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SECTION 1

Executive Summary
The current paper discusses the different in the operation management strategy of Boeing and
Airbus. Boeing 787 Dreamliner has been facing a lot of technical and logistic issues, and the
paper tries to understand why these issues have been occurring. Airbus and Boeing form the
duopoly of the aviation industry. Boeing is owned by an American company, while Airbus is
from the European Union. These two have been in competition in the aviation industry for more
than a decade now. This paper focuses on the dream project of both the companies: Boeing 787
Dreamliner and A80 Airbus. Taking into account the current management strategy, the paper
analyzes why the Dreamliner of Boeing is facing so many quality and supply related issues.
Various factors of operation management emerge as the issue in the company. Supplier
management emerges as the major area of concern. The company has too many suppliers which
are spread across different geographical areas. The large number of suppliers makes it difficult
for the company to control the quality and the delivery schedule of these products that are
delivered. Another concern which emerges is the lack of proper control over the quality and
safety issues associated with the project. Since the project of Dreamliner was already delayed,
the company seems to be cutting corner with respect to the safety and quality.
Keeping this in mind, a list of suggestions is recommended so as to resolve the issues. The
comparison is also made in terms of the project management and IT tools used in both the
companies to understand the reason for the difference in the performance of the company. This
paper focuses on different concepts of operation management that can help the company in
future.

Introduction to the Chosen Organizations


Airbus and Boeing form two sides of the modern airline economic landscape. One represents the
United States, while Airbus is from the European Union. These two have been in competition in
the aviation industry for more than a decade now. This paper focuses on the dream project of
both the companies: Boeing 787 Dreamliner and A80 Airbus. Taking the case of these two
aircrafts, this case study tries to understand what went wrong with the Dreamliner to unseat it
from its top position in the aviation industry.
Operation management is essential for the success of any project: be it a simple project or the
complicated project of development of the aircraft. This case study starts with the aspects of
operation management as the root cause of the failure of the Boeings Dreamliner. Operation
management, in simple words, is the process through which the management of the process that
converts input to output takes place. It is a systematic approach which takes into account
different issues faced by the organizations. The basic idea behind the whole process of operation
management is to lower the cost to the minimum value while earning the maximum profit from a
system (Mahadevan, 2010).
This paper studies the operation management system followed for the development of Airbus
380 and 787 and tries to understand the reason why Boeing 787 is losing share to its competitor.
The last section of the paper will further suggest the methods through which Boeing 787 can
control the different quality and schedule related issue it is facing in the development of the
Dreamliner.

History of Boeing
Boeing as a company was established by Mr. William Boeing in the year 1916 with its maiden
flights being launched in the same year. After undergoing a lot of structural changes owing to the
change in the law in US, the companys largest aircraft Boeing 314 Clipper was first flown in
June 1938. This aircraft could carry 90 passengers on day flight and 40 during the night flight
became huge success and allowed the flight all across the world. The next model launched was
of307 Stratoliner, the worlds first pressurized-cabin transport aircraft. The specialty of this
aircraft was that it could fly at the altitude of 20,000 feet (Krugman 1986). The journey of
Boeing never stopped after that. It designed bombers during the world-war. Military aircraft
became its another advanced specialty (Leary, 1995). In 1950s the company started its first jet
airliner with a design of four engines meant for the 156 passengers, making it a leader in the
market. Next came Boeing 737 with three engines followed 727 with the twin engine concept. In
1970s, the Boeing 747 was launched which had increased capacity of 450 passengers. Further
versions were discovered to meet with the increased air traffic and passengers load.
The competition was quite stiff for Boeing from the beginning. In the year 2000 the competition
had reached its pinnacle, and Boeing was feeling the heat of the competition. Airbus and Boeing
were fighting tooth and nail for the market space, and the share prices of Boeing were falling. It
was at such a time development of 787 Dreamliner was announced. The idea was to develop an
aircraft which is more comfortable as well as more economical. The company tried to reduce the
overall price of the product and at the same time tried to increase the value of the product
offered. Boeing 787 offered the efficiency of the operations, ability to take larger number of
passengers, and more area for the better comfort of the passengers. These features made the
Dreamliner an apple of eye for the company as well as for the prospective buyers.

Keeping this in view, the company decided on the development of 787 Dreamliner. The aircraft
promised the operational efficiency and improved comfort for the passengers. The features
resulted in pouring of huge number of orders for the aircraft. However, the Dreamliner was
delayed by almost three years. Instead of 2008, it made its first flight in 2011. Despite the delay,
not all issues were fixed. The plane was grounded due to the fire in the batteries in 2013 (Ray &
Stone, 2013).
History of Airbus
The second competitor in the current case study is Airbus. This is the European counterpart of
the company Boeing which has been giving competition to the company for quite some time.
The company is a leading manufacturer of military airlifters and the commercial jetliners. The
company was based on European agreement to develop the aircrafts in the continent. Since no
single country could afford the budget at that time, a loose consortium was formed between the
three countries of Britain, Germany and France to develop A300 (Airbus, n.d.).
After a lot of initial difficult days in which the Britain put out, A300, the first aircraft of the
company took flight in the year 1973. Since then the company has been growing and developing.
The company launched A320 in 1981 which was the first fly-by-the-wire plane. They evolved
the new design of the cockpit and introduced the two person concept for the cockpit. By 1998,
the company had managed to acquire around 50% of the market share.
Till 2000, the company was based on loose consortium of the agreement, but the companys
corporate structure underwent change in 2000. European Aeronautic Defense and Space
Company became the 80% shareholder of the company along with 200% of the shares being held
by the Britain.

