BOEING CASE STUDY

Boeing actions or inactions. Readers should be aware that the Gudmundsson case was
published in August 2017 and many things will have changed since then.
By way of background the creation of the Dreamliner was required to strengthen Boeing’s
Business Model. In June 2003, the name Dreamliner was chosen by online vote. On April 26
2004, the first order for 50 aircraft was placed by Nippon Airways. The delivery date was set for
late 2008. The first delivery was made on September 25, 2011.
The Boeing company underlined its embeddedness in the global economy bluntly in 2011 “U.S.
jobs are created by selling airplanes around the world.” It is clear that aircraft manufacturers
must offer more work on their aircraft beyond their national borders, not only to risk-share, but
also to reduce costs of new technologies and materials aimed at increasing reliability and fuel
efficiency of the aircraft. Today’s cutting-edge resources, capabilities, and know-how is
distributed to a greater extent around the world compared to what it used to be. Every new
aircraft put in production requires a new reconfiguration of resources to turn out a competitive
product.
This is an example of why procurement must be involved at the global strategy, recognising the
impact of new technologies on procurement risk management, cost and selection of global
partners.
In the new globalised environment a network of suppliers take on a greater role, contributing to
a larger part of each new project, ranging from design to manufacturing of large aircraft
sections. Boeing no longer limits its partnerships to the USA, but works with plants all over the
world, Japan, China, Italy and France, these partners will assemble major sections of the
aircraft, and install everything from electronics to seats, and then haul the sections to Boeing’s
assembly plants. The role of the integrator is to make sure that the massive parts fit to tight
tolerances. In the aerospace industry national borders and language barriers must be overcome
as the multinational Airbus has demonstrated by overtaking Boeing as the world’s largest
aircraft manufacturer.
This highlights the procurement challenges including culture, language barriers and logistical
issues. The Boeing procurement team would have to understand the subtleties of partnering
behavioural as opposed to adversarial relationships.
Boeing hoped the new partnering model would reduce development time from six to four years
and the development cost from $10 to $6 billion. However, this did not materialize and the
project cost overrun amounted to 11 billion dollars and the first aircraft was delivered three
years behind schedule. Was the partnership network to blame or was it simply the high cost of
learning new ways, perhaps benefitting the company greatly on future projects?
The rhetorical question posed by Gudmundsson is very relevant. It is the cost of learning that is
also relevant to procurement. There can be no doubt that price and cost management were
actively considered before placing contracts. However, the subsequent contract management,
technically and commercially would warrant stringent scrutiny.
In negotiations with partners, pricing and risk-sharing conditions were the main hurdles. Along
the way some designated partners wanted to exit the consortia if not receiving a higher revenue
percentage from Boeing to reflect greater perceived risk in the project. For example, Boeing
asked partners to bear the cost of the safety certification of their parts,
escalating risk if the certification process called for a costly redesign of parts, they would have to
bear.
In the early phases, negotiations with the Japanese partners dragged past deadlines, causing
work to go ahead without a signed contract, an act of good will to prevent project delays.
However, the lack of contract caused cash-flow problems for the partners as the government
backed International Aircraft Development Fund (IADF) in Japan would not grant loans unless
there was a signed contract between Boeing and the Japanese partners. “The cash flow is very
severe without government support,” said Fuji’s Norisha Matsuo, explaining problems his
company faced working on the project. There were also knock-on effects from the negotiation
delays causing partners like Fuji requesting new terms with Boeing to recuperate extra costs.
For example, Fuji was unable to invest in the necessary machinery to test the 787’s wing
section parts, causing it to send the work back to Seattle. Further delays were even caused by
U.S. immigration policies refusing visas for Fuji’s engineers doing the wing testing work in
Seattle.
Elsewhere in this book we emphasise the skill of negotiation. In our view it is still an
underdeveloped skill. The Boeing case highlights the range, depth and complexity of
negotiations that were required. It also highlights the need for procurement research when
dealing with innovative contracts and relationships.
To comprehend the logistics maze of the 787 project, the work division was as follows: The
Wichita plant did the nose section; a joint venture of Italy’s Alenia Aeronautica and Vought
Boeing actions or inactions. Readers should be aware that the Gudmundsson case was
published in August 2017 and many things will have changed since then.
