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GOSCM Airbus & Boeing

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GMBA+ Blended 2Global Operations and Supply Chain ManagementProfessorLuis Eduardo Sols Galvn Team Claro!Chaves Guillermo, Gomme, Johnson, Langkammer, Lpez Rivera, Papadellis

Competing in Commercial Aviation for the Airlines Case in point : Airbus A380 vs. Boeing 787 Operations and SCM

1. Industry Context and Competitive EnvironmentHeadquarters: Chicago

Business areas: Manufacturer of commercial jetliners and military aircraft. Additionally, designs and manufactures rotorcraft, electronic and defence systems, missiles, satellites, launch vehicles and advanced information and communication systems.

Global Reach Provides products and support services to customers in 150 countries.

Employees: Boeing employs more than 170,000 people across the United States and in 70 countries

Supply Chain: Hundreds of thousands more skilled people working for Boeing suppliers worldwide.

2012 Net income: $3.9 billion

2012 net orders: 1203

Market Share: 59%

Company OverviewsHeadquarters: Toulouse, France

Business areas: Aerospace and defence related services.

Global Reach: Fully-owned subsidiaries in the United States, China, Japan and in the Middle East. More than 150 global field offices.

Employees: 59,000 globally.

Supply Chain: Has a network of 1,500 suppliers in 30 countries

2012 Net income: $1.59 billion (parent company EADS)

2012 net orders: 833

Market Share: 41%

Page #Team Claro! Chaves Guillermo, Gomme, Johnson, Langkammer, Lpez Rivera, PapadellisPrimary customer for Boeing and Airbus is global airline industry. To understand their market position we need to establish the current state of the global Airline business.

Demand in the airline industry generally correlates with global economic activity which drives spending on air travel.

The growing global middle class and increased levels of urbanization are generating sustained levels of demand.

Passenger traffic rose 5% between 2011 and 2013 and this trend is expected to continue in the long term. Boeing predicts that there will be 35,000 new aircraft in circulation in 20 years.

The majority of this growth will be driven by emerging markets.One of the most important considerations for the airline industry is fuel price (represents 30% of global airline operating costs)

Technological advances are making aircraft much more fuel efficient and cheaper to run. As a result, airlines everywhere are looking to replace older planes and update their fleets.

Combined with enhanced demand, this is good news for manufacturers like Boeing and Airbus. Are looking at sustained long-term market growth and a boom in sales.

The Airbus A380 and the Boeing 787 Dreamliner, represent efforts to take the initiative and tap into the demand for more efficient models.Strong Prospects for GrowthFuel Price Driving innovation1. Industry Context and Competitive EnvironmentPage #Team Claro! Chaves Guillermo, Gomme, Johnson, Langkammer, Lpez Rivera, PapadellisThreat of new entrantsRivalry among existing competitorsBargaining power of buyersBargaining power of suppliersThreat of substitute productsIndustry is currently in a state of duopoly. US-based Boeing and European Airbus dominate the global market.Extensive rivalry exists between these two players. A380 vs 787 Dreamliner is the latest embodiment of this rivalry.The sustained growth in the industry is starting to attract new entrants.However risk of entry is very high due to high level of investment required to undertake the necessary R&D and production.Strong barriers to entry: High costs involvedTakes time to build product long time before saleLarge degree of technical expertise required.

Manufacturers engage a huge variety of subcontractors to develop end productThe power of the supplier depends on the nature of the component being supplied. Suppliers of rare resources, such as carbon fibres, or highly specialized techniques have a certain degree of influenceUltimately the power rests with the duopoly. Again, the duopolistic nature of the industry at present does not present airlines with a great deal of choice or influence. However bargaining power is increasing due to emergence of more manufacturers a combination of more manufacturers. Extremely low. No direct substitutes to air travel. High speed rail cannot compete

1. Industry Context and Competitive EnvironmentPage #Team Claro! Chaves Guillermo, Gomme, Johnson, Langkammer, Lpez Rivera, Papadellis

1. Industry Context and Competitive EnvironmentPage #Team Claro! Chaves Guillermo, