Supply Chain and Quality Management Strategy - Boeings 787 Dreamliner Airplanes - Case Study Example

Supply chain and quality management strategy

(Case study on Boeing’s 787 Dreamliner airplanes)

Table of content

1. Introduction3

2. Theoretical Framework5

2.1 Supply chain management5

2.2 Supplier’s relationship management8

2.3 Effectiveness of quality management10

2.4 Strengths and weaknesses of strategic management13

3. Analysis and evaluation14

3.1 Supply chain management system of Boeing14

3.2 Impacts of supply chain and quality issues17

3.3 Risk management practices by Boeing18

4. Conclusion and recommendation19

Reference list21

• 1. Introduction

Supply chain management plays a crucial role in managing the external business activities and distribute the organisational products successfully over the world. Accordingly, quality management is also necessary for any businesses to secure sustainable development and improve the satisfaction level of all the stakeholders. In this assignment, it is possible to explore the theories and models of effective supply chain management as well as operational management. The assignment helps to evaluate the international supply chain of the organisation Boeing to analyze the experience with Boeing’s 787 Dreamliner airplanes. Analysis of the international supply chain of the organisation helps to identify the way it delivers the product to various stakeholders of the company by meting their quality expectations. Theoretical framework of supply chain and quality management is effective in this assignment to analyze the business operation of the organisation Boeings to facilitate international growth by ensuring customer’s satisfaction.

Figure 1: Official logo of Boeing

(Source: Exostar, L.L.C., 2007)

Boeing is an American multinational corporation manufacturing airplanes, rockets, rotorcrafts and satellites. The products of the organisation are 787, 747, 767,777, CH-47 Chinook and 702satellite etc. Boeing is successful in expanding the business worldwide having headquartered in Chicago, US. Total revenue of the company in 2015 was more than $96.114 billion and total asset was $94.408 billion. Net income that the organisation has generated in 20156 was approximately $5.176 billion and the company is successful in retaining more than 159,469 employees over the world in February, 2016. There are several divisions of the company includes commercial airplanes, capital engineering, technological operation, service group, security and defence.

Boeing’s 787 Dreamliner is mid-sized, two engine commercial jet airlines where the total capacity is between 210 and 330 passengers. At the time of launching, the airplanes are rated as most efficient commercial airplane made by Boeing.

Figure 2: Features of 787 Dreamliner

(Source: Tang, Zimmerman, and Nelson, 2009)

Advanced technology and efficiency of the employees helps to reduce the maintenance cost and the composite materials makes the Dreamliner lighter than the other airplanes made by Boeing. The product 787 Dreamliner helps the organisation to generate 40% more revenue as well as maintain quality by managing fuel efficiency up to 20%. The market demand and organisational deliveries can be illustrated by further figure.

Figure 3: Demand and deliveries of Boeing’s 787 Dreamliner

(Source: Song, Li, Song, and Zhang, 2014)

There is sustainable growth rate in the market demand for the product Boeing’s 787 Dreamliner and also the company is successful in delivering the products and services to the target customers within effective timing.

• 2. Theoretical Framework
  • 2.1 Supply chain management

Supply chain management is important part for any business to transact materials, information and finances in the process from the suppliers to manufacture to retailers to consumers. In order to manage the supply chain of the business, there needs to develop coordination and integration among the companies, distributors and suppliers. The main aim of managing suitable supply chain is to reduce inventory and distribute the organisational products and services successfully. The software system named Application Service Providers (ASP) is necessary to manage successful supply chain (Fayezi, S., O'Loughlin, and Zutshi, 2012). There are mainly three flows of supply chain such as product flow, finances flow and information flows. The product flow is the transaction of goods from suppliers to the consumers and financial flows include payment, credits transfer etc. On the other hand, information flows is related to transmitting updated information. Appropriate supply chain create effective network which includes companies and upstream and downstream as well as different processes and business activities. The supply chain includes logistics, distributors, upstream, downstream, inventory, information and cash flows. Through managing effective supply chain, it is possible to improve business collaboration and gain effective market share in the international market.

