The Boeing Company Background
The Boeing Company is a dominant leader in commercial and defense products, and is among the largest aerospace conglomerates in the world. The company’s corporate headquarters is located in Chicago, IL with the commercial division headquartered in Seattle, WA and the defense division headquartered in St. Louis, MO. With manufacturing facilities located in numerous states and marketing offices worldwide, Boeing is truly a global enterprise. The company’s supply chain stretches from North America, through the Euro Zone, and Asia.
In the global business environment, Boeing faces increased pressures from domestic and international competitors. Also, the current international economic crisis has created a challenge for both Boeing’s financials and its supply chain. As a result, cost reduction and execution must be primary considerations in finding new and innovative ways to improve the supply chain and business processes. One way Boeing has improved various processes is by relentlessly eliminating non value-added tasks into its business strategy. These improvements may be considered a result of LEAN practices.
Case Scenario
In mid 2011, The Boeing Company was contacted by one of its major customers with a Request for Proposal (RFP) for 160 additional aircraft for its fleet. The large bodied aircraft proposed by Boeing to the customer can hold upwards of 300 passengers at max capacity. This aircraft currently has a backlog of over 800 aircraft.
At the end of 2011, this contract was awarded to The Boeing Company for 160 aircraft. Additional demand for this wide-bodied aircraft is forecasted at 60 aircraft per year starting in 2012 with an annual growth rate of 3% for the next 10 years, at which time demand will level. An order of 160 aircraft is a significant opportunity which Boeing Management recognizes. They would like to maintain this key relationship with the customer in future strategy.
The customer requested the first of their new aircraft 36 months after receipt of contract and to receive 20 finished aircraft each year thereafter. The penalty for late delivery on an aircraft is 3% of the aircraft price per month delinquent. Currently, Boeing’s production line, located in Seattle, for this aircraft model is at capacity (1st shift) and the configuration of the current factory will not support production of the additionally contracted units. The current production rate in Seattle is 50 units/year. Additionally, several of Boeing’s current suppliers are at or near max capacity as well.
Recently, Boeing purchased Vought Airline Factory in Charleston, South Carolina. The factory needs to be remodeled and currently doesn’t have a production line configuration that supports this type of aircraft. Management is hopeful that the renovations will be completed and production of aircraft at this location can begin by the
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The Boeing Company’s products.
end of 2012. Boeing will continue to employ the 1st shift workforce from the Vought Airline purchase to help with the expected demand increase. The agreed upon deal between the customer and The Boeing Company for the 160 aircraft was negotiated as a firm fixed price contract (FFP). Based on current supplier costs and other estimates, The Boeing Company hopes to earn a gross margin of 13% on this aircraft lot which is priced at $160,000,000 per plane. In making company decisions to benefit both Boeing shareholders and stakeholders, the Boeing Leadership Team uses a 10% cost of capital as a basis for financial reasonability tests.
The parts for this aircraft are manufactured 70% in-house and 30% outsourced with lead times of 12 months and 15 months respectively with an average 8% markup from suppliers. Average labor costs for production workers on the wide-bodied aircraft are $25/hr.
Boeing management has asked your cross functional team of subject matter experts to use your finance, supplier management, and knowledge of global strategy to make recommendations on company decisions in order to help meet deliveries.
Boeing Division Information