Airbus 380 made came into operation in 2007, much before Boeings Dreamliner, and has been
in direct competition with the company. The company started out on a low note, but when
compared to Dreamliner, the company has been doing fairly well in terms of Airbus A 380.

Explain the aspects of Operations Management that both Boeing and Airbus have, how
they differ and which aspect of their OM practices contribute to the failure of Boeing 787
Dreamliner.
Introduction to Operation Management for airlines
The operation management involves the management of the process through which the inputs are
converted into outputs. For airline industries, the scope of operation management can be stated as
the following:
i)

Planning of the production based on the Forecasting of the different factors that affect
the aircraft production like the demand for the flight, the changing market scenarios,
the demand for the aircraft, economic conditions of the companies making the
purchase etc. The plan should include all the major estimates of timeline for the

ii)

development of the product


Organizing the activities as per the plan and allocating the man and machine for the
production. This organizing involves allocating the suppliers for the different parts as

iii)

a part of the operation management..


Staffing involves ensuring that there are sufficient and skilled workers for the lined up

iv)

process.
Leading and controlling the activities set out in the plan so that the product is
delivered as per the schedule and with the expected quality of the product.

Figure 1: Operational Management Model (Mahadevan, 2010)

Thus keeping the above four main factors in mind, it can be clearly summarized that the
operation management of the process includes the objectives of forecasting, standardizing, the
decision regarding make or buy, low procurement and storage cost, maintaining quality of the
product, maintaining good supplier relationships, maintaining an information system which can
help both suppliers and the company etc.
Boeings operation management and what went wrong
One of the biggest decisions of the operation management that a company has to make is the
make or buy decision. Sometimes, the decision of outsourcing is also taken. The reason for the
outsourcing can be many. It can be because a company wants to save the cost, or it can be
because the company does not have enough expertise to develop the products in-house, or it

could be because the company wants to focus on its core capabilities rather than focusing on the
different areas.
An aircraft manufacturing is a complex process which involves huge number of specialized
parts. Boeing 747 was going to be an innovation in itself. The company in the past only had
experience in making of the aircraft body of aluminium. Boeing 747 Dreamliner was intended to
be an airplane which is quieter and efficient. Hence the switch was made to the carbon composite
materials as the component for the main body. Since the company did not have any expertise in
the handling of these newer materials, they decided to outsource the parts. The newer materials
for which the company did not have the expertise were outsourced all across the world. The parts
of the airlines came from as many as fifty different countries. It was expected that since the
airplane is going to be purchased by many non-US companies such an outsourcing process will
be helpful as it will help in building of the confidence among the customers. It is worthwhile to
note that for Boeing Dreamliner, the company outsourced almost 65% of the airline body.
On the other hand, Airbus also outsources, but all its parts are outsourced from Britain, Germany,
France and Spain, and then these parts are assembled in France or Germany. The outsourcing
percentage is limited to 25% only in this case (Jones & Robinson, 2012).
The above comparison throws light at mainly what went wrong with Boeing. The fire of 2013
which resulted in grounding of the aircraft had been a result of battery problems, but the no
company is able to recreate the similar scenario that will result in the problem. And hence as
such, the quality of the battery has not been proved yet in the similar circumstances (Irving,
2014). One of the professors as MIT puts it that the system integration might have been the

problem (Eppinger, 2013). And if thats the case, there is a red flag over quality and testing of the
whole integrated equipment.
In terms of operation management, the companys problems can be listed out as follows:
i)

Production of Boeing Dreamliner was delayed because of the outsourcing problems it

ii)

faced.
In order to meet the timeline of the product, safety and quality norms were

iii)
iv)
v)

compromised which further resulted in the delay in the commercial operations.


Control over the quality and manpower became the issue in such cases.
Insufficient testing of integrated product after outsourcing.
There was no proper follow up of the schedules in the whole scenario. All the follow
ups were done online in which the information was mismanaged.

Examine the need for any suitable change in Boeings Operations plan.
As we have seen above there is a huge need to change the operation plan of Boeing. This is not
only necessary from the perspective of the company, but from the perspective of the passengers
as well. Since the company faced a lot of issues concerning the Dreamliner, it is understood that
there is a need for the change in operation management. Following are the major areas of
operation management of Boeing that needs to be changed:
i)

Better Risk management: Since the company went overseas for their spare parts in
order to save cost, it is essential for the company to implement the better plan for risk
management. Hedging of financial risk is something company should look into

ii)

especially if it is focusing towards the new product development (Denning, 2013).


