New era dawns at

By By TOM STUNDZA -- Purchasing, 8/10/2000 6:00:00 AM

With a European competitor flying close to their rear airfoils, top management of Boeing Co. has been revamping the commercial airplane organization in Renton, Wash., to expand sales and improve profitability. To cut costs and enhance quality, the group has been reinventing the way it designs and assembles jetliners and, most important, the way it manages the external supply chain and internal materials flow.

Alan Mulally, president of Boeing Commercial Airplanes Group (bcag), is pressuring his organization to focus on continuous improvement of quality and productivity "because that's what's needed to exceed our customers' expectations and to be competitive and successful in the world marketplace." Archrival Airbus Industrie won 55% of all large commercial airplane orders in 1999, and Mulally has pledged to recast Boeing to avoid a recurrence. At midyear 2000, bcag is leading with sales of 322, compared with Airbus Industrie's 239.

"So, it's no wonder that the only constant around here these days is change," says Russ Bunio, the supply management guru at bcag's purchasing offices in Lynnwood, Wash. "My job is to drive change down through the purchasing organization of the world's largest producer of commercial jetliners," he says. "That's to insure we have the best suppliers delivering quality parts to the manufacturing floor on time and at the lowest possible cost." The goal is to develop such close relationships with suppliers that a "Boeing City" can be developed later this decade. Under this concept, key tier-one suppliers would be "cottaged" within 30 miles of BCAG's six parts fabrication and airplane assembly plants. In turn, bcag and the tier-one suppliers would operate joint-venture subsidiaries "to orchestrate the sequenced just-in-time delivery of component systems to the factory floors."

Sounds ambitious, right? Well, consider this: Until the arrival of Mulally just two years ago, airplane assembly was logjammed, purchasing was disjointed, and materials flow was a disaster. In 1998, commercial airplane manufacturing plants assembled jetliners at their own pace, even though sales personnel had committed to delivery dates.

First, purchasing was reorganized

Just two years later, all commercial airplane programs have been consolidated within a single airplane program organization led by a new executive vice president, Jim Jamieson. All component fabrication and purchasing is under a new executive vice president, Jim Morris. Reporting to Morris, Bunio has reorganized purchasing leadership, coordinated buying and materials management into a single organization, consolidated and standardized supply contracts, implemented strategic sourcing teams, initiated best-practice programs, and launched professional purchasing management processes already standard in other manufacturing companies.

Since this consolidation, it has been determined that Boeing's commercial airplane group spends $16 billion annually to buy millions of part numbers annually. That's about half the $38 billion spent annually by Boeing as a corporation. Also, 50% of the cost of every Boeing-nameplate jetliner is based on purchased materials, parts, components and systems. "Commercial airplanes is, indeed, the 'Big Gorilla' among Boeing's three operating groups, in terms of the dollars spent," says Bunio. In fact, bcag spends twice as much annually as the Military Aircraft & Missile Systems Group and the Space & Communications Group combined.

Bunio says: "Purchasing decisions must be made on the basis of such factors as quality, service, price, delivery and best value. But, we don't want the supply base to bow to the 'Big Boeing' purchasing organization. Rather, we want our future relationships with suppliers to be based on mutual trust and integrity, and that will take some work."

bcag has around 3,100 suppliers and some have been vocal in their skepticism that Bunio's programs won't work or won't meet cost reduction, quality improvement and supplier partnership goals by his self-imposed 2002 deadline. Some of the grousing is sour grapes, he responds, since his plans include reducing suppliers to 2,700.

However, even he admits that some suppliers-comfortable with old Boeing purchasing systems-have been taken aback by Bunio's use of value-engineering programs to reduce the number of parts, develop supplier councils (that will force the supply base to be proactive participants in purchasing and supply management improvement efforts) and implement strategic alliances with key suppliers.

bcag's Supply Management & Procurement Division has 1,100 buyers and managers who annually buy millions of parts, commodities and systems from 3,100 suppliers in 37 countries. It is the only organization authorized to commit to purchase contracts. And there have been other changes since Bunio's arrival.