Figure 4: Supply chain management

(Source: Wisner, Tan, and Leong, 2015)

In order to manage appropriate supply chain, push-pull strategy is effective and this strategy helps to overcome the disadvantages of the businesses. Though managing these strategies, it is possible to distribute the organisational products and services and deliver these to the right customers timely.

Figure 5: Push-pull strategy

(Source: (Fayezi, S., O'Loughlin, and Zutshi, 2012)

• Push strategy:

Under the push strategy, the business tries to manufacture by focusing on the long-term goal and there is longer time to response the marketplace changes. Under this strategy, it is difficult to meet the changing needs the market and the supply chain inventory may become obsolete if the market demand for the particular products disappears. The examples of industries where the push strategy can be applied are auto industry, large appliances etc. Under the push strategy, the complexity is high and the business mainly focuses on resource allocation for minimizing cost in long-run.

• Pull strategy:

Under this approach, production function and distribution depends on the market demand of the consumers and the brands cooperate with the demand of the consumers for delivering the right product to the right customers. The businesses manage little inventory under the pull strategy and provide timely response to the market demand and thus under this strategy there is short term flows of information, finance and products and services. This strategy decreases the variability of supply chain and manufacturing inventory as well as the organisations tries to utilize the organisational resources efficiently for gaining the advantages of economies of scale. The examples are such as ell, Amazon etc who depends on pull strategy for meet the demand of the targeted customers in the international market. The main objective of pull strategy is to maximise the service level, with low complexity in the business procedures (Fayezi, S., O'Loughlin, and Zutshi, 2012). The main focus is on responsiveness where it is easy to meet the needs of the consumers within effective timing. Thus the process under pull strategy is related to order fulfilment for satisfying the consumers of the organisation. Thus, the push-pull strategy is appropriate under the supply chain manage through which the organisations can distribute the organisational products and services smoothly and deliver the products to the consumers.

• • 2.2 Supplier’s relationship management

Supplier’s relationship management is necessary for running the business as well as expanding the business successfully. Suppliers are important stakeholders of the organisations as they distribute the organisational products and services across the world. Thus, it is necessary for the organisation to make corporate relation with the suppliers. The organisations can build effective relationship with the suppliers by making effective communication with them and interact with positive attitude such that the suppliers also feel free to interact with the organisational entities. In order to improve relationship with the suppliers, it is also necessary to work cooperatively such that it is easy to meet the organisational objective (Blome, Schoenherr, and Eckstein, 2014). Team working activities is thus necessary to motivate the suppliers and improve relationship with them. Day-to-day business interaction and monitoring procedure is helpful for improving the relationship with the suppliers. Moreover, monitoring process helps the organisation to reduce misunderstanding and also provides a scope to communicate with the suppliers. Communication also provides a scope to the suppliers to express their views and requirements and this it further help the organisational management to meet their requirements and improve their wellbeing.

Figure 6: Supplier’s relationship management model

(Source: Blome, Schoenherr, and Eckstein, 2014)

Operational management and team reviews are another crucial strategy through which the relationship with the suppliers can be improved. By monitoring performance, the upper level management needs to provide training program such that the suppliers can improve own working efficiency. The training program is thus an influential factor which motivates the suppliers to manage the organisational operation successfully. Partnering relationship is effective for the organisations to develop proper strategy for the organisation and day-to-day business activities and collaboration helps to strengthen the relationship with the suppliers. Top-to-top reviews are another step through which the upper level management of the businesses can build proper corporate relationship with the suppliers. Reviews or proper feedback from the suppliers as well as discussion with management team helps to meet the objectives of the supplier’s relationship. Joint problem solving manner and is also necessary for empowering the suppliers into business activities and develop corporate relationship with them

Proper maintenance of supplier’s relationship helps to maintain accuracy and safety of the information and organisational data and day-to-day business activities is also useful to reduce error and increase efficiency of the business activities. Performance reporting as well as motivational; factors help the suppliers to improve efficiency and accuracy in the supply chain system (Fayezi, S., O'Loughlin, and Zutshi, 2012). Proper relation and communication is beneficial for the organisations to access up to date information and track proper market demand successfully. Supplier’s relationship facilitates organisational planning and management system as they have effective knowledge about the market structure and demand of the consumers. Thus, it is useful to mange relationship with the suppliers to foster business growth and expand the business in the international market. In addition to these, suppliers help the organisations to gain effective market share by improving customer’s satisfaction and increasing the company’s sales volume. Thus, supplier’s relationship is necessary in such an edge of globalisation to gain competitive advantage and distribute the organizational products and services at target market place.

