Boeing revises supply arrangements of mill products
Procurement adjusts contracts to ensure supply during manufacturing boom
Tom Stundza, Executive Editor -- Purchasing, 10/6/2005 2:00:00 AM
Recently ramped-up production by Boeing Commercial Airplanes has sent parts and components suppliers scrambling for supply of semiprocessed titanium mill products. So, the commercial airplane manufacturer's purchasing group has rejiggered long-term contracts with a select number of mills, who will handle most of the required volume for the specialty metal by Boeing's fabrication centers and those of its top-tier suppliers.
"The new agreements secure the position of these supply chain partners as major suppliers of titanium to Boeing," says a spokesman for the company's procurement organization. "Since demand for commercial airplanes continues to improve, we believe these new agreements represent significant win-win arrangements for all the companies involved." Under the arrangement, a single distributor, TMX Aerospace of Kent, Wash., is involved either in secondary processing and delivery or managing the direct flow of mill products to Boeing manufacturing plants and key parts and components providers.
For titanium, there are just two key suppliers—Titanium Metals Corp. (Timet) of Denver and the Russian producer Verkhnaya Salda Metallurgical Production Association (VSMPO) of Moscow. Boeing renegotiated and expanded its direct mill supply agreements with Timet and VSMPO—who now will supply titanium mill products for commercial aircraft production through 2010. The aerospace firm also will buy some spot product from such other suppliers as Allvac (a Monroe, N.C. division of Allegheny Technologies) and RTI International Metals in Niles, Ohio.
Boeing admits in Securities and Exchange Commission filings that it is "highly dependent on the availability of essential materials and parts and subassemblies from our suppliers." It acknowledges that "the most important raw materials required for the company's aerospace products include titanium sheet, plate, forgings and extrusions."
Titanium marketplace is ablaze
Titanium is used in sporting goods, motor-vehicle parts, space gear, medical equipment and prosthetics, marine products, and power generation and chemical processing equipment. But it is the metals' aircraft markets—ranging from airframes to landing gear parts to jet engine rotor blades—that drive demand, and they all are red-hot. Mid-year shipments are running 17% ahead of the previous year. Nonferrous metals economist John Mothersole at Global Insight's office in Washington, D.C., says that "future order rates suggest a very healthy year in 2005."
That's why the International Titanium Association sees U.S. consumption at 50 million pounds this year. Commercial aerospace will consume 38% of that total, while the industrial/consumer and military sectors will each weigh in at 31%. Consumption in the U.S. was 42.5 million pounds last year.
The aircraft industry uses titanium metal—whether it is based on rutile or ilmenite minerals—because the final metallic is strong, lightweight, heat resistant, corrosion resistant and crack resistant. It has to be since myriad holes must be drilled through such advanced materials as titanium when fabricating the airframe of modern jetliners. Titanium also is used by Boeing and its components suppliers to manufacture such aircraft applications as ailerons, panel and swivel wing assemblies, spar walls, panels, brackets, steering wheels, wedge meshes, air intake ducts, thin-walled air-circulation piping, frames, leading edge flaps, hydraulic systems and even fasteners.
With the manufacturing of new airliners exiting a lengthy slowdown, buyers at Boeing and its Tier I and Tier II suppliers are raising concerns about supply and pricing of titanium-and such other key materials as aluminum, nickel-based alloys, stainless steel, copper and brass and composites. Many major components and product equipment items are procured or subcontracted on a sole-source basis with a number of domestic and foreign companies, according to a Boeing spokesman.
Although alternative sources generally exist for all key raw materials, qualification of supplier sources can take a year or more. That's why most of the metals are being purchased through the company's innovative distributor/mill supply system.
"What we look for are suppliers with good integrity that can demonstrate that they consistently produce mill products of aerospace quality, sometimes to special requirements, and deliver on time," says Rodney Boyer, a technical fellow for Boeing Commercial Airplanes. He oversees metals research and development activity at Boeing's Phantom Works advanced R&D facility in the Seattle area where he has developed new applications, supplier qualifications and purchasing requirements for titanium alloys used in airframes.
In its filing with the SEC, Boeing's management says the company is "dependent upon the ability of our large number of suppliers and subcontractors to meet performance specifications, quality standards, and delivery schedules at anticipated costs, and their failure to do so would adversely affect production schedules and contract profitability, while jeopardizing our ability to fulfill commitments to our customers."
So, Boyer tells PURCHASING in an interview: "We look for suppliers that are always trying to improve and develop new products or processes to improve their position in the titanium marketplace." But, at the moment, "everybody is having problems with raw materials," says John Gazecki, chief executive of Tacoma-based Precision Machine Works, a major hard-metal parts supplier for Boeing airplanes.
Boeing always has maintained an extensive qualification and performance surveillance system to monitor performance by suppliers. "That's why they must have good internal quality systems that can be approved to the numerous ISO-recognized international aerospace standards and the National Aerospace and Defense Contractors Accreditation Program requirements," Boyer says.
And that makes it easier for managers at TMX Aerospace "to coordinate the necessary information on supply and delivery and to eliminate waste throughout the supply chain," says Jeff Luckasavage, marketing support manager for the Kent, Wash.-based division of metals service-center giant ThyssenKrupp Materials North America. That's important because major trends of titanium use in aircraft building now include floor decking of the cargo cabin, landing gear, wing-section hydraulic cylinders and even more engine parts.
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