Case Write Up: Group 1

Boeing: The Fight for Fasteners

Recommendations :
Some of the steps which Boeing could have taken for better and effective
implementation of FPM are listed below
a) Improvement in supply chain visibility : Boeing should use its IT
infrastructure in a better manner so that all the strategic suppliers
and partners provide timely information inputs through this channel
rather than waiting for alerts to generate a trigger. They also may
think of extending the IT infrastructure to major Tier-2 suppliers also.
b) Diligence in selection of strategic suppliers : Boeing should
properly evaluate the technical and supply chain capabilities of its
partners and try to select more capable Tier 1 suppliers which would
reduce the risk of potential delays.
c) Incentivize the Tier 1 suppliers : Though Boeing had a risk
sharing clause with its partners which penalised them for delays
but it should also have a contract in place which rewards them for
ontime deliveries.
d) Making Tier 2 suppliers aware of the benefits: Although after
the implementation of FPM, the tier-2 suppliers like manfacturers of
fasteners would have to charge lower prices to the tier-1 suppliers,
Boeing needs to convince them that the benefit they get in terms of
increased revenue and scale (because of the rapidly growing
airtravel industry, huge orderss for Dreamliner etc.) as now, the
distributors and secondary channels would be effectively out of the
picture, allowing the whole value to be shared by tier-2 & tier-1
suppliers and Boeing.
e) Proactive and capable management team : Boeing should have
chosen the right persons with relevant skills in supply chain
management so that they could have anticipated the supply chain
risks in an effective manner.
f) Improvement in Labour relations : There was a machinist strike
in Boeing which led to huge production and revenue losses for the
company.The dissatisfaction was mainly due to the aggressive
outsourcing strategy adopted by Boeing.It could have handled the
situation in a better manner by obtaining buyin from the labour
unions through job assurances and explaining that how the
outsourcing strategy will help the company as well as employees in
the long run.
Apart from the reasons given above, the rationale for these
recommendations would be clear from the following analysis.
Analysis Questions:
1) What could Boeing have done differently to avoid the fastener
crisis in 787 project?
a) Boeing used to follow the CBO model to source raw materials and
fasteners when they were doing the complete assembly themselves. In
the Dreamliner project, they followed the system integration supply chain
model and hence the parts were manufactured as well as assembled in
the Tier 1 suppliers establishment. They overlooked the fact that many
common commodities like fasteners, on which Boeing enjoyed preferential
pricing before, would not be available to the Tier 1 suppliers at the same
price and neither could they forecast the demand of such commoditites as
well as Boeing did previously. In short, they overlooked the fact that the
advantages they had when they were assembling will not be easily
replicable by the Tier-1 suppliers. They should have helped them in this
regard from the start of the project.
b) The fastener manufacturers were reluctant to add capacity after the
slowdown in the airtrvel market. Once the market picked-up again, Boeing
didnt do much to infuse confidence in the maufacturers that it will be
beneficial to them to increase the capacity now. Even if the Dreamliner
project was not following the system integration model, it is quite possible
that the fastener crisis would have still happened as the manufacturers
didnt have enough capacity to provide to the rapidly growing market.
They failed to look beyond the Tier-1 suppliers and overlooked the fact
that tier-1 suppliers didnt have the required control over the lower level
suppliers (which, in case of fasteners, were even consolidated). They
should have extende the same level of attention to the lower level
suppliers as well during the planning stage.
2) Describe the key elements of fastener procurement
model.Evaluate it with respect to different stakeholders.
In 2007 Boeings analysis of the shortage confirmed that there were
fundamental ordering and scheduling problems. Because fasteners are
used by Boeing as well as its partners, and each had its own way of
procuring them, the fastener makers were unable to get a clear picture of
demand. Above all, the process was not geared to forecasting demand.
Boeings study also revealed that the shortages might continue into 2012,
even if fastener makers had increased capacity.Boeing decided to
implement a programme that would change the fastener sector.The most
important changes would be better signalling of demand and the
aggregation of supply-chain management in one place for Boeing and its
six main production partners.
The new system, which Boeing named the Fastener Procurement Model
(FPM), would use a central purchasing system to manage orders and
inventory. It would also enable Boeing to negotiate a price directly with
fastener makers to ensure more favourable pricing, both for itself and its
partners. This was seen as key to encouraging the latter to implement the
FPM.In addition, Boeing and its production partners would make daily
updates on inventory levels in a central web portal, which would help
stabilise the supply chain.The fastener makers would be responsible for
replenishing inventory between set minimum and maximum levels.
Boeing would also develop a forecasting algorithm to help smooth
demand.
Challenges in rolling out the FPM quickly emerged.Boeings main partners
were worried that they would not benefit financially.To deal with this,
Boeing sent a formal request to the fastener makers asking for preliminary
pricing data. But many manufacturers were both unhappy at sharing
information on pricing and confused by the amount of information
requested.Moreover, Boeing had overlooked how important distributors
were to the supply chain. The aircraft maker realised it had to consider
more partners when planning FPM.Boeing also met internal obstacles. It
found that middle managers were sceptical of the claimed benefits and
were worried about unintended consequences.
3) Critique the implementation of FPM? What were the problems
encountered in rolling out FPM? Discuss about implementing it in
an effective way.
The FPM(Fastener Procurement Model) was implemented by Boeing in
order to improve the fastener supply chain for its 787 program.Because of
the complexities of the new design of 787 the supply chain of the whole
fastener industry got disrupted and both fastener spend and operational
risk increased dramatically.In FPM design the inventory management
would entail using a central warehouse to receive and distribute fasteners
to the entire Boeing supply chain.Historically,Boeings prices have been
one to five times lower than its partners prices.This low fastener price
would be a key incentive for partners to implement the FPM.Through FPM
Boeing tried to establish a clear value addition in the supply chain for all
its partners.This was accomplished to some extent through the
consumption based ordering(CBO) but it was not enough to address all the
challenges and complexities associated with the new design requirements
of the Dreamliner and supply chain dependencies.The FPM was designed
to efficiently forecast the future demand.Through FPM Boeing got the
control of ordering fasteners for itself and its partners.Boeing and its
partners were to make daily updates on a central web portal which would
help stabilise the supply chain.The fastener makers would also have to
keep a tab on the inventory levels through MIN/MAX system.A forecasting
algorithm was also developed by Boeing to smoothen demand.
But one of the problems was that although the system was centralised it
was not transparent enough in order to satisfy all its stakeholders.In
addition,involving more partners added to the complexity.Stakeholders
were skeptical of the complexities involved in the supply chain and were
not sure whether they will get the relevant data which they desired in
order to optimise their output.Thus there was a lack of trust among the
stakeholders. The Boeing FPM system, a collection of large supply chain
related database systems, evaluates mountains of data and predicts
potential demand/supply disparities - a comprehensive, but structured,
data environment. That approach is ideal for some visibility challenges;
but, it leaves the unstructured data to be dealt with by departments
across the supply chain using various communications outside the FPM
system's analytics.
Some of the issues in FPM which could have been addressed in an
effective way are discussed in the recommendation section.
4) Did Boeing use any learning from past ?

In designing the FPM, they surely used the learnings from the past when
they implemented the Min/Max system to improve supply chain of aircraft
parts in the 90s. They extended the Consumption Based Ordering (CBO)
system to the Tier-1 suppliers. The only problem was that the fastener
industry was much more convoluted and complex which led to various
unforeseen problems which didnt come up in 90s (like contracts between
Tier-1 suppliers and the distributors whom the FPM was by-passing).