• • 2.3 Effectiveness of quality management

Quality plays a decisive role in managing organisational process and performance successfully. Thus, the organisations try to manage quality in order to satisfy all the stakeholders of the business as well as secure sustainable development in near future. The day-to-day monitoring of business operations and auditing process helps to improve the performance quality. In order to manage quality the organisations needs to foster collaboration and communication among the stakeholders of the organisation. Team working activities are required to maintain quality and deliver right products and services to the right customers. Moreover, communication amo0ng the employees and managers within the organisation also helps to improve quality and outside the organisation, there need to have effective communication among the suppliers, distributors, consumers and other business entities (Khajavi, Partanen and Holmström, 2014). Risk management is an important factor for managing the organisational quality as well as the organisations needs to implement corrective actions for resolving the organisational issues and challenges.

For continuous improvement of the organisational quality, it is necessary to utilize auditing tools to improve the internal process. Configurable internal processing tools handle the business procedures and thus audit plans need to be integrated within the organisation for managing efficient quality. Training program is also necessary for improving the working efficiency of the employees and it will further improve the organisational quality. In order to manage good quality of the organisations, it is necessary to implement quality management software by ensuring communication and cooperation. Thus, the activities such as automotive document management, risk assessment process and auditing system help to improve organisational quality.

Figure 7: Quality management system

(Source: Chu, and Chung, 2015)

• Importance of quality management:

Managing organisational quality is beneficial to maintain quality of the products and services as well as maintain productivity of the business. The quality management system decreases the resource wastage and helps the organisations to utilize the resources and capabilities by maintaining proper economies of scale. Thus, managing quality is necessary for product and service improvement. The employees are motivated and they try to provide full potential to work efficiently such that it is possible to achieve the organisational goals and objectives collaboratively. It is also easy to satisfy all the business stakeholders of the organisations by managing organisational quality.

Figure 8: Effectiveness of Quality management

(Source: Cedillo-Campos, and Sánchez-Ramírez, 2013)

Quality management helps the organisations to track the market demand and deliver the right product to the right customers and it will further help to improve customer service as well as increase customer loyalty. Quality management also helps to increase profitability volume of the businesses as well as reduce the manufacturing and operational cost of the products (Golicic, and Davis, 2012). Improved productivity is also beneficial for the organisations as it provides a scope to maintain economies of scale and utilize the resources for improving the efficiency of manufacturing the products. Quality control process is also necessary for improving reputation of the brand as well as improves the values of the business stakeholders. Thus, quality control management is necessary is necessary for every business to gain competitive advantage in the international market and satisfy the customers by managing organisational quality.

• • 2.4 Strengths and weaknesses of strategic management

There are several strengths of as well as weaknesses of managing suitable supply chain of the organisations. The main reason of developing effective supply chain is to gain greater competitive advantage in the international market. The management of supply chain also helps to improve consumer’s value and reduce time gap and thus the organisations can deliver the right products and services to the right consumers within effective timing. Faster and smaller delivery to the organisational consumers helps the brand to improve customer’s loyalty and provide positive brand image to the customers. Accordingly, proper management of supply chain is effective for increasing the value of shareholders. These reasons influence further to utile the supply chain in distributing and retaining more customers towards the brands. Proper supply chain management increases the revenue of the brand an also reduces the operational cost. Due to these advantages, the organisations can foster growth by ensuring high profitability and increasing yearly sales volume of the organisations.