One of the most controversial new supply strategies Bunio implemented just months into his new job was a "lean procurement program" for aluminum, a key airframe and fuselage material. bcag selected one service center, the TMX Aerospace subsidiary of Thyssen Inc. N.A. of Detroit, to stock and process flat-rolled products and small and intermediate extrusions from five mills for the next decade. "This lean strategy allows us to better forecast our aluminum requirements, which will help ensure that an adequate supply of light metal is available to bcag and its external suppliers at a reasonable price," Bunio explains. The strategy is expected to result in significant cost savings across the entire supply chain, he insists. Previously, bcag and 500 of its aerostructures suppliers had dealt individually with more than 50 distributors, seven flat-rolled product mills and 14 extrusion mills. "By restructuring the supply chain, we are eliminating speculative demand and ensuring a continuous supply of raw material to bcag internal operations and external suppliers at the lowest possible contract cost," Bunio says.

Since half of bcag's total production costs come from suppliers, "they are integral to the success of our business." So, he says, there will be more alliances, partnership-style relationships and supplier councils. Suppliers will receive report cards so they can see where they are meeting expectations as well as areas where improvement is necessary. They also will be expected to recommend ways bcag can improve procurement. At the same time, Bunio says bcag "wants to be the preferred customer to suppliers who are willing to embrace the transition to a new partnership based on mutual prosperity.

"In the 21st century, cost reduction that leads to price reduction is the goal," Bunio says. "The result will be shared savings, delivering prosperity to the supplier and an affordable part to bcag and, ultimately, to the airline customer."

So, he says, suppliers can expect bcag to set clear performance expectations, provide accurate, realistic and timely design requirements, and be helpful and supportive. A major component of the new relationship will be the expectation that suppliers will deliver fewer parts but more higher-level assemblies to bcag. "Suppliers will be asked to work with bcag and network with other suppliers in value analysis/value engineering projects to deliver higher-level assemblies," he says. And he insists that such projects can work in commercial airplane manufacturing: When a similar effort was used in the production of the landing gear for the Boeing 777, the number of parts bcag assembly personnel were required to handle was reduced from 1,850 to three.

So, bcag has a "preferred supplier certification" process where suppliers are evaluated and rated against specific standards in the implementation of statistical process control, business processes and performance. Suppliers who meet or exceed the standards in the above categories are identified and recognized as preferred suppliers who are entitled to such additional benefits as selection preference, reduced inspections, industry recognition, and additional business opportunities.

What triggered the shake-up

Boeing virtually invented the jet age. After all, the company has built no less than 55% of all the jetliners in service today. That figure climbs to 80% with the addition of planes from former competitor McDonnell Douglas Corp., which Boeing acquired in 1997 for $16.3 billion. But, like a jetliner that kept hitting turbulence, Boeing spent months lurching through some stomach-churning rides in 1997.

After it absorbed McDonnell Douglas, the "new Boeing" was unable to meet promised deliveries for new jetliners in large part because of parts shortages caused by engineering purchasing and supply management snafus. To level the corporate airship and smooth out the flight into this decade, the world's biggest jetliner manufacturing group got a new management team, a new production system, and a new supply management czar with an agenda of process reform and waste reduction.

An embarrassing failure to meet delivery schedules forced the Seattle aerospace giant to take a $178 million loss in 1997-its first red ink in 50 years-and kept 1998 profits 38% below 1996 earnings. The problem: shortages of critical parts and a production system that could not keep up with the largest surge of new commercial airplane orders in the history of the jet age.

"During the second half of 1997, the company was in the midst of an unprecedented production rate buildup for commercial airplane programs and experienced a number of challenges, including raw material shortages, internal and supplier parts shortages, and productivity inefficiencies," remembers Phil Condit, chairman and CEO. "The production problems just proved how highly dependent the company is on the availability of essential materials, parts and subassemblies from its suppliers and subcontractors."

So, a lot of changes took place in 1998. The problems caused Ron Woodard to be replaced as president of Boeing Commercial Airplanes Group (bcag) with Alan Mulally, who had been president of what then was the Boeing Information, Space & Defense Systems Group. To resolve the problems in purchasing and materials management, what was then known as the Materiel Division got a new boss from outside the company-Bunio-as vice president and general manager of what now is the group's Supply Management & Procurement Division.

Bunio, 53, came to Boeing Commercial Airplanes Group from Cummins Engine Co. in Columbus, Ind., where he had been vice president of worldwide manufacturing support and chief procurement officer. In that position, he had been responsible for purchasing, logistics, manufacturing engineering, worldwide materials management and supplier quality assurance. Prior to that, he had been head of materials at New United Motors Manufacturing Inc. in Fremont, Calif., and earlier had held various materials management leadership positions with General Motors Corp. in the U.S., Canada and Mexico.

"My first year here at bcag was an exercise in damage control," says Bunio. "We had to reduce parts shortages from 1,200-1,400/day to as close to zero as possible, match up Boeing's and suppliers' responsibilities, and institute a lot of new processes just to keep aircraft assembly moving." What he inherited was an organization with some very strong purchasing systems but some very weak materials management systems lacking in focus, cost control, supplier quality, and internal customer support.

Today, delayed parts deliveries are down to 65-70 at any time, which Bunio says "is noise, considering there are millions of parts per airplane." And he believes the purchasing organization has been transformed into a "tough and aggressive, but fair, group" who understands their role in the supply chain. So, starting in 1999, Bunio and his deputy, Saundra Cope, instituted an ambitious series of programs to:

• Consolidate all bcag purchasing efforts to maximize buying leverage;

• Reduce the costs of purchased materials by 3%-5% annually;

• Reduce the costs of inventory, logistics, containerization and packaging, electronic data interchange and electronic commerce, bar coding and material handling;

• Develop purchasing and materials management best practices;

• Initiate "partnership-style" relationships with suppliers;

• Measure purchasing and materials management performance;

• Measure supplier performance; and

• Initiate supplier training and buyer-supplier value-engineering programs.

These are all part of the framework for "an evolving vision" of what Bunio calls "Destination 2002," where the Boeing Commercial Airplanes Group will be the preferred customer to its preferred suppliers. "These complex initiatives will help us promote this kind of reform throughout the purchasing and supply management and the supplier base." And that's becoming increasingly important as bcag strives to maintain its leadership position in commercial aviation by enhancing the performance and capability of its commercial airplanes to meet varied and changing airline requirements.

Commercial aircraft sales are subject to intense competition, primarily from Airbus Industrie of Europe, which last year controlled 34% of jetliner shipments worldwide. Still, three-quarters of all jetliners in service came from Boeing. And, results of a study released earlier this year indicate that four of the top five airlines preferred by U.S. travelers operate all-Boeing fleets. The study, conducted by researchers at Wichita State University and the University of Nebraska at Omaha, is based on data collected by the Department of Transportation. It showed that on-time performance remains a primary issue with flyers.

Boeing has evolved into the world's largest manufacturer of commercial jetliners and military aircraft, and the nation's largest nasa contractor. In terms of sales, Boeing is the largest U.S. exporter. Total company revenues for 1999 were $58 billion. And it all began in 1916 when William Boeing, a forest lands speculator and biplane pilot, incorporated an airplane manufacturing business in Seattle in 1916 as Pacific Aero Products Co. A year later, he changed the company's name to the Boeing Airplane Co.

The first 707 jetliners cost airlines $5 million each. Today's 717 is listed at $31.5 million. A 737 jetliner sells for $38 million to $64 million, depending on configuration, while the family of 747 models list from $174.5 million to $202 million. The Boeing 757s cost $69.5-84.5 million while 767s sell for $94 million to $132.5 million. And the new 777 models range in price from $142.5 million to $192.5 million. The second-generation Boeing Business Jet sells for $43 million before paint and the interior are installed.

Why so many suppliers

Bunio's organization has about 3,100 suppliers, of which a third are outside the U.S. That many are needed because millions of parts go into every commercial airplane. In fact, Boeing managers like to describe an airship like the wide-bodied 747 as six million parts flying in close formation." These jumbo jetliners-along with 767s and 777s-are made in a cavernous plant, a manufacturing complex inside a single 99-acre building in Everett, Wash.; in fact, it's the largest building in the world by volume at 472 million cubic feet.

Supplying all the parts to Everett-from something as large as a wing skin to something as small as a rubber washer-requires a complex supplier network. "We sell globally, so we buy globally," Bunio explains. That's why bcag supplier firms in Europe, Canada, Asia/Pacific and the U.S. provide components and portions of the structure. The largest single overseas participant is the Japanese aerospace industry. Led by Mitsubishi Heavy Industries, Kawasaki Heavy Industries and Fuji Heavy Industries, this group of companies supply 20% of the airframe structure to the 777 program.

The wide-bodied 777 was the first jetliner to use digital computers to design and electronically preassemble the entire airplane to increase engineering accuracy and provide a blueprint for improved manufacturing quality. Digitally defining the 777's parts, plans and tools allowed engineers to detect more than 10,000 part interferences in the initial computer modeling. Under the old system, tooling and assembly plans for the two million separate parts would not be validated until the first airplane began assembly in the plant. When those 777 parts, built all over the world, were assembled in Everett, they fit perfectly the first time.

The three-dimensional CAD/CAM engineering process eliminated countless thousands of parts with components and systems. But, it required new lightweight, cost-effective structural materials that purchasing had to source from existing and new suppliers.

For example, an improved aluminum alloy is used in the upper wing skin and stringers. Known as 7055, this alloy offers greater compression strength than current alloys, enabling designers to save weight and also improve corrosion and fatigue resistance. Progress in the development and fabrication of weight-saving advanced composite materials also is evident in the 777. Carbon fibers embedded in recently available toughened resins are found in the vertical and horizontal tails. The floor beams of the passenger cabin also are made of these advanced composite materials. Other composite applications include those on secondary structures such as aerodynamic fairings. Composites, including resins and adhesives, account for 9% of the 777's structural weight, compared to about 3% on other Boeing jets.

Qualification of new raw materials sources can take a year or more before purchasing orders can be issued. And, since the 777 has gone into production, purchasing personnel have maintained an extensive performance surveillance system. As the problems of 1997 underscored, bcag's ability to deliver jet aircraft on schedule is dependent upon a variety of factors, including execution of internal performance plans, availability of raw materials, and performance of suppliers and subcontractors.

And don't forget that the modern-day airplane has complicated electronic and electrical systems. For example, principal flight, navigation and engine information is presented on the 777 flight deck on six large display screens that incorporate advanced liquid-crystal "flat-panel" display technology. Three multipurpose control display units provide data display in color and entry capabilities for flight management functions and are the primary interface for the integrated Airplane Information Management System (aims).

aims provides flight and maintenance crews all pertinent information concerning the overall condition of the airplane, its maintenance requirements and its key operating functions, including flight, thrust and communications management. The flight crew transmits control and maneuvering commands through hundreds of miles of electrical wires, augmented by computers, directly to hydraulic actuators for the elevators, rudder, ailerons and other control surfaces. This three-axis "fly-by-wire" flight-control system saves weight, simplifies factory assembly (compared to conventional mechanical systems relying on steel cables), and requires fewer spare parts.

A key part of the 777 systems is a Boeing-patented two-way digital data bus, which has been adopted as new industry standard arinc 629. It permits airplane systems and their computers to communicate with one another through a common wire path (a twisted pair of wires) instead of through separate one-way wire connections. This simplifies assembly, saves weight, and increases reliability while reducing the number of wires and connectors. There are 11 of these arinc 629 pathways in the 777.

Also, the 777 was the first Boeing model to be equipped with the Enhanced Ground Proximity Warning System (egpws) as standard equipment. The egpws displays potentially threatening terrain and gives an audible alert up to a minute in advance of possible terrain conflict, compared with 10 to 15 seconds for previous systems. It incorporates a proprietary digital terrain map, which it continuously compares to aircraft position data from the navigation system.

Another new feature in the 777-300 flight deck is the addition of a Ground Maneuver Camera System (gmcs), designed to assist the pilot in ground maneuvering of the 777-300 with camera views of the nose gear and main gear areas. The cameras are on the leading edge of the left and right horizontal stabilizers and the underside of the fuselage and are used during ground maneuvering. The images are displayed at the Multi-Functional Display positions in the flight deck in a three-way split format.

Purchasing's fit with DCAC/MRM

The necessity to devote management attention to the production bottlenecks and parts shortages of 1997 also delayed the reengineering of corporate information systems for the engineers and technicians who design and build parts and assemblies for Boeing airplanes. To date, 38,000 workers in eight states, Canada and Australia have access to four interconnected computer systems that are replacing more than 450 separate and sometimes incompatible networks in bcag. This change is designed to cut the cost and time required for design and production of airplane parts, says Jeff Peace, director of the dcac/mrm (Define and Control Airplane Configuration-Manufacturing Resource Management) program. "These initiatives are eliminating waste and reducing costs," he says, and has generated a side benefit for buyers by generating a single bill of materials for each component." Airplanes are highly customized and, previously, as many as 14 bills of materials were needed. Essential data per airplane model and configuration from one computer system sometimes had to be printed out for reinput into another.

Now, a part's definition and specifications can be made available to materials management personnel quickly and speeded into the factory. So, a part as simple as a bracket for an overhead panel in a 747 jumbo jet now can be ordered and in the hands of assembly crews within 20 days (five days for a rush order) after the need for it is determined, compared with 80 days under the old system.

"While every airplane ordered has to be treated as a new project, because of its specific configuration, the goal of the dcac/mrm program is to make information on each part, component and assembly more widely available to engineers and buyers, so more common parts can be used," says Peace. He says "the system also generates better data so that there is better visibility of unit costs and more possibilities for efficient supply chain management by the purchasing organization."

And all this dovetails with the bcag push to lean manufacturing. The plane maker is one of the aviation/aerospace companies pursuing this production system that "pulls" materials and components through their manufacturing processes based on real demand, rather than pushing them on the basis of sales or assembly forecasts. As reported earlier (PUR; Jun 1, 2000; "Prepping the supply base for leaner supply systems"), bcag is implementing lean manufacturing in all jetliner assembly programs and in its internal parts, propulsion systems and airplane-interiors production plants. "Lean manufacturing is focusing on continuously cutting waste and maximizing efficiency, improving quality and safety, eliminating unnecessary motion and inventory, and saving time," says Bunio.

In one of the more noticeable changes in manufacturing using lean manufacturing practices, bcag has reconfigured the entire 717 assembly line at the Long Beach, Calif., plant to keep a steady production flow without starting and stopping. Instead of aircraft sitting side-by-side on a slant as they move from stage to stage, they are being positioned head to tail, says Mike Graziano, director of lean manufacturing at Long Beach. And, the company is working to eliminate the amount of time mechanics spend away from the airplane getting parts. Graziano estimates that a mechanic sometimes spends 25% of the time getting the parts. The goal is to have the parts in front of the mechanic as they are needed, and that's where purchasing's new supplier initiatives are expected to blossom.