By way of background the creation of the Dreamliner was required to strengthen Boeing’s
Business Model. In June 2003, the name Dreamliner was chosen by online vote. On April 26
2004, the first order for 50 aircraft was placed by Nippon Airways. The delivery date was set for
late 2008. The first delivery was made on September 25, 2011.
The Boeing company underlined its embeddedness in the global economy bluntly in 2011 “U.S.
jobs are created by selling airplanes around the world.” It is clear that aircraft manufacturers
must offer more work on their aircraft beyond their national borders, not only to risk-share, but
also to reduce costs of new technologies and materials aimed at increasing reliability and fuel
efficiency of the aircraft. Today’s cutting-edge resources, capabilities, and know-how is
distributed to a greater extent around the world compared to what it used to be. Every new
aircraft put in production requires a new reconfiguration of resources to turn out a competitive
product.
This is an example of why procurement must be involved at the global strategy, recognising the
impact of new technologies on procurement risk management, cost and selection of global
partners. In the new globalised environment a network of suppliers take on a greater role,
contributing to a larger part of each new project, ranging from design to manufacturing of large
aircraft sections. Boeing no longer limits its partnerships to the USA, but works with plants all
over the world, Japan, China, Italy and France, these partners will assemble major sections of
the aircraft, and install everything from electronics to seats, and then haul the sections to
Boeing’s assembly plants. The role of the integrator is to make sure that the massive parts fit to
tight tolerances. In the aerospace industry national borders and language barriers must be
overcome as the multinational Airbus has demonstrated by overtaking Boeing as the world’s
largest aircraft manufacturer.
This highlights the procurement challenges including culture, language barriers and logistical
issues. The Boeing procurement team would have to understand the subtleties of partnering
behavioural as opposed to adversarial relationships.
Boeing hoped the new partnering model would reduce development time from six to four years
and the development cost from $10 to $6 billion. However, this did not materialize and the
project cost overrun amounted to 11 billion dollars and the first aircraft was delivered three
years behind schedule. Was the partnership network to blame or was it simply the high Boeing
actions or inactions. Readers should be aware that the Gudmundsson case was published in
August 2017 and many things will have changed since then.
By way of background the creation of the Dreamliner was required to strengthen Boeing’s
Business Model. In June 2003, the name Dreamliner was chosen by online vote. On April 26
2004, the first order for 50 aircraft was placed by Nippon Airways. The delivery date was set for
late 2008. The first delivery was made on September 25, 2011.
The Boeing company underlined its embeddedness in the global economy bluntly in 2011 “U.S.
jobs are created by selling airplanes around the world.” It is clear that aircraft manufacturers
must offer more work on their aircraft beyond their national borders, not only to risk-share, but
also to reduce costs of new technologies and materials aimed at increasing reliability and fuel
efficiency of the aircraft. Today’s cutting-edge resources, capabilities, and know-how is
distributed to a greater extent around the world compared to what it used to be. Every new
aircraft put in production requires a new reconfiguration of resources to turn out a competitive
product.
This is an example of why procurement must be involved at the global strategy, recognising the
impact of new technologies on procurement risk management, cost and selection of global
partners.
In the new globalised environment a network of suppliers take on a greater role, contributing to
a larger part of each new project, ranging from design to manufacturing of large aircraft
sections. Boeing no longer limits its partnerships to the USA, but works with plants all over the
world, Japan, China, Italy and France, these partners will assemble major sections of the
aircraft, and install everything from electronics to seats, and then haul the sections to Boeing’s
assembly plants. The role of the integrator is to make sure that the massive parts fit to tight
tolerances. In the aerospace industry national borders and language barriers must be overcome
as the multinational Airbus has demonstrated by overtaking Boeing as the world’s largest
aircraft manufacturer.
This highlights the procurement challenges including culture, language barriers and logistical
issues. The Boeing procurement team would have to understand the subtleties of partnering
behavioural as opposed to adversarial relationships.
Boeing hoped the new partnering model would reduce development time from six to four years
and the development cost from $10 to $6 billion. However, this did not materialize and the
project cost overrun amounted to 11 billion dollars and the first aircraft was delivered three
years behind schedule. Was the partnership network to blame or was it simply the high cost of
learning new ways, perhaps benefitting the company greatly on future projects?
The rhetorical question posed by Gudmundsson is very relevant. It is the cost of learning that is
also relevant to procurement. There can be no doubt that price and cost management were
actively considered before placing contracts. However, the subsequent contract management,
technically and commercially would warrant stringent scrutiny. In negotiations with partners,
pricing and risk-sharing conditions were the main hurdles.