Supplier Chain management: The second place that company needs to relook is its
supplier chain management. Suppliers are essential part of the manufacturing process,

and better supplier change management will prevent the quality issues as well as the
delays in the supply of the spare parts. Thus supplier chain management is something
iii)

company should focus on (Denning, 2013).


Better integration testing: This is the current major issue. In one of the articles in
Harvard Business Review, the author explains that in developing a system as complex
as Dreamliner, the company needs to check integration of the different elements and
how well they work together. Anticipated problems and interdependencies can then be
resolved easily. Otherwise the problem escalates during the operation stage. Better
integration testing will ensure that all such problems are weeded out before the

iv)

aircraft is launched further (Allworth, 2013).


Better Strategic management: An article in New Yorker explains that the whole issue
regarding cost cutting emerged after McDonnell Douglas acquired the company. This
resulted in the change in the strategy of the company. The cost-cutting became the
new mantra, and the management failed to understand the different approach needed
for a complex and new product like Dreamliner (Suroweiki, 2013). Hence it can be
said that the strategic management which defines and understands the market and
product better could have been a better idea in the company. Such strategic

v)

management will prevent such further problems in future.


Better material management and production planning: The company can do better
with the process of production planning and material management in order to make

vi)

up with the delays in the process of procuring the material and delays in production.
Reengineering: This is another step the company can adopt in order to improve the
quality of the product. Although in case of aircrafts, this can be quite expensive
technique, the option is still available to the Company.

vii)

Preventing the bullwhip affect to avoid delays: This occurs when the information that
is passed on regarding the supply is distorted. The companies need to prevent the
bullwhip effect to avoid all kinds of delays in the project.

Develop an operations strategy that could solve the problems of Boeing in this 787
Dreamliner project.
The biggest challenge before the company is to find the defective parts and make a system to
correct/repair them without any time delay. In order to ensure that, two methods are suggested:
i)

Checklist method to be used: Checklist method of checking the things before flight
has been around for a long time, but the method was utilized commercially by Boeing
first. In the year 1934, when US Army complained that the airplane crashed because
of the difficulty in operation of the plane, Boeing utilized the checklists to mark off
the things needed for the flight. That method proved so helpful that the same was
utilized by Apollo Space program as well (Mitchell, 2016). The same checklist can be
utilized to ensure the healthiness of the planes before flight and before releasing for

ii)

flight. This will ensure the safety of the flight.


Fishbone technique for total quality management: The fishbone technique helps in
analyzing the cause and effect for any situation. For different quality related issues,
the fishbone technique should be utilized to develop the cause and effect diagram and
find the reason for the different faults in the system. The causes can be either human,
machine, material or method as shown in the diagram below.

Figure 2: Fishbone Analysis of Causes of Failure

Machine

Human

Fault in the machine supplier


Wrong design developed
Mistake in BOQ Generation

Wrong machine selected

Machine did not integrate well with other parts


Technical Failure of Boeing Dreamliner.

Human error in testing at different phases

Wrong method of SCM selected

Improper vendor selection and approval process

Wrong material selected


Expertise not available for selected material

Poor integration testing process


Wrong specification and BOQ.
Process

Materials

PDSA technique for the improvement in the quality: The company can follow PDSA technique
to analyze the kinds of fault that are occurring and how these faults can be reduced.

Figure 3:PDSA Cycle

iii)

Flowcharts: Flowchart involves development of a block diagram which shows the


steps of the process. This kind of process diagram helps the failure analysis team in
knowing how the system of the product or the process development works. This
further helps them in doing the detailed root cause analysis. The operational block
diagram for the Boeing 787 in major blocks is as listed below:

Understanding the
design requirement for
Dreamliner

Finalization of the SCM


strategy

Development of the
specification.

Scanning of the
market for potential
suppliers

Development of Bill
of Quantities

Finalization of the
vendors for different
tiers

Floating of the
enquiry to the
potential bidders.

Technical and
Financial Analysis of
the vendors.

Competitive bidding

Finalization of potential subvendors.

Finalization of the suppliers

Communication with the venodors


regarding the project.

Ordering of different parts.

Finalization of vendor.

Detail design of the project

Follow-up and monitoring of selected


vendors

Alteration in BOQ as per the


drawing/document review.

Quality check at suppliers' work.

Manufacturing clearance .

Technical help in development of the


suppliers.

Receipt of the integrated parts.

Testing of the different parts integrated.


Final integration of airplane at the shop
floor.
Integrated testing of the plane.

Identification and rectification of faults.

Release of the aircraft in the market.

iv)

Control Charts: Control charts are the quality management tools that can be utilized
to see if the product or the process is working within the prescribed limits. This will

v)

help in judging the whether the aircraft and its various functions are in control or not.
Pareto Technique: Pareto technique is used to identify how important each item is to
verify its impact on the quality of the whole product.

Figure 4: Example of Pareto Analysis

vi)

Failure Mode and Effect Analysis: FMEA is a structured approach to root cause
analysis that starts by listing out all the things that can go wrong. Each of them are
then rated based on the frequency of occurrence, probability of occurrence and
severity of the impact. These are then rated in order to find the most critical of
failures that can occur.

