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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

Introduction

Discussion Questions

1.    What are the dynamics of competition in the commercial aircraft industry?

2.    In what ways did Boeing limit the risks of the project?

3.    What were the weaknesses of the 777 program and what should the Boeing Company do about these weaknesses?

4.      Following the introduction of Boeing 777, where is Boeing still vulnerable?

 

 


 

Introduction:

 

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. 

 

 

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


 

Discussion Questions:

 

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:

 

 

  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. 

 

·        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.