Order of business

Boeing had a record number of jetliner orders in 2005. Two Commercial Airplanes leaders provide insight on how the business unit is preparing for its production upturn—and on what's different this time

BY DEBBY ARKELL

2005 was a record year for Boeing Commercial Airplanes for net orders. That sets the stage for increases in annual jetliner deliveries: After delivering 290 airplanes in 2005, Boeing on Feb. 1 said it forecasts delivering approximately 395 airplanes in 2006 and between 440 and 445 in 2007.

Among the Commercial Airplanes leaders who are overseeing preparations for increased production are Carolyn Corvi, vice president and general manager of Airplane Production, and Steve Schaffer, vice president of Global Partners. Corvi and Schaffer recently sat down with Boeing Frontiers to discuss the business unit's plans to efficiently boost output—including improvements in working with suppliers.

Q: Boeing historically has seen large fluctuations in its production rates. Is there anything different about the coming upswing?

Corvi: Since the last upturn we've reduced the number of products we build. For example, our product family in 1998 included MD-series aircraft and the 757. Now we're focusing primarily on manufacturing two high-rate products, both with all-digital design, while we invest in transforming our entire family of products. We're focused on airplanes that have simplicity of design, fewer parts provided by fewer suppliers, and more stability throughout the entire value chain.

Schaffer: Another difference is our commitment process. The process is much more robust this time around, starting with customer commitments from sale through delivery. We're making better commitments to our customers because we're very clear on our capabilities to design, build and deliver. Our decision-making process is much tighter than in the past, too.

Q: What has Commercial Airplanes been doing to prepare for this upswing, and how is the plan different from past ramp-ups?

Schaffer: We've rightsized our supply base since the last upturn. We work with less than half of the suppliers today than we did in 1998, and continue to place work with only the top-performing ones. With fewer suppliers we're able to have more one-on-one relationships and better insight on how things are going—on both sides. We have fewer suppliers working with more technology. Our suppliers have become even more capable and more efficient. And, as Carolyn said, they've become more stable and simplified. This allows for more manufacturing efficiency and use of monolithic structures and carbon fiber applications. With all these changes, in essence we have created a new look in the supply base.

Corvi: We've also prepared by rightsizing our facilities. We are much more efficient and can do more work within a smaller amount of space. For example, if you go to our Fabrication shops, you will see more small machines and equipment dedicated to making specific parts, rather than large machines making a variety of parts in batches. We're making one part at a time—in a one-piece flow across a machine designed to make that part. By rightsizing the way we do the work we can move away from batch production. Batch production demands a lot of storage space. When you rightsize, you reduce inventory and reduce your requirement for space. Both the Renton and Auburn (Wash.) sites have become more focused and are smaller than in the past. We are using our plant property and equipment much more effectively today.

Schaffer: Another key factor is that Boeing and our suppliers are working Lean on a more collaborative basis. Lean activities started in earnest in the mid-1990s as pockets of improvement, so we weren't as efficient when we went through the last upturn. Now we are working with more mature Lean applications that are strategically linked between Boeing and the supply base—so we're really seeing the benefits of Lean in this cycle.

Q: Do you envision any challenges in the production system? What are you doing to minimize the impact?

Corvi: There are always challenges. One thing to remember is we can't look at Boeing in isolation. While we are busy increasing our production rates, Airbus is doing the same. In addition, Embraer is building up production and expanding its product line. That means there's a stronger demand across the entire industry for the materials that are unique to aerospace. We must carefully manage our forecast for parts and raw materials, plus give our suppliers as much advanced demand notice as possible.

Q: Commercial Airplanes experienced significant ramp-up problems during an upswing in 1997. What lessons learned from that experience have been incorporated in the growth plan?

Corvi: The challenge of going down in production rate is, I think, just as difficult as going up—if not more so. Especially when you're doing it in response to an event you didn't plan for or forecast. It's important to note that we've been here before. We were nearing peak production rates on Sept. 11, 2001, and we were going to deliver 536 airplanes that year. We actually delivered 527. Since that time we've been carefully managing our rate increases as the airline industry has become healthier and the market has come back.

So I'd say the lessons we learned about production in 2001 were just as important as the challenges we faced in 1997. Through that rapid downturn we proved the value of a lean production system. This validated the measures we'd taken to streamline production. For example, we didn't have a lot of inventory building up in our factory; some of our suppliers held inventory, but because they were working on Lean as well, they were able to slow down production and not incur the huge costs associated with disruption and inventory buildup. The entire system slowed down in a relatively efficient manner.

Usually costs will soar during a rapid downturn, because it's difficult to offset your fixed costs fast enough. Because of the investment we'd made in Lean we were able to manage costs—and continue to improve—through that time.

Q: Commercial Airplanes leaders have talked a lot about minimizing the swings in employment levels. What is the approach to staffing the manufacturing and support organizations, and how is it different from past approaches?

Corvi: Staffing levels—like increased production—are being approached in a thoughtful, carefully managed way. One of the things we used to do during a downturn was to bring work back into the company. This protected our employment, and our work statement wasn't as dramatically affected. After our last downturn, we left the work outside with our suppliers. When suppliers go through booms and busts like we do, they feel it tenfold. Because we allowed our suppliers to retain this work, they were able to remain financially healthy. Stabilizing the work in the supply chain turned out to be better for us overall.

Q: What about Boeing's raw material suppliers? What kinds of conversations are you having with them to ensure they are prepared?

Schaffer: We work with a third-party supplier called TMX to help with the logistics of allocating raw materials to our major suppliers and subtier suppliers. What's key this time around is that by working much more closely with our supply base we're able to get a better picture of the aggregate demand across the industry. Once we can predict demand, that translates into more predictable capacity requirements for the mills that provide the materials. We can help stabilize the system if we can simply forecast accurately what we need.

We now have teams made up of our raw materials procurement group, teams of our major suppliers and our major subtiers, working side by side and comparing data. We share our demand, our testing programs, and where material resides in the system at large. We evaluate as a team whether a particular material type should be there, or if it could be utilized better somewhere else. It's a very collaborative effort. This has led to a much better understanding of demand, which in turn leads to more flexibility and stability in the supply chain.

Q: Media reports speculate there may be resource limitations—leading to price increases or shortages—in raw materials used in airplane manufacturing, such as titanium and aluminum. If so, what is Boeing doing to help ensure its suppliers have an adequate supply?

Corvi: The situation with raw materials is something we focus on every day. It's definitely at the top of the list—all the time.

Schaffer: Communicating early and often with our supply base, and giving them as much visibility as possible, is a big factor in successfully navigating the resources issue. Not only are we sharing information more often, but we're sharing it deeper into the supply chain because we know there's stress in the system. We have to have early warning systems so we can go repair that part of the supply base, if needed.

Communication also gives us flexibility. For example, if a partner in the supply base lets us know there is a shortage of 3-inch plate but that they might have excess 6-inch plate, then we have time internally to make adjustments for that particular part application. We may be able to engage our engineers or our programmers to change material type or drawings or manufacturing applications and avoid disruption.

We must continue to have a collaborative effort between Boeing people and the supply base. We're helping ourselves when we do this. We don't have to be solely dependent on the raw material suppliers to dampen the effects of resource limitations. There are things we can do internally, and this comes from having more collaborative solutions.

Q: What kinds of skills and abilities will be the most important as production increases?

Corvi: Certain skills always tend to be in short supply, such as stress analysis or those related to optimizing design.

Schaffer: I see it more as a different utilization of the skills we have. Our supply base is becoming an extension of our factories because of the way we're integrating our processes. So, for example, while contract management is a core skill in Global Partners, technical roles will become increasingly important to us as we manage everything from raw materials to more integrated systems and structures. We will be looking for more technical, manufacturing and program management background in our people because our suppliers are performing more of the parts kitting and delivering more completed components. People who understand all phases of airplane production—not just contract management—are essential.

Corvi: I agree. We need to have a more holistic knowledge of production-system design and the logistics that enable this design. This is the kind of thing we need to focus on in the future. The more we know and understand about how to optimize our production system, the better.

Q: What can Boeing people and suppliers do to help support the plan?

Schaffer: Everyone needs to know where they fit into the plan. If everybody understands their role and how they can help, then it's just a matter of executing that plan with vigilance.

Corvi: It's important for everyone to understand our plan, our strategic direction and the many ways we're transforming ourselves as a company. Historically, Boeing employees have been the core of our competitiveness. As we move forward, we will continue to rely on our employees to achieve and sustain competitive advantage.

debra.j.arkell@boeing.com