Furthermore, the company needs to improve its supplier management. Following is mainly
suggested to improve the supplier management for Boeing:

Maintaining the closer to home suppliers: A lot of suppliers of the Company were
from foreign land. In fact the research showed that these suppliers from as many as 50
countries. This became a logistics nightmare for the company. Moreover as many of
the suppliers were not technically suitable, company had to send its own engineers to
these countries. This added to the total budget as well as the total time of the

ii

production for the company.


In house Development: The development of aircraft calls for a lot of parts of different
technical expertise. Outsourcing them looks good on the paper, but in the longer run
proved disastrous for the company. It would have been better had the company

iii

worked in house to develop the core competencies as in other project of theirs.


Assessment of the Technical Expertise of the Suppliers: Many of the technical
suppliers of the company were technically not expert enough to develop the required
sensitive parts for the Dreamliner. This added to the problems faced by the company.
Proper assessment of the suppliers will help the company as they will be able to
outsource the product to the companies which are expert. This will improve the
quality, reduce the overhead cost of the development of technical skills, and will

iv

reduce the lead time for these parts as well. (Forbes, 2013).
Reducing the Supplier Complexity: The company divided the suppliers into three
different tiers. Tier I were the suppliers who took the supplies from tier 2 suppliers
and integrated the major parts. Tier 3 suppliers were basically the supplier of Tier 2
suppliers. This reduced the control of the company over tier 2 and tier 3 suppliers. It
also called for technical expertise of Tier 3 suppliers. Thus it is essential for the
company to reduce the complexity so that they can control the situation of the
suppliers better. (Forbes, 2013).

Close Tie-Ups with the Suppliers: Close tie-up with the suppliers will help the
company in keeping the quality control over the products manufactured. The
company tried to use the model of Toyota, but could not adopt it fully. Adopting such
a model will be very helpful for the company as the quality of the components will

vi

not be compromised (Forbes, 2013).


Better communication: Communication is the key to success in such a supplier chain
network. Thus the company should focus on the better communication technique so
that it allows the company to get the real time information about what is happening
with the suppliers. The current software used by the company had many loopholes
and was misused by the suppliers by giving the wrong information. Steps should be

vii

taken to avoid such problems (Forbes, 2013).


Better Team Involvement: Better communication within the team will also be helpful
as it will help in the development of the product and coordination better. Rather than
the blame game, which is evident in companys management interview, the focus will
be on finding the solution to the problems (Forbes, 2013).

Many companies believe that outsourcing can be a big breakthrough in the saving process.
Boeing made the same mistake. But it should be understood that outsourcing does not result in
profit always. The decision of make or buy is dependent upon many factors and one of the
factors is the complexity of the items, and the technical expertise that is available for them in the
market. Boeings biggest failure lies in not understanding this fact. The parts outsourced were
fairly complex and called for the technical expertise which nobody else in the market had. Had
the company focused on developing the core parts in-house, they would have been better able to
solve the quality related concerns, do the testing, and save the overall time and cost. Besides they
would also have had the skill for the future.

Understand and evaluate the current supply chain management practices and suggest any
improvement if needed.
Before the Dreamliner came into the picture, Boeing was a pioneer in manufacturing the aircraft.
They had the expertise as well as the capability to perform even the most difficult of the tasks
associated with the manufacturing process. Many of the subparts were manufactured in-house
only giving the company an advantage of controlling the quality. The company was not much
dependent upon the suppliers. But the Dreamliner, the company changed its position and focused
on outsourcing of the products. The sub parts and sub assemblies were taken from a global
supply chain model. The product suffered from the process complexity as well as the supplier
complexity. While the parts needed were to be precise and as per the specifications, the
manufacturers/suppliers of the parts did not have enough expertise or experience in supplying
such products. This caused huge delays in the project and the companies lost a huge amount of
money as well (Denning, 2013).
In Boeings supply chain, three kinds of outsourcing emerge: the Tier 1, Tier 2 and Tier 3
outsourcing. The following figure shows the outsourcing process of the company. The products
were purchased by the sub vendors which were then assembled by some other suppliers. These
subassemblies were then sent for the integration to the central hub of the Boeing (Tang,
Zimmerman, & & Nelson, 2009).
.

But this outsourcing became a huge problem for the company. The company had expected to
develop the aircraft much before the time and to provide the value creation without any
financial risk, but the results were much different.
i)

The aircraft manufacturing was delayed and the company had to pay huge penalties to
the customers. Huge expenditure had to incur as the company sent the engineers all

ii)

over the world to help the suppliers in providing the required material.
The management was reshuffled completely to take care of the issue, and the
company also had to promise their labour about reducing the dependence on the
outsourcing system. Overall, the company suffered quite a huge amount of loss in the

iii)

process.
Earlier when the product was manufactured or outsourced, a tight control was kept
over the quality of the product. The engineers understood how the products will
respond to one another. The quality checks were stringent and the overall process was

better. But now, in the current scenario, the huge amount of outsourcing resulted in
difficulty in controlling the quality or verifying the integrated performance of vast
number of outsourced products. This has been called as one of the reason for the
companys failure (Cohan, 2013).
The Airbus works with the contrasting facility. The core competency and development of the
core skills have been kept in-house in the company. The subassemblies are outsourced from
mainly four different countries: France, Germany, Britain and Spain, They work in closer
cooperation with their suppliers and usually associated with them during the Tier 1 stage itself.
This allows company to involve the suppliers during the design stage itself and smooth out any
lingering issues of the manufacturing. The suppliers undergo a manufacturing watching in which
the company keeps track of the financial as well as the technical performance of the suppliers
(Mocenco, 2015).
Thus it can be seen that the supplier chain for both the companies is quite different. For Boeing,
the supply chain is spread across huge global areas, while for the Airbus, it is limited to some 30
suppliers.