Suitable management of supply chain of the organisations is important for enhancing stakeholder’s value such that the organisations can offer attractive return on investment to the business stakeholders. Through managing appropriate supply chain, the organisations can gain competitive advantage by enhancing value for money. Effective supply chain management also helps the organisations to increase organisational capacity, capability and flexibility and this will be advantageous further to maximise the organisational objectives. As stated by Liu, Kasturiratne, and Moizer (2012.), timely response to the customers due to managing effective supply chain is also useful for improving brand loyalty and reputation in such a global competitive market. There are also some weaknesses of supply chain management such as dependent on suppliers and technology, lack of maintaining cost-leadership strategy and difficulties of outsourcing and procurement strategies. Due to maintain effective supply chain of the organisations, it is not possible to manage the operation less costly as the organisations need to invest more resources in order to managing the distribution network of the company. Supply chain integration and strategic partnership is also difficult to maintain under the supply chain management.

In addition to these, the logistics and transportation issue is also another effective issue that can raise difficulties in managing supply chain of the organisations. Inaccurate forecast due to inefficient suppliers my raise the issue in distributing the products and services successfully. Managing green supply chain is crucial in such an era of globalisation and it is the organisational responsibility to mange green supply chain for reducing the ethical issues. Thus, there are certain issues in strategic management of supply chain as well as quality. The main issue is related to rising cost of business operations and due to rising cost the price of final goods and service will rise further which is disadvantageous for any business. Moreover, inefficiency of employees may hamper smooth process of managing supply chain. It will further increase the loss of consumer’s confidence.

• 3. Analysis and evaluation
  • 3.1 Supply chain management system of Boeing

Boeing has launched development program in 2004 for its latest commercial airplane designed products in order to retain more customers towards the brand. The organisation mainly focuses on unconventional supply chain for developing and manufacturing 787 Dreamliner. In order to keep the manufacturing and assembly cost low, the company tries to spread financial risks to all the suppliers of the organisation. The supply chain management of 787 Dreamliner, by Boeing depends on the tiered structure that helps the company to foster partnership with the other strategic partners (Martínez-Jurado, and Moyano-Fuentes, 2014). The strategic partners are important for the company to assemble different parts of the product. The supply chain management by Boeing can be illustrated by the figure below:

Figure 9: Supply chain management Boeing

(Source: Mena, Humphries, and Choi, 2013)

Tier structure of supply chain management is effective for the company to develop efficient supply chain to distribute the products and by maintaining its quality. Boeing strategy for 787 Dreamliner can be developed below:

Components

787 Program

Sourcing strategy

Outsourced by 70%

Supplier’s responsibility

Produce and develop the parts of Boeing 787

Supplier’s relationship

Tire strategy with tier-1 suppliers

Number of suppliers

More than 50 partners in tier-1

Supply contracts

Risk-sharing contracts

(Source: Treuner, Hübner, Baur, and Wagner, 2014)

• Outsourcing:

Outsourcing is an effective strategy for developing and producing activities under the program of 787. Approximately 70% parts are outsourced for utilizing the efficiency of the suppliers to reduce development cost for producing 787 Dreamliner (Liu et al., 2013). As maximum parts are outsourced, it is difficult to manage communication and collaboration between the company and the suppliers. In order to facilitate communication and coordination, the company implement web-based tool named Exostar for gaining supply chain visibility and improving control and integration of the business activities. Moreover, the strategy of Boeing is appropriate to reduce development cost as well as time for manufacturing the product with utilising updated technology.

• Reduction of financial risk:

In order to reduce the financial risk, the company focuses on diversifying expected risk among the suppliers. Boeing has announced that suppliers do not receive payments until the products are delivered to the final customers. The company is also concerned about incentives to the suppliers which motivate the suppliers to work efficiently to get higher. This strategy also helps to build communication and collaboration among the suppliers to develop quality products more efficiently. The company allows intellectual property right in order to reduce any risks related to ethical issues and place the brand uniquely. Thus, the incentive structure of Boeing motivates to develop and produce quality products by ensuring future sustainable development with high yearly turn-over.

• Increase productivity without incurring additional cost:

Decentralising manufacturing process helps to outsource the critical parts to the expertise in the market for developing quality products by reducing capital investment. Under the structure of 787 Dreamliner, the company needs approximately only 3 days to assemble different parts to complete the sections. Thus, effective supply chain of Boeing for 787 Dreamliner is effective to develop the products with higher efficiency including low cost and timing.