Along the way some designated partners wanted to exit the consortia if not receiving a higher
revenue percentage from Boeing to reflect greater perceived risk in the project. For example,
Boeing asked partners to bear the cost of the safety certification of their parts, escalating risk if
the certification process called for a costly redesign of parts, they would have to bear.
In the early phases, negotiations with the Japanese partners dragged past deadlines, causing
work to go ahead without a signed contract, an act of good will to prevent project delays.
However, the lack of contract caused cash-flow problems for the partners as the government
backed International Aircraft Development Fund (IADF) in Japan would not grant loans unless
there was a signed contract between Boeing and the Japanese partners. “The cash flow is very
severe without government support,” said Fuji’s Norisha Matsuo, explaining problems his
company faced working on the project. There were also knock-on effects from the negotiation
delays causing partners like Fuji requesting new terms with Boeing to recuperate extra costs.
For example, Fuji was unable to invest in the necessary machinery to test the 787’s wing
section parts, causing it to send the work back to Seattle. Further delays were even caused by
U.S. immigration policies refusing visas for Fuji’s engineers doing the wing testing work in
Seattle.
Elsewhere in this book we emphasise the skill of negotiation. In our view it is still an
underdeveloped skill. The Boeing case highlights the range, depth and complexity of
negotiations that were required. It also highlights the need for procurement research when
dealing with innovative contracts and relationships.
To comprehend the logistics maze of the 787 project, the work division was as follows: The
Wichita plant did the nose section; a joint venture of Italy’s Alenia Aeronautica and Vought
Aircraft Industries in Dallas did the tail section and the half the fuselage; three Japanese
industrial giants, Mitsubishi Heavy Industries, Kawasaki Heavy Industries and Fuji Heavy
Vought Aircraft Industries, build the wing and centre section; finally, a host of smaller suppliers
provided everything from air-conditioning systems to the landing gear. Boeing, by involving
global partners, is also depending on another dimension, namely government to provide
subsidies to the respective partners to carry out their part of the deal. For example, 35% of the
787’s airframe is built in Japan, and this work package was supposed to receive at the outset
US$1.6 billion in Japanese government aid straight to the suppliers. In this way, government
relations also became a direct and indirect element in supply network.
The complexities of a supply chain are demonstrated here. It raises questions regarding
integration of products from different suppliers and involvement of governments, who are
sometimes known to prevaricate on alleged deals.
The 787 project eventually required Boeing to send its engineers to the various suppliers to
solve technical problems that were the chief cause of the 787’s development delays. These
problems were serious enough for Boeing eventually redesigning the aircraft sub-assembly
process, causing additional expenses that were larger than if such support had been included in
the project from the beginning.
This situation cannot be a surprise. The liaison between engineers in Boeing and suppliers was
central to project success. The author has experience of creating partnering in the nuclear
sector and has created co-located engineering teams with access to a joint design IT system.
More partnerships around the globe meant that Boeing had to work across cultures and break
down barriers. An example of this is when Boeing sent engineers to Mitsubishi in Nagoya,
Japan, to help reduce the number of 787 wing parts. The most straightforward approach was to
mix wing specialists from both companies, to come up with ideas and solutions. In the meeting
Boeing engineers sat on one side and Japanese engineers on the other side. The Americans
started to brainstorm writing notes and sticking them to the wall. However, the Japanese kept
their posture and watched the activity on the other side of the room. “This is new culture for us,”
said Masnori Yamaguchi, a Mitsubishi engineer. “At this time. . . It’s. . . culture shock.” The
American style is to attack problems head on, sometimes a wasted effort, but often the process
leads to innovative solutions. Contrary wise, the Japanese prefer to plan carefully and create a
hierarchy of testable results to arrive at a high-quality solution in the end. The outcome of this
cross-cultural partnership was a compromise where Boeing designed the wing box, while
Mitsubishi developed a way to minimize defects. The outcome, Jenks said, “leads to both
innovative solutions and ones that are practical in a manufacturing environment.”
This highlights the clash of cultures. This cultural difference is applicable to negotiation and will,
typically prolong the negotiations due to many reasons including translation, pace of
discussions, involvement of the management hierarchy and so on.
We emphasise the extracts have been selected from a comprehensive case. The Dreamliner
project was highly innovative and complex.

1. Read and understand the case