements by Boeing and Airbus creates opportunities for new entrants

  7. New civil aircraft competitors on the horizon despite high costs of entry; four major potential competitors China Canada Bombardier (Canada) Furthest along of new entrants – has begun Cseries – 100 to 130 seat aircraft with ETA in 2013 Skills within manufacturing, support infrastructure and brand recognition Lack of financial resources Commercial Aircraft Company of China (CACC China) is building up manufacturing capacity Worlds fastest growing aviation market Air passengers predicted to grow 11% annually over next 20 years Heavily subsidized, around $3 billion Japan Russia Sukhoi Civil Aircraft Company (SCAC Russia) Heavily subsidized, around $1 billion KHI plan to build LCA with up to 150 seats during the next 10-15 years Kawasaki Heavy Industries (KHI) Major advantage is experience with building critical aero structures from composites. Lacks the levels of fiscal support available to the Russian and Chinese companies

  8. Agenda Agenda 1. Situational analysis 2. “Build to Fly” 3. The Boeing BIO1000 4. Timeline and financials 5.Wrap-up

  9. ”Build to Print” • CONTROL • ”Build to Performance” • INNOVATION ”Build to Fly” willincrease global integration bytaking the best from the previousstrategies The Boeing Way

  10. “Build to Print” was constrained by heavy specification needs by Boeing and development was kept in-house = Specifications = Product = Development Supplier

  11. “Build to Performance” lowers specification requirements and outsources development = Specifications = Product = Development Supplier

  12. “Build to Fly” facilitates collaboration arounddevelopment and specifications = Specifications = Product = Development Partner

  13. “Build to Fly” facilitates communication between partners throughout the supply chain Facilitating links between suppliers Improving coordination Tier 1 Partner • 787 Team Tier 1 Partner Tier 1 Supplier Creatingsupplychainvisibility Tier 1 Partner Status ondelays R&D information Betterqualitycontrol Increased communication decreases potential delays and costs Improvedcoordinationbetween partners

  14. Coordination Teams willfacilitatecommunication and control • Wing • Subsupplier • Subsupplier Monthly meetings between representatives to facilitate knowledge Center Fuselage • Subsupplier • Subsupplier • Landing Gear • Coordination Team • Subsupplier • Subsupplier • Aft Fuselage & Tail • Subsupplier • Subsupplier • c • c • c • Subsupplier • Subsupplier • Subsupplier • Subsupplier • C • C • Subsupplier • Subsupplier • C • Subsupplier • Subsupplier • Subsupplier • Subsupplier • Subsupplier • Subsupplier • Subsupplier Wing/Body Landing Gear • Engines Forward Fuselage Boeing Representatives

  15. ”Build to Fly” willaddressissues of control, reliance and supplychainvisibility = Best = Worst

  16. ”Build to Fly” willaddressissues of control, reliance and supplychainvisibility = Best = Worst

  17. Extensive information campaignswillinformstakeholders of the new initiatives

  18. Agenda Agenda 1. Situational analysis 2. “Build to Fly” 3. The Boeing BIO1000 4. Timeline and financials 5.Wrap-up

  19. Future total deliveries are expected to be highest in North America, Europe and Asia Pacific New deliveries = 0-2000 = 2001-4000 = 4001-6000 = 6001-8000 = 8001-10000 Source: Boeing CMO

  20. Large Twinaisle Single aisle Regional jets Expecteddemand for single-aisle planesaccounts for 67% of new deliveries Asia Pacific, North America and Europe show high growth in single aisle airplanes New airplanes 2008-2028 =29.000 Source: Boeing CMO

  21. Current product offering shows potential in singleaisle fleet family 600 500 747-8 400 747-400ER 747-400 777-300ER 777-200LR 777-300 787-3 Passengers 300 777-200 767-400ER 737-900 200 767-300 737-900ER 787-9 767-200ER 737-800 787-8 737-700 100 737-600 Two-class Three-class 737 Business Jet 0 1 2 3 4 5 6 7 8 9 Range, 1,000 nmi Source: Boeing Commercial Airplanes Product Overview