• Reduction of direct supply base:

In order to reduce the reduce cost and time of developing the product, the company mainly focuses on the strategic partnership with the suppliers with more than 50 partners in tier-1 strategy. The suppliers are efficient who design and build entire sections of the plane for the company Boeing. The company mainly focuses on the organisational resources and capacity for investing on tier-1 suppliers rather than focusing on raw material procurement. Without managing supplier’s relationship, it is not possible to reduce the supply chain risk and manage organisational quality (Wisner, Tan, and Leong, 2015). Thus, the main purpose behind empowering the suppliers of the company is to manage correctly, such that it is easy to produce and develop different sections efficiently.

The airline industry mainly adopts the tier strategy in order to produce different sections to meet the requirements of the customers. The company assembles the parts for developing the final products and this assembling process includes different functions such as design, manufacturing and developing. The first tier suppliers are necessary to manufacture the parts and the second tier entities are mainly the suppliers of tier-1. In addition to these, the tier-3 suppliers are mainly operate special components and process for example electronic components and raw materials etc (Gopalakrishnan et al., 2012). As per the theory of managing supplier’s relationship, the company Boeing is also concerned about improving relationship with the suppliers. In order to improve the corporate relationship, Boeing also tries to build communication and work as a team such that all the suppliers and business entities of Boeing can work cooperatively. Moreover, as per the theories, the company also focuses on monitoring day-to-day business operations for developing corporate relationship with the suppliers. Empowering the suppliers and team reviews are also effective strategies that the company Boeing has implemented due to run the business successfully by making proper relationship with the suppliers and cooperative team work. As pre the theory, the company Boeing mainly focuses on pull strategy of supply chain management and tries to meet the market demand by delivering quality products to the customers timely.

• • 3.2 Impacts of supply chain and quality issues

Boeing has faced certain issues related to supply chain management and these issues had greater consequences which hamper smooth development of Boeing. Infeasibility of the materials for flight test leads to delay in producing and manufacturing quality products and it will hamper the smooth procedure of production by tier-1 suppliers. The tier-1 suppliers outsourced the development of the products to the tier-2 suppliers and due to lack of technical know-how, the procedure has been delayed (Supply247., 2014). Lack of efficiency in selecting appropriate supplier further delayed the smooth development and manufacturing process. Inefficient management team is also another cause which leads to lack of efficiency in selecting supply chain expertise. There creates more misunderstanding among the employees due to the company Boeing’s strategy of outsourcing. Union strike results more delay in the business process and the suppliers failed to meet the delivery deadline. Due to the existing issues, there raised publicity issues and which cause more problems with airlines and negative perception of the customer’s. Delivery delays thus incur high penalties on the organisation and cancellation of the orders which leads to huge loss of the company Boeing. Due to the existing issues related to delivery delays, the government took different strategies for the company which hampered domestic as well as international business. The company also has faced challenges due to high financial loss for delivery delays and it was difficult to manage the overall process o manufacturing, developing and delivering quality products to the customers.

• • 3.3 Risk management practices by Boeing

In order to manage the risk and resolve future issues related to supply chain management. The company focuses on strengthening the management team to manage all the stakeholders of the business as well as maintain organisational quality to meet the customer’s requirements. In order to reduce the risk of the tier-1 suppliers, the company manages the tier-2 suppliers and paid more than $125 million in 2008 such that the partners can continue its vital operations (Song, Li, Song, and Zhang, 2014). In order to address the production is and challenges of the suppliers, the company has invested in research and development process. The research and development is useful to identify the existing issues and helps the company o adopt more developed technology in order to reduce technical issues. The company also focuses on the cooperation among the engineers of tier1, tier-2 and tier-3 to foster sustainable growth in near future. In order to mitigate the management risk within the organisation and improve supply chain for the product 787 Dreamliner, the company Boeing mainly focuses on the coordination such that the expertises can work more efficiently to achieve a common organisational goal (Exostar, L.L.C., 2007).

In addition to these, in order to resolve the risk associated with labours of the company, Boeing made concession and provide approximately 15% hike on the wages of the labours and this strategy further helps to resolve the issues job security (Mocenco, 2015). As the customers cancelled that orders for the product 787 Dreamliner, the company Boeing faced controversies related to their capability and organisational resources. In order to improve customer’s value, Boeing tries to reallocate the organisational resources and produce and develop the products more efficiently to meet the customer’s requirements. Moreover, in order to resolve the customer’s issues, the company Boeing has improve communication to improve community involvement. They mostly focused on website improvement such that the consumers can interact with the organisation and access all the relevant information related to the organisational activities.

Moreover, in order to improve public image, the company has conducted publicity campaign for promoting superior technology of 787 Dreamliner to generate overall values of the passengers, suppliers, shareholders and other business stakeholders (Tang, Zimmerman, and Nelson, 2009). Accordingly, modification of updated technology helps the company to retain more loyal customers towards the brand and on the other hand, they try to manage supply chain in order to deliver the right products and services to the right customers as per their requirements. Replacement of the program to supply chain expertise secures future development through strengthening the supply chain of the company. Increased payment and decreased outsourcing motivate the employees of the company to work freely by utilising technological advancement and creativity and manage own responsibilities. In order to reduce the consequences of the consumers and provide proper support to the customers due to delaying the delivery of the 787 Dreamliner, the company has paid penalties and also arranged public relations campaign for reassure the existing as well as new customers.

• 4. Conclusion and recommendation

Boeing’s 787 Dreamliner program involves dramatic shifts in the supply chain management strategy from the traditional method to new strategy of aerospace industry. The company boosted the technology and manufacturing procedure by utilising efficient suppliers for developing and producing quality products to meet the needs and preferences of the consumers. The company has significant potential to manage the supply chain risks and foster more growth in the business in future. Boeing’s ongoing issue that is delaying in delivery process can be resolved and the company is successful in managing the existing risks for meeting delivery deadlines as well as deliver quality products. Thus, supply chain as well as quality management practices of Boeing facilitate more future development of the brand by resolving the pre-existing issues. Existing literatures in this assignment is effective to acknowledge the supply chain management, supply chain risk and quality management procedures through which the businesses can gain competitive advantage in such an edge of global competitiveness. Boeing has tried to restructure the management team as well as supply chain in order to resolve the issues and run the business activities successfully.

In order to mitigate the risks of the company in future, the company needs to use Information and Techno logy (IT) system for making the business transparent and manage supply chain efficiently. This practice will be useful for the company to improve customer loyalty and provide positive brand image to the society. Monitoring process also needs to be implemented in daily basis to identify the capability of the suppliers to meet the deadline and deliver quality products to the right customers timely. Risk sharing activities and incentives structure to the partners also needs to develop further such that the suppliers are encouraged to work efficiently for achieving the organisational goal. In order to implement appropriate supply chain logistics, it is important to build effective relationship with the suppliers and in this regard communication plays a crucial role to resolve organisational issues. Communication with the union and interaction with the social communities will be effective for the company to regain the competitive advantage in the international market.

• Reference list

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Mocenco, D., 2015. Supply Chain Features Of the Aerospace Industry Particular Case Airbus and Boeing. Scientific Bulletin-Economic Sciences, 14(2), pp.17-25.

Song, T., Li, Y., Song, J. and Zhang, Z., 2014. Airworthiness Considerations of Supply Chain Management from Boeing 787 Dreamliner Battery Issue. Procedia Engineering, 80, pp.628-637.

Supply247., 2014. Two-thirds of Boeing’s $6Billion Cost Cutting Will Come from Its Supply Chain. [Online] Available at: <http://www.supplychain247.com/article/two-thirds_of_boeings_6billion_cost_cutting_will_come_from_its_supply_chain>> [Accessed 8th, April, 2016].

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Treuner, F., Hübner, D., Baur, S. and Wagner, S.M., 2014. A Survey of Disruptions in Aviation and Aerospace Supply Chains and Recommendations for Increasing Resilience. Supply Chain Management, 14(3), pp.7-12.

Wisner, J., Tan, K.C. and Leong, G., 2015. Principles of supply chain management: a balanced approach. London: Cengage Learning.