Week 1 Case: Philip Condit and the Boeing 777
From Design and Development to Production
and Sales
Submitted by: Group E members
Jason Nowak
Ted Powell
Monica
Robinson
Fidel
Rodriguez
Ching-Feng Yu
OUTLINE
1. What are the dynamics of competition in the commercial
aircraft industry?
2. In what ways did Boeing limit the risks of the project?
4. Following the introduction of Boeing 777, where is Boeing still vulnerable?
During
1988 Boeing realized that in order to remain competitive in the aircraft
manufacturing industry, it was necessary to either upgrade their existing
aircraft product family or develop an entirely new aircraft. This action was specially needed to react to
Airbus, their strongest competitor.
Airbus had deployed two new airplane models and was poised to take
Boeing’s market share.
Phil
Condit, then Executive Vice President, met with a number of Boeing customers to
seek guidance. These strategic review
sessions led to the bold decision to embark on the design and production of the
most technologically advanced commercial airplane in the market place, the
Boeing 777.
With
the 777, its seventh commercial jetliner, The Boeing Co., Seattle, set a new
standard for designing and building a major aircraft. The result of the US$6.3
billion and the total nearly 10,000 of employees assigned development program
looks much like other two-engine jetliners. So what makes the 777 truly one of
the industrial achievements of the 1990s? The answer is in the new flight
technologies used in the 777, and in the design-engineering revolution that
stormed through Boeing. To design the
777, about 30 integrated-level teams at the top and more than 230
cross-functional "design build teams” responsible for specific
products. The team in charge of the 777
project was led by a group of five vice presidents, headed by Phillip
Condit. The teams used 2200 terminals
and the computer-aided three-dimensional interactive application (CATIA) system
to produce a "paperless" design that allowed engineers to simulate
assembly of the 777. The system worked
so well that only a nose mockup (to check critical wiring) was built before
assembly of the first flight vehicle, which was only 0.03 mm out of alignment
when the port wing was attached.
Boeing
understood that all stakeholders had to be involved in the project for it to
succeed.
- Customers were
brought into the design phase and contributed over 1,500 design features
- Engine
manufacturers were brought to the table together with Boeing engineers and
customers and received over 200 suggestions
- 30 national and
international subcontractors and manufacturers were given access to the
company design system and highly confidential design specifications
- Managers and
factory workers were encouraged to speak up, offer suggestions, and
participate in decision-making
By the end of the project, achievements in airplane interior flexibility, aircraft design improvements, and manufacturing speed and efficiency stood out and cemented the company’s position as the world leader in the design, development, and manufacturing of commercial airplanes.
Return to Outline
1. What are the dynamics of competition in the commercial aircraft industry?
With
the enormous risk of failure, the large commercial jet makers had been reduced
from four in the early 1980’s to two in the late 1990s. In the 1970’s, the Boeing 747 program helped
them solidify its position as the industry leader for years to come. At this point, Lockheed Corporation exited
the industry, leaving McDonnell Douglas and Airbus far behind. In the late 1980’s, Airbus had just launched
two new 300-seat wide-body models. They
did this in order to compete with Boeing Corporation. In August 1997, Boeing completed its acquisition of McDonnell
Douglas. The primary rationale for the
acquisition was to make Boeing more diverse and thus less vulnerable to the
cycles of the commercial jetliner market. Yet an important secondary rationale
was to bolster Boeing's position in that market, relative to arch-competitor
Airbus.
The
return on investment period in the industry is very long and the required
investment is extremely large. Aircraft
manufacturers can expect initial investments of up to $15 billion, lead times
of up to 6 years, and cash drain throughout the development phase. Even after successfully completing a new
product line, about 400 airplanes need to be sold with sustained annual sales
of at least 50 airplanes just for the company to break even.
The
dynamics of competition are also impacted by the fact that one airplane
component, the engine, can take longer to develop and cost as much as the
entire aircraft. Known engine manufacturers
are General Electric, Rolls Royce, and Pratt & Whitney. Without engines, not only are airplanes
unusable, but the very survival of the airplane manufacturer can rest on the
ability of their engine manufacturing partners to deliver. Boeing experienced this pain during the
early 1970s when according to T. A. Heppenheimer “The
Company went deeply into debt to fund its development and initial production
(of the 747 model). But it couldn't
deliver the early models, because their engines were not ready. Then the nation
went into a recession, and orders dried up. Boeing came close to going
bankrupt, but survived by selling improved versions of earlier jets, including
the 707 and 727”.