  22. Market forecasts predict increased demand forshort-medium sized carriers 600 Ageing 737’s and increased innovations provide opportunity for new aircraft developments 500 747-8 400 747-400ER 747-400 777-300ER 777-200LR 777-300 787-3 Passengers 300 777-200 767-400ER 737-900 200 767-300 737-900ER 787-9 767-200ER 737-800 787-8 737-700 100 737-600 Two-class Three-class 737 Business Jet 0 1 2 3 4 5 6 7 8 9 Range, 1,000 nmi Source: Boeing Commercial Airplanes Product Overview

  23. Environmentalsustainability and risingfuelcostsarebecomingever more importantissues • Rising Fuel Costs • International Awareness • Sustainability is key • Political Pressure ”The price of jet fuelcontinues to be the greatestthreat to industryprofitablity” Air Transport Association, Boeing Material

  24. INTRODUCING By Boeing Commercial Airplane Group

  25. Top of the line technical specifications will providecompetitive advantage Key innovative advantages: Fuel efficiency: - Environmentally friendly fuel mix (45% Sustainable / 55% Traditional) Consumer comfort: - Innovative solutions to complications such as interior design and relaxation Composite materials: - Utilization of lightweight materials and composites

  26. ”Build to Fly” ensuresbroader innovation and continuouscontrol The Boeing Way Ensuring Innovation & Control - Latesttechnology - On-timedelivery - Integration and collaborationwith partners

  27. The Boeing BIO1000 willensure Boeings’ position withincommercialaircraft Targeting the fastest growing market segment Satisfying the Triple Bottom Line Responding to demand for sustainability Using “Build to Fly” Replacing Boeing 737 Satisfiesconsumerneeds – time and comfort Satisfying the 2016 Vision

  28. BIO1000 will implement innovative solutions within solar energy, fuel efficiency, interior design and consumer comfort

  29. Example 1: There are ample opportunities for revolutionizing interior design aboard Boeing aircrafts Capture vertical space Can be converted to an economy-class set-up on demand http://jacob-innovations.com

  30. Several potential buyers have been identified in the growing Low-Cost Carrier segment North America Europe Asia Pacific Fleet size: 222 jets Flights pr day: 400+ Fleet size: 537 Boeing 737 jets Average Age: 10.5 years Fleet size: 230 Boeing 737 jets Routes: 1,1000 routes

  31. Agenda Agenda 1. Situational analysis 2. “Build to Fly” 3. The Boeing BIO1000 4. Timeline and financials 5.Wrap-up

  32. Optimizing supply chain gives major savings at a small cost Higher completion rate will reduce average strike days. Strike costs 100 mio. USD pr day Assumes 15 planes a month Delays in completion site costs 5.000 USD pr. day (ex. reengineering, compensation etc.) Key Assumptions & Estimates Savings $1.645.000.000 Costs $410.000.000 Net value $1.235.000.000 Value of “Build to Fly” project

  33. Launch of BIO1000 negates potential marketshareloss from new competitors Growth of single aisle 90-175 seat fleet will be constant towards 2050 All single aisle planes sold after 2025 are Boeing Bio1000 planes Market share will halve if no initiative is taken (Market report) Additional costs regarding Boeing BIO1000 project approx 6.6 Bn USD WACC 11 % Key Assumptions & Estimates Best Case $8.756.000.000 Worst Case n/a Base case $2.079.000.000 Value of “Boeing BIO1000” project

  34. Timeline Initial Information Campaign Hiring Tier 1 Controller Team 1st Execution Evaluation and 2nd Execution Boeing BIO1000 Task Force Product Development Ensure Funding Patent Application Process Phase out 737 Launch and production

