Global Production, Outsourcing, and Logistics
Chapter Outline
OPENING CASE: Building the Boeing 787
INTRODUCTION
STRATEGY, PRODUCTION AND LOGISTICS
WHERE TO PRODUCE
Country Factors Management Focus: Philips in China Technological Factors Product Factors Locating Production Facilities
THE STRATEGIC ROLE OF FOREIGN FACTORIES
Management Focus: Hewlett Packard in Singapore
OUTSOURCING PRODUCTION: MAKE-OR-BUY DECISIONS
The Advantages of Make The Advantages of Buy Trade-offs Strategic Alliances with Suppliers
MANAGING A GLOBAL SUPPLY CHAIN
The Role of Just-in-Time Inventory The Role of Information Technology and the Internet
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In regard to make-or-decisions, the author provides a balanced discussion of the advantages and disadvantages of buying components parts (in the world marketplace) opposed to making them in-house. The chapter concludes with separate discussion of the importance of strategic alliances, just-in-time manufacturing, and information technology to international firms.
Opening Case: Building the Boeing 787
Summary
The opening case explores Boeing’s production strategy for its new high-tech 787 aircraft. Boeing is outsourcing some 70 percent of the content of the aircraft to other companies, many of which are located outside the United States. Boeing hopes that its outsourcing strategy will mean that partners will contribute towards the development costs of the aircraft, that sales in partner countries will be easier, and that it will gain knowledge and expertise. Discussion of the case can revolve around the following questions:
QUESTION 1: Boeing is outsourcing an unprecedented 70 percent of its new 787 aircraft. Discuss Boeing’s strategy for the production of this aircraft. What does the company hope to gain by following an outsourcing strategy? What are the risks of the type of strategy?
ANSWER 1: When Boeing made the decision to outsource 70 percent of the production of its 787 aircraft to companies located around the world, the company
The Boeing Company designs, develops, manufactures, sells, services, and supports commercial jetliners, military aircraft, satellites, missile defense, human space flight, and launch systems and services worldwide. It operates in five segments: Commercial Airplanes, Boeing Military Aircraft, Network & Space Systems, Global Services & Support, and Boeing Capital. The Commercial Airplanes segment develops, produces, and markets commercial jet aircraft for various passenger and cargo requirements; and provides related support services to the commercial airline industry. This segment also offers aviation services support, aircraft modifications, spare parts, training, maintenance documents, and technical advice to commercial and government customers. The Boeing Military Aircraft segment researches, develops, produces, and modifies manned and unmanned military aircraft, and weapons systems for global strike, vertical lift, and autonomous systems, as well as mobility, surveillance, and engagement. The Network & Space Systems segment researches, develops, produces, and modifies strategic defense and intelligence systems, satellite systems, and space exploration products.
This paper of Philip Condit and the Development of the 777; describes the management, and technological changes that Philip Condit made to the development style of the Boeing Company. Before Philip Condit took over the 777 program, Boeing had been making airplanes in the same fashion as it had been doing for 70 years prior. Mr. Condit saw the chance to bring Boeing into the 21st century not only with the new technology of computer aided drafting, but with modern management techniques as well. The 777 program proved to be the perfect testing ground for a companywide change in the way Boeing did its business.