Project management that has to be designed to ensure Boeing completes the defects on time
with the help of a PERT / CPM diagram and a GANTT Chart
In order to control the defect analysis and ensures all the changes are done in time, the company
need to follow the tight schedules. The first thing that the company needs is to identify the reason
for the problems. Fishbone diagram can be helpful in analyzing that reason for the problems.
Integration testing and field testing can also be helpful in finding the cause. Following are the
major tools the company can use for the process of completing the project in time:

i)

Project forecasting: This is carried out to forecast the timeframe for each activity in
the project as well as the cost of the activities. The historical data can be used for the
process, and the quantitative model of cost and time forecast can be prepared. This is
then developed into extrapolated to the future to develop the forecast. Different
forecasting methods can be used for the project. Some of these are listed below:
a. Delphi method: This is a qualitative method in which a third party is hired to do
the forecasting of the project
b. Time Series Analysis: This can be done by using the past historical data, weighted
average method or exponential smoothing method.
c. Regression forecasting: This can also be used to develop the demand and the

ii)

various factors that affect the demand of the product.


Project Planning: Once the forecast is made, planning is the next step. In this step,
different task is allocated to different authorities/departments/individuals and the
timeline is prepared for the same. The tools used for the process are Gantt Charts. To
analyze the critical activities, CPM/PERT is also produced, which helps in analyzing
the most critical activities. Primavera can be used for making the process of planning
easier and smoother. Project budgeting also needs to be assured so that each of the
individual is aware about the project. Other options that can be used for the same is
development of assembly drawing, the bill of material, operation process charts etc.
WBS shall be developed for the project so as to divide the responsibilities among the

iii)

different parties.
Project Monitoring and Control: Monitoring and control of the project is essential for
the company. The monitoring will allow the company to see if they are lagging in the
schedule, and the control will allow them to take the corrective actions. These two
together will ensure that the company stays within the schedule (Badirul, Badiru, &
Badiru, 2011).

CPM/PERT diagram for the activities


List of activities thus can be listed out as the following list:
i)
ii)

Development of the process flowchart: 1 month.


Finding of fault using the techniques described like checklist, FEMA, Cause and

iii)
iv)
v)
vi)
vii)
viii)
ix)
x)
xi)

Effect analysis, flowchart, control diagram etc. : 6 months


Analysis of the vendors and the facility from where the parts were taken: 1 month.
Preparation of final fault report: 1 month.
Reengineering of the faulty part: 2 months
Reassessment of the vendors and their sub-vendors: 1 month.
Ordering and supply of the part of the faulty part(s): 3 months
Testing of the parts in the facility: 1 month
Reintegration of these parts: 1 month.
Final Testing: 1 month
Final launch in the market: End of the project.

Process numbers
and precedence
1

Start

Most
Likely
time

Delaye
d time

3-5

Flow chart
Development
Finding of fault
Vendor and facility
analysis
Final Report

5-6

Reengg

4-7

Reassement

0.5

1.5

6-8

Ordering and supply

0.5

1.5

7-8

Ordering and supply

10

8-9

Testing of the parts

0.5

1.5

11

9-10

Reintegration

0.5

1.5

12

10-11

Final Testing

0.5

1.5

2
3
4

1-2

Earliest
Finish Time

2-3
1-4

Finish

0.5

1.5

0.5

0.5

1.5

Expect
ed
Activit
y
Time(T
)

Varianc
e(V)

1.00
5.67

0.03
1.00

1.08
1.00
2.33
1.00
1.00
3.00
1.00
1.00
1.00

0.06
0.03
0.44
0.03
0.03
0.11
0.03
0.03
0.03

11
2

10

1
4

Acitivit
y No.

Name of the work

1-2
2-3
1-4
3-5
5-6
4-7
6-8
7-8
8-9
9-10
10-11

Flow chart Development


Finding of fault
Vendor and facility analysis
Final Report
Reengg
Reassement
Ordering and supply
Ordering and supply
Testing of the parts
Reintegration
Final Testing

Expected
time=T
1
5.67
1.08
1
2.33
1
3
3
1
1
1

ES

EF
0
1
0
6.67
7.67
1
10
2
5
14
15

LS
1
6.67
1
7.67
10
2
13
5
6
15
16

LF
0
1
0
6.67
7.67
1
10
2
13
14
15

Slack
1
6.67
1
7.67
10
2
13
5
14
15
16

Thus CPM for the project is 1-2-3-4-5-6-7-8-10-11 with total time period of 16 month as the
optimum time. The average value of the variance in the time comes to 1.78 months.