  35. Agenda Agenda 1. Situational analysis 2. “Build to Fly” 3. The Boeing BIO1000 4. Timeline and financials 5.Wrap-up

  36. Optimizing Boeings global value chain integration

  37. Ensuring Boeings Future Competitive Edge with the introduction of Boeing BIO1000

  38. “Build to Fly” and Boeing BIO 1000 addresses the key issues facing Boeing Together the two proposals ensure that Boeing stays a crucial part of a more sustainable tomorrow

  39. Q&A

  40. Index Recommendation • Issue slide • Transformation • Competitors • ”Build to Fly” • Coordination Teams • Future total deliveries • Currentproductoffering • Boeing BIO1000 • BIO1000 innovative solutions • Financials • Timeline • How, Why, When Appendix • Manufacturer to Master Planner • Triplebottom line • RiskMitigation • Contingency Plan • Contact, Control, Contract • Comparison of Airbus & Boeing • Markettendencies • Union MemberChallenges • Airbus expectations • Biofuel

  41. Boeing has shifted from manufacturer to master planner Build to Print Build to Performance • Boeing engineers develop the design • Partners build according to exact specifications • Detailed manual with drawings and technicalities – hundreds of pages • Boeing engineers quick to intervene when suppliers needs technical assistance or if they are not building according to specifications • 100% Internal R&D • Suppliers do the innovation, drawings and tooling themselves • A complete shift in responsibility – suppliers fully responsible • Boeing makes a short request to suppliers with specifications – tens of pages • Financial risk now lies with suppliers • R&D is outsourced

  42. ”Build to Performance”A goodidea – but not effectivelyexecuted • Utilize technology and technical talent from around the world • Ensure up-to-date innovation • Risk sharing • Value Chain visibility • RFID tags • Strengthened B2B Network In Theory In Practice • Miscommunication • Unnoticed Delays • Lack of Control & Quality • No Incentives Systems for Suppliers • Outsourcing Core Competences • Financial Penalties

  43. SupplyChainbestpractise from the auto industrycannotbetransfered to the aircraftmanufacturingindustry

  44. Boeing can sustain its future competitive advantage by establishing itself as a Master Planner The Boeing 2016 Vision CoreCompetences • Strategies • Run healthy, corebusinesses • Leveragestrengthsinto new product • Open New Frontiers • Values • Leadership • Cooperation • Integrity • Quality • CustomerSatisfaction • Diverse & Involved Team • GoodCorporateCitizenship • EnhancingShareholderValue “A commitment to understanding and anticipating customer needs and excellent supplier management with high quality, efficiency and low transaction costs” Boeing Corporate Website

  45. Especially competitive issues makes a replacement of the aging Boeing 737 necessary 3 main reasons behind replacement

  46. From contractors to strategic partners • Incitament structures • On-timedelivery • Punctualdelayannouncement • Completement rate Short term: - Completion rate decides bonus size • Long term: • Continued succesive completion • rates over 95% releases continual bonus • until break • Creates longer lasting relationships and • more experienced partners

  47. Boeing ensuressustainability by focusingonitstriplebottom line • Build to Fly: • Shareholders & Employers • - Ensuring continuous work flow • - Limiting unnecessary delays • Streamline productino process • Boeing Bio1000: • Shareholders & Customers • Boeing BIO1000: • - Establish Environmental Goal • - Re-usable energy • Sustainable Energy sources • Fuel Efficiency • “Build to Fly” • Avoid costly compensations • Boeing BIO1000 • - Tapping into new growth markets • Satisfying Shareholders & Customers

  48. Potential riskscanbemitigated by closelyoberservingmarketdevelopments Risk Mitigation Periodically review supplier relations and decide on partnership improvements/termination “Build to Fly” strategy does not succeed in creating expected synergies and benefits High incitements for suppliers and Boeing employees to finish development and production as scheduled Failure to restore consumer confidence in Boeing as supplier Stress high fuel efficiency and long term benefits of environmentally conscious solutions Boeing BIO1000 does not provide significant reasoning for customer replacement

  49. If unforeseen delays and complications arise there are still opportunities for Boeing

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