Outsourced almost 87% of production activities involving spare parts while maintaining core competencies like R&D, design, quality control and key trademark
I am the Project Manager developing the Boeing 787 Dreamliner. The development of this state-of-the-art airplane will include an international team of aerospace companies led by Boeing. The advances in this airplane will reduce the use of fuel by 20%, increase cargo capacity, increase nautical miles in a mid-range airplane, and improve passenger comfort. Boeing
Boeing pursues Product Differentiation strategy in order to create competitive advantage over Airbus. Boeing differentiates its products by increasing number of seating capacity, engine capacity, innovating new winglet designs and by manufacturing wide range of products in respect to the change in market
Seventy percent of the aircraft’s production and designing was outsourced to over fifty Tier 1 suppliers compared with only thirty-five to fifty percent that was traditionally outsourced in the production of other aircrafts (S. Tang and D.Zimmerman, 2009: 77). In late 2008, over twenty-seven thousand Boeing employees went on strike due to the company’s outsourcing policies and what its effects on job security (Doornbos n.d.). The strike lasted for fifty-seven days and it would cost Boeing a total of three months in production time, an estimated $100 million a day in revenue, and approximately $7 million a day in net income (Isidore
Essentially the change it made was number three in the listing detailed in section 10.6 of our text – it “changed the configuration of factories, warehouses, or retail locations.” When work usually performed internally, is delegated to another firm, the company is said to outsource the work. Such is the case in the construction of the Boeing 787. The companies involved include Messier-Bughatti of France, Rolls Royce of the UK, Alenia Aeronatuica of Italy, Mitsubishi Heavy Industries of Japan and Chjengdu Aircraft Group of China. This outsourcing decision means that 85% of the construction of this aircraft is supplied by strategic supply partners of Boeing. Those parts are eventually shipped to the Boeing plant in Washington by road, rail, sea and plane for final assembly of the Dreamliner.
Boeing being the market leader for almost a decade as a manufacturer of large commercial aircraft and had also reached economies of scale, the need to sustain its market share it presumed that “customers might demand for new”. Any potential growth was only through taking super leap and making VLCT jumbo aircraft which needed
Dominating the commercial aircraft market for decades, Boeing is considered to be the most highly competitive U.S aerospace industry. “U.S. firms manufacture a wide variety of products for civil and defense purposes and, in 2010, the value of aerospace industry shipments was estimated at $171 billion, of which civil aircraft and aircraft parts accounted for over half of all U.S. aerospace shipments. The U.S. aerospace industry exported nearly $78 billion in products in 2010, of which $67 billion (or 86% of total exports) were civil aircraft, engines, equipment, and parts” (Harrison, 2011). However, its position of influence has lessened in recent years. This is due to its main competitor, Airbus, who in recent years has made significant
Given the high-tech nature of the airplane industry, there are relatively few suppliers capable of providing parts to Airbus and Boeing. In contrast to Boeing, who relies heavily on suppliers, Airbus has tried to manufacture the
Boeing’s management plan shows determination to improve through creation of new more members of their airplane family (commercial airplanes). This would also be achieved through integration of military platforms, systems for defense and the war fighter by use of network-centric activities. Boeing plan is also inclusive of creation of improved technology to solve problems across all business units. Boeing plans to e-enable airplanes where automation is the key to this development. Finally, Boeing is determined to arrange for financing solutions to its customers. Through this it will be able to attract more potential customers. Moreover, it can also be able to establish a better relationship with its customers through provision of incentives and sales promotion.
Airbus is a consortium of European aircraft manufacturers formed in 1970; Boeing Company was founded in 1916 as the world's largest private commercial aircraft manufacturer in the USA; and finally McDonnell Douglas, considered the third major manufacturer, began operations since 1920 working essentially for the US government, manufacturing
Boeing adopted the radical change approach for designing and developing the 787 Dreamliner not only to attempt to create new aircraft through the innovative design and advanced material, but it also drastically changed the production process. With a $10 billion dollar project in mind, the goal was to reduce the financial risks involved as well as the new product development cycle time. Meanwhile, Boeing produced a remarkably complicated supply chain that included greater than fifty partners in over 100 locations all across the globe. In addition to the complicated supply chain, they experimented with various firms in diverse areas to align complementary skill sets. Furthermore, this was the first time the company outsourced the two most crucial parts of the plane, the wings and the fuselage.
Our firm has set out to Internationalise its operations by opening to different facilities One in China Assembling and Maintaining Aircraft Engines and the other in Europe fabricating turbine blades for Aircraft
The Boeing Corporation is one of the largest manufacturers in the world. Rivaled only by European giant Airbus in the aerospace industry, Boeing is a leader in research, design and manufacture of commercial jet airliners, for commercial, industrial and military customers. Despite enjoying immense success in its market and dominating an industry that solely recognizes engineering excellence, it is crucial for Boeing to ensure continued growth through consistent strategy formulation and execution to avoid falling behind in market share to close and coming rivals.