0
0
0
0
0
0
0
0
6
0
0

Gantt Chart for the activities

Critical analysis of the tools that Boeing and Airbus make use of
Boeing
Boeing has utilized a large number of tools already to manage their project better. A few of these
are listed below:
i)

Cost Estimation: The Company has utilized the cost estimation tools for their process.
They have decided the break even techniques based on the cost estimation techniques

ii)

in past as well in case of Boeing 787 (Gardiner, 2005).


Supplier Management: The Company has set up the supplier management plan which
distributes the risk to the suppliers. As a lesson learnt from Boeing, the company has
developed better supplier management plan (Mahadevan, 2010).

iii)

Project Scheduling: The Company uses project scheduling as a plan to manage the
operation of the project. Although it had not been successful in case of the

iv)

Dreamliner, the project schedule is evident in all the communications of the company.
Project Communication: Although communication is not necessarily an operational
activity, it does form an important part of the operation as it helps in retaining the
trust of the shareholders. The current schedule clearly indicates that the company is
committed to the communication.

Airbus
i.

Lean Management: Airbus follows the policy of the lean management. The company has
adopted the lessons from the other car manufacturers like Porsche and Toyota and

ii.

adopted the lean management techniques to manage their operation (Mocenco, 2015).
Supplier Management: The Company, like Boeing, follows a stringent policy for supplier
management. Regular audit of the suppliers is done and the risk of the project is
transferred to the suppliers as well. Before finalizing the supplier, due care is taken to
ensure that the supplier is technically acceptable and can meet the quality standards

iii.

(Mocenco, 2015).
Production management: The Company has utilized the better production management
features to ensure that the products supplied by them meets the demand and are efficient
in nature. The process efficiency and effectiveness is regularly evaluated. This production
management takes into account full cross-functional alignment and even more teamwork

iv.

so as to improve the existing production process (Airbus, n.d.).


Standardization: The Company has utilized standardization as a major tool to
manufacture the products so that the operation can be streamlined and wastage of the
product can be removed.

v.

Planning and Forecasting: A strong team works in the company focused towards the
planning and forecasting. This allows the company to overcome the competition as well
as the difficult situations in the company.

The role of IT in the case of both Boeing and Airbus


IT plays an essential role in the operation management. In both Boeing and Airbus, Information
Technology is utilized to keep the track of the project management. Following are major sections
where the IT is used in the process of operation management:
i)

Supplier management: Both Airbus and Boeing have maintained special software
which allows them to manage the suppliers and be in close contact with them. The
information sharing and monitoring happen through this software. Thus this software
is quite essential for the company. SCP and SCE software form the backbone of the

ii)

whole process of the supplier management.


Customer management: The information technology is also used in the companies to
be in close contact with the customers and provide them with the technical solutions

iii)

for the same.


Documentation Management system: Information technology also plays an important
role in the management of documentation. The storage of documentation as well as

iv)

the dissemination of the information is done through the programs only.


Monitoring and planning programs: Most of the project monitoring and planning in
both the companies is done through the information technology only. The dedicated
software is used for the purpose so as to ease the process of the company.

Conclusion and Recommendation


The paper discussed the operation management strategy followed in Airbus and Boeing. It was
observed that the biggest reason for the problems in Boeing is the integration of the technology
that was outsourced from different vendors. If the integration of these components could be
tested beforehand, such problems would not have emerged. Hence the biggest suggestion to the
company is made regarding the supplier management and the management of the quality of the
sub vendors. The quality of the components together decides the quality of the final product, and
hence the control of suppliers is of prime importance. Also it is observed that it would be better
for the company if the core products of the company are manufactured in-house or in nearby
locations so as to help the company. Lastly, it is suggested that the company utilize the project
management techniques like PERT and CPM to develop the defect repair plan to achieve their
previous status.
Recommendation
i)
ii)
iii)
iv)
v)
vi)
vii)
viii)
ix)

Maintaining the closer to home suppliers


In house Development of core competencies
Assessment of the Technical Expertise of the Suppliers
Reducing the Supplier Complexity
Close Tie-Ups with the Suppliers
Better communication
Better Team Involvement
Better quality and safety framework
Integrated testing of the products

Bibliography
Airbus. (n.d.). EARLY DAYS (1967-1969). Retrieved 31 08, 2016, from Airbus:
http://www.airbus.com/company/history/the-narrative/early-days-1967-1969/
Airbus. (n.d.). Proven Concepts in Manufacturing. Retrieved 09 01, 2016, from Airbus:
http://www.airbus.com/innovation/proven-concepts/in-manufacturing/
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2016, from Havard Business Review: https://hbr.org/2013/01/the-787s-problems-run-deeper-t
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http://www.forbes.com/sites/stevedenning/2013/01/21/what-went-wrong-atboeing/#7c28d43d5aad
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09 01, 2016, from MIT Sloan: http://mitsloanexperts.mit.edu/a-systems-engineering-view-ofboeings-787-dreamliner-steve-eppinger/
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Paulgrave Macmilan.

Irving, C. (2014, 08 25). NTSB Doesnt Think the Boeing 787 Dreamliner Is Safe Enough to Fly.
Retrieved 09 01, 2016, from Daily Beast:
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Mahadevan, B. (2010). Operations Management: Theory and Practice. India: Pearson
Education.
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Mocenco, D. (2015). SUPPLY CHAIN FEATURES OF THE AEROSPACE INDUSTRY.
Scientifica Bulletien: Economic Sciences , 17-25.
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Retrieved 08 31, 2016, from Bloomberg: http://www.bloomberg.com/news/articles/2013-0124/boeings-787-dreamliner-and-the-decline-of-innovation
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Tang, C. S., Zimmerman, J. D., & & Nelson, J. I. (2009). Managing new product development
and supply chain risks: The Boeing 787 case. In Supply Chain Forum: An International Journal ,
74-86.

SECTION 2

Introduction
Supply chain management is essential for the success of the company in the current times. The
supply chain ensures the success of the company not in terms of the timely deliveries, but also in
terms of the quality of the product and service delivered. This paper tries to understand the
supply chain of an automobile industry. For this purpose, the company considered is Chrysler
whose supply chain strategy is discussed in this paper.
Supply chain refers to system of organization, people, information, technology, activity and
resources which helps in movement of the product or the service from supplier to the customer.
Such a system ensures that the products are developed from the raw materials and are received
by the customers (Ding, 2013).
Automobile industry is quite an interesting case study as it involves a huge number of
components. On one hand, different suppliers have to provide the raw material, and on the other
hand it uses rubber, glass and steel (Ding, 2013).
Chrysler as a company was started in 1924 when the company Maxwell-Chalmers was overtaken
by Walter Chrysler. In 1924 the first affordable luxury car was launched by the company. The
company maintained its status as the luxury car manufacturer in the initial times. Till 1960s, the
company was doing well , but the pressure on the company was mounting. The demand for
luxury car reduced and there was a huge competition from the international players in the
automation industry. The situation worsened in 1970s, and the company had to request for the
government help in the same 1970s to stay afloat. The loan of the company was paid in 1983
after which the manufacturing of the new vehicles restarted. The company went through the
turbulent times including being almost bankrupt in 2009 (Wikipedia, n.d.). The company is

currently owned by Fiat. Currently the Fiat Chrysler is a fully American company. Few of
vehicles produced by the company are:
i)
ii)
iii)
iv)
v)
vi)

Fiat
Jeep
Maserati
Chrysler
Ram
Dodge. (Wikipedia, n.d.)

Operation Strategy followed currently by the organization


This section tries to understand the strategy currently followed in Fiat Chrysler. The figure below
explains the supplier chain system followed by the company.

Figure 5: Supplier Chain for Wrangler (Ding, 2013)

As clearly seen above, the suppliers are divided into four kinds of tiers:

i)

Strategic Partners: These are the strategic partners of the company which work
closely. They are involved in all stages of the development of the product and their
input is preferred everywhere. These products are mostly high-cost products which

ii)

are supplied just in time. Low inventory is maintained for these components.
Operation partners: These also work in close co-operation with the company, but
these are not involved in the decision regarding the market change or the product
development. Such partners are mostly the suppliers of the large parts like the car

iii)

seats.
Arms-length suppliers: These are the suppliers of the standard products which are not
differentiated, but reliability is essential for these products. In order to ensure the
reliability, the product is selected from the supplier so that it is physically compatible
and reliable. The interaction between the company and the supplier is minimum.

iv)

Example can be the steering wheels.


Open market suppliers: These are the suppliers of the products like oil and lubricants
that can be procured over the eCatalogue or in open market.

The company has three main suppliers in its supply park itself: KUKA Toledo Production
Operations LLC (KTPO), Magna, and Ohio Module Manufacturing Co., LLC (OMMC). These
suppliers are located inside the manufacturing complex of the company and supply the product
directly to the companys assembly line. These three companies have further sub-suppliers which
are divided into Tier 2,3 and 4 and are managed by either a third party or the company itself. The
company named Exel is used to managing the contract logistics. The finished products are then
distributed using the trucks(Vonderembse, 2010).

Effectiveness of Current Strategy


This section of the paper tries to evaluate the pros and cons of the current strategy.

i)

The biggest advantage the company enjoys is that the absence of lead time. Since the
suppliers are located within the same manufacturing park, this helps the company
reduce the time of the supply of the major parts. Company also enjoys the control
over the quality and the production of these supplier. Furthermore, the company can

ii)

take into account the control of the subvendors of these companies as well.
The biggest disadvantage of such a system is that the company does not enjoy any
flexibility in terms of suppliers. In case of emergency in the factory, the whole
production will have to be stilted. Moreover, total dependence on only three
companies is not good for the healthy economy which can work only when the

iii)

growth of the company is regular. (Ding, 2013)


The inventory cost of the supply can be saved in such a scenario as the company

iv)

works on minimum inventory.


Relationship with the strategic supplier is already developed, and the company can

v)

hence enjoy the smooth supplier relationships in the process.


