The evolution of creation

As Boeing transforms into a large-scale systems integrator, the supplier’s role has fundamentally changed. Here’s a look at what’s different—and what these changes mean for Boeing people.

BY DEBBY ARKELL

Gary VanderKooy remembers that in the past, Boeing and his employer—supplier Hamilton Sundstrand— used to duplicate a lot of effort in development and production.

Now, thanks to the evolving role of suppliers at Boeing, such redundancies can be removed from the process. The end result: reduced costs and a better product.

"In the past, we were simply a vendor, a supplier of components to Boeing, building them to Boeing specifications," VanderKooy said. "Now we are a supplier of systems we develop jointly with Boeing."

As Boeing continues to transform itself into an integrator of large parts and systems and implements Lean manufacturing principles, it is relying more heavily on its supply base to achieve the results customers demand. This reliance is causing a fundamental shift in the role of the supplier to Boeing. And Boeing suppliers say they are ready for the challenge.

LEAN ON ME

The days of Boeing suppliers strictly providing components are over. So said Norma Clayton, Integrated Defense Systems vice president of Supplier Management, at an event last year. As Boeing focuses more of its attention on the integration of large components and systems and total life cycle support, the role of the supplier has become even more critical.

This means suppliers must assume greater responsibility for managing everything from raw materials through fabrication, assembly, critical certifications and, in some cases, management and oversight of quality and delivery from other suppliers in the chain. And Lean and efficient tools are essential to eliminating waste and optimizing these supply chains.

One example is inventory management. As Boeing adopts Lean principles such as just-in-time ordering, point-of-use delivery and internal kitting to streamline its production processes, it is asking suppliers to produce and deliver components using just-in-time techniques.

In support of this, Integrated Defense Systems has adopted as a best practice an enterprisewide online supply-chain tool called consumption-based ordering (see Page 28 of the September 2004 issue of Boeing Frontiers). CBO allows Boeing to share its inventory levels with suppliers. The system lets suppliers aggregate demand and order at their discretion, building and shipping only when Boeing inventory levels fall below specified thresholds.

This shift in responsibility permits Boeing and its suppliers to set inventory levels based on consumption rates needed to support production. That, in turn, lets Boeing cut the number of storage facilities at its production sites. It also enhances Boeing's ability to forecast and improves cash flow.

"If you visited a Boeing facility a few years ago, you would have seen warehouses filled with raw materials and inventory," Clayton said. "We now receive parts just in time at a given assembly area."

Suppliers find they are able to plan their production rates more efficiently, rather than waiting to receive an order and then react. They also can more accurately forecast staffing requirements, better schedule maintenance and perform their own Lean improvements.

"We have made a lot of progress in recent years implementing new systems for placing orders and tracking them," said Steve Huggins, senior vice president of Strategy and Business Development for Goodrich Corp. "These systems help us plan and produce at rates optimal for our production systems."

WITH A LITTLE HELP FROM MY FRIENDS

As the role of Boeing suppliers shifts from a subordinate buyer/supplier relationship to teaming, Boeing is looking to its suppliers to provide entire systems and solutions. Jim Morris, former Commercial Airplanes vice president of Supplier Management, said Boeing's focus now is on large-scale systems integration "looking at total customer solutions and lifetime support" of its products—and supplier input is critical.

Goodrich and Hamilton Sundstrand are just two of thousands of Boeing suppliers worldwide that are witnessing the evolution of supplier relationships. They have provided Boeing with a broad array of commercial, military and space components and systems for decades. Today, said Hamilton Sundstrand's VanderKooy, "we're collaborating and doing an increasing amount of systems integration work Boeing normally would have done."

Improved communication contributes significantly to the shift from provider to partner roles. Like poker players holding cards close to the vest, Huggins said each company used to hold its strategies and information tightly. But not any more.

"Information sharing today is light years ahead of where it was just 10 years ago," Huggins said. "The degree to which our companies share forecasts and visions of the future today is a lot more like talking with a colleague than telling ‘the boss' what you think they want to hear."

FROM PROVIDERS TO PARTNERS

Boeing and its suppliers agree the supplier model being used on its new airplane program, the Boeing 787 Dreamliner, is the way of the future. The 787 model takes the current supplier-partner roles a step closer to a true partnership.

To improve efficiency throughout the supply chain, Boeing has been reducing its core supply base and increasing business with high-performing suppliers. In recent years, Boeing has reduced the number of suppliers by 79 percent.

"There will be only a few dozen large suppliers [on the 787 program], and they will carry a greater responsibility than on previous commercial new airplane projects," said Walt Gillette, 787 program vice president of Engineering, Manufacturing and Partner Alignment.

Suppliers on the 787 program are not just being consulted on how to improve current systems or components they provide. They are sharing risk by participating early on in the design-build process to ensure the best design is used from the start.

Most 787 program partners will have worked with Boeing from the beginning in what will be a three-phase process: conceptualization, joint development and detailed design. In the conceptualization phase, "all sorts of new ideas for systems and structures are considered," Gillette said. Boeing then selected a small number of suppliers—including internal suppliers such as Hawker de Havilland and the Fabrication Division in Puget Sound area of Washington state—to begin the joint-development phase.

Today Boeing is preparing to exit the joint-development phase and enter the detailed-design phase, "which is when the supplier team will assume substantial authority and responsibility for detailed design of the product," Gillette said. Goodrich, a partner on the 787 program supplying technology that ranges from electrically actuated brakes to cargo systems, participated with Boeing in a similar collaborative development process for the 787 nacelle and thrust reverser system. It found the experience highly valuable.

"Instead of independent designers and competitors inundating large numbers of people with iterations of designs, Boeing, Goodrich and others designed as a team the best, most efficient product possible," Huggins said.

Then the participants stepped back and competed normally to win the contract to supply Boeing with that optimal design. "This is how things will be done in the future. It's a smart way of doing things," Huggins said.

As relationships strengthen and supply chains evolve, the focus for the prime contractor becomes larger-scale assembly integration. Suppliers now are becoming partners in the truest sense, as they share risk, support the product throughout its life cycle, and focus on innovation and improvement as if the product were their own.

LINKING THE VALUE CHAIN

Shifting responsibility from Boeing to suppliers on the surface might seem like the company is "giving away the farm."

However, quite the opposite is true.

The reasons for moving to a new supplier model are many, Clayton said.

• Affordability. This is "the main reason" for the new model, she said. Procurement costs represent a substantial percentage of every dollar spent on building an aircraft. Money saved by efficiently managing inventory and assets can be invested in new products and services.
• Better asset use by Boeing and suppliers. "Owning and operating facilities that function at reduced capacity doesn't make sense," Clayton said. "Divesting ourselves of these businesses to suppliers who can operate them fully with the addition of non-Boeing work allows Boeing to use the capital to invest in new technology, and allows the suppliers to become strong community leaders and good employers."
• Intellectual capital and increased cash flow. Boeing is zeroing in on what it does best: focusing on customers and using its intellectual capital. By redoubling efforts to work with only the best suppliers and maximizing opportunities to consolidate work with suppliers, Boeing ensures the highest quality and lowest unit costs can be passed along to the customer.

This shift in supplier roles means good things for Boeing and its employees, company representatives said.

"In general, the Boeing team will move up the value stream by concentrating on the voice of the customer; on requirements; on the airplane's overall design, architecture and integration; then on final assembly and delivery," Gillette said.

By managing a supplier base that is efficient, responsive and barrier-free, Boeing products will become even higher quality, safer and less expensive than before, according to Boeing executives. The end result: Boeing will be able to invest in the betterment of its people and its products, ensuring the company will thrive and provide future work.

"We used to think that Lean was about operations on the factory floor," said Morris, now BCA's vice president of Engineering and Manufacturing. "We've come to realize it's about the whole life cycle of the product from raw material suppliers all the way to Lean services after the fleet has been deployed."

Ultimately, such a transformation takes trust. Trust, true partnerships and relationship building are at the heart of this changing dynamic. Boeing, its people and its partners are taking a leap of faith to allow what was perhaps a core competency to be transferred to someone else who can do it as well as—if not better than—before.

"Boeing is dependent on a healthy supply chain to remain competitive," Morris said. "When the supplier is an integral part of the design and production process, we share a common destiny. Our success is fundamentally linked to how well we work together."