In
this industry, being competitive and innovative is very important. With the cost of production and research,
the airline companies needed to match their competitor’s products to
succeed. Most importantly, they need to
match customers needs and anticipate changes such as increasing fuel prices,
need for added security, increasing government regulation, etc. As history has proven, many companies could
not compete.
Return to Outline
2. In what ways did Boeing
limit the risks of the project?
This
project was basically an “all in” situation.
A failure of the 777 project would have eroded investor’s confidence,
reduced shareholder’s value, and threatened the survival of the company. We believe Boeing did an excellent job in
limiting risks. Following are some
examples:
- The decision to
design and develop the 777 was market driven and based on forecast
analysis and estimates of future demand
- The strategic
vision for the product was on target and ensured broad appeal by airline
companies and the traveling public. “Best dispatch reliability in the
industry, greatest customer appeal in the industry, … do it right the
first time and with the highest degree of professionalism”
- The company
obtained a minimum number of firm orders from interested carriers. On October 12, 1990, United had placed
an order for 34 777s and an option for an additional 34 aircraft. Two weeks later Boeing’s board of
directors approved the project
- Boeing required
subcontractors to share a substantial part of the airplane’s development
costs. In the past, with the 747,
Boeing had six major subcontractors fabricate 70 percent of the value of
the plane
- Boeing outsourced
many aspect of the manufacturing of the jet. Twelve international companies and 18 US companies were
contracted by Boeing to help manufacture the 777
- The company
introduced new design technologies and manufacturing processes to reduce
the lead-time and negative cash flow period for the product
- Senior management
demonstrated and encouraged a new culture based on open lines of
communication and employee involvement in decisions
- Unions were
involved, participated in the cultural change, and approved work
methodologies and job requirements, thus limiting any potential labor
relation problems or strike
Return to Outline
3.
What were the weaknesses of the 777 program and what should the Boeing
Company do about these weaknesses?
Although
this project has proven to be a HUGE success for Boeing they still had some
weaknesses/ problems with the project.
- Boeing relied
heavily on computer-aided design utilizing a software system called Catia. With Catia, the company was clearly
ahead of the technology curve. Growing pains resulted from frequent
software problems and increased costs due to slow computer power. During the early 1990s, the powerful
and increased processing speeds common computers today and programming
methodologies such as object oriented programming were not part of the
landscape
- There were attempts
to manage the supply chain by giving outside suppliers and partners access
to the company’s design system and product specifications. However, not all suppliers were able to
access the system and benefit from an integrated design approach
- It was difficult to
change the engineer’s mind set from a 2D (two dimensional) environment to
a 3D (three dimensional) environment.
Process change is very difficult and requires ongoing training and reinforcement
by management. The company lost
some seasoned engineers that could not assimilate the change from a paper
based design model to a digital based environment
- While the open
management strategy and cultural shift was correct, it was very difficult
to implement. Team dynamics were
not fully functional. Some team
members didn’t perform, some managers were unable to deal with
team-related problems; and in some instances, management or employees
actually ignored the new rules and sabotaged the new processes. Perhaps a more thought out approach
coupled with extensive team dynamics training and team productivity
measuring tools could have alleviated the situation
· Unlike their competitor, Airbus, Boeing was not able to implement lean manufacturing strategies with its suppliers to reduce inventory management and administration costs.
We
believe these weaknesses are not indicative of a project in trouble or failing
but rather an indication of the level of difficulty such a large-scale endeavor
entails. In spite of its weaknesses,
the company was able to complete the project, leapfrog the competition, and
solidify its position as a world leader in the commercial aircraft
manufacturing industry.
Return to Outline
4. Following the introduction of Boeing 777, where is Boeing still
vulnerable?
We
believe that are a few places where Boeing is still vulnerable. First, Airbus distinguished itself from
Boeing by incorporating the most advanced technologies into its planes. Second,
Airbus managed to cut costs by utilizing a flexible, lean production
manufacturing system that stood in stark contrast to Boeing’s mass production
system. Third, Boeing relied on
estimates of what the demand would be for its craft. It had a few orders in hand, but proceeded without obtaining the
desired 100 orders that the CEO had planned to obtain before asking the board to
launch the project. Boeing is vulnerable
to any world events that could take place that would delay the production or
need for enough aircraft to make the venture profitable.