The disadvantage of such a system is that the company does not keep track of Tier 3
and 4 subvendors directly. Also, the company has no control over the dealers of the
products. This prevents the company from having the complete control of the system.

vi)

(Vonderembse, 2010)
The strategy is dependent upon smooth information transfer across different channels
of the company. Thus it becomes essential for the company to take into account the
information transfer across different channel.

In an automobile industry it is not possible for a company to manufacture all the varied parts
required for the manufacturing process, but Chrysler does maximum effort to control the supply
of major parts. However, there is no development of sub-suppliers seen in the plan. This means
that the company does not take keen interest in the sub-suppliers issue. This can be detrimental

for the total supply of the company as such issue might completely stop the production at one or
the other stage.

Suggestions for the improvement of Supplier Management


Keeping in view the pros and cons of the supplier management system of Chrysler, following is
suggested to improve the SCM of the company:
i)

Better coordination with the sub vendors: The company need to keep better track of
the sub vendors. This could be done either with the monthly report from the third
party or by tracking the social media and other market scanners. The problems with
sub vendors should be identified beforehand so that the alternate solutions can be

ii)

made.
Emergency plan: The Company is solely dependent upon its current main suppliers. It
is necessary that the emergency plan be made in case the problem increases beyond

iii)

the expected solution.


Better Supplier Information Management System: The success of such a lean business
is dependent upon the conveying of the right information at the right time. The better
supplier information system ensures that the information is gathered and maintained
for all the suppliers from the operational, financial, and stability point of view. Such
system gives insights to the various upcoming problems with the vendors. Also, the
system provides the option of setting up of newer vendors and establishing the check
for the same. One of the biggest problem cited by the groups dealing with the vendors
is the incomplete information about the vendor and supplier relationships. It is

iv)

possible to incorporate the CSR, QA, security and other checks in the SIM system.
Supplier Risk management: This is another technique company can utilize to manage
the vendors. The process involves proactive identification and assessment of vendor

related risk so that the right action can be taken for the same. Past has shown that it is
possible for the supplier to move from solvency to bankruptcy and such a change can
cause serious setbacks to the production. Supplier risk management shall be carried
out regularly to ensure that the suppliers are risk-free and any problems are taken into
v)

account (Kearney, 2013).


Use of the technologically advanced logistic system: The technological scenario has
changed drastically. For the product to reach the end supplier, the final product and
the raw materials mostly travel a long distance. The technology today allows the
company to use the advanced techniques which will not only help in keeping the realtime track of the material and product, but will also help in identifying the problems
that can arise.

Tools for improvement of supply chain management


The times have been changing and each of the manufacturers has different tools that they can
adopt to improve the supply chain management. Some of the tools that can be utilized by the
company are listed below:
i)

Real-time information system: As discussed above, information is the key to success


for the company like Chrysler which has just in time approach. The approach will
only be successful if the right information is provided to the companies at the right
time. To ensure that, a realtime information system is needed which can tell the

ii)

company about the need for the new part.


Real Time Dashboard for taking pulse of the supply chain: Controlling the main
supplier alone is not sufficient. It is essential for the company to assure that the subsuppliers of these main suppliers are also financially, technically, and operationally

healthy. To ensure that, a real time dashboard of the whole supply chain needs to be
developed where all the important supplies will be marked. The data for the
shipment, tracking record, existing inventory etc. can be marked in this dashboard
iii)

itself(Williams, n.d.).
ERP Application: Right ERP application can help the company keep all the
information associated with the vendors at one place. This allows the ease of
operation throughout the organization. There are many ERP platforms available to the
company, SAP being the most prominent one. It is essential for the company to select

iv)

an ERP system which suits its size.


Use of RFID in logistics system: RFID or radio frequency infrared detection is a
method which is used to track a particular part of the inventory. The use of RFID
provides the real time status during the logistics process. It makes the inventory
management more accurate, more efficient and faster. This further helps in reducing
the cost of inventory and the cost of storage of inventory. This also helps in preparing
the company for the upcoming problems against which the company can proactively

v)

take the action.


Material Requirement Planning: The material requirement planning or MRP is the
process through which the final material is planned. It is a planning, scheduling and
the inventory control system which allows the companies to keep track of the material
required. The system ensures that the right materials are available to the companies at
the right time for the manufacturing process.

Scope for future sustainability of the strategy


The current strategy followed by the company is quite beneficial. In fact Chryslar has brought
the Japanese SCM techniques in United States in its own way. But with respect to the future, this
might not be a feasible idea. The company currently only has one manufacturer for each of its
major parts. Although the company is influencing quite a lot of control over these primary
strategic suppliers, it is not a good idea for the future of the company. This can prove problematic
for the company as there will be too much of pressure in case of emergencies or sudden problem
with any of the strategic supplier. Similarly, leaving the sub-suppliers of these companies to the
third party might not be right idea as it can backfire in case of problem with the strategic subsuppliers of these suppliers. It is essential that the whole supply chain be monitored by the
company.
Thus in short it can be said that the company indeed follows a strong SCM, but the same can be
improved drastically over the period of time.

Bibliography
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http://referaat.cs.utwente.nl/conference/18/paper/7367/information-failures-in-valuechains.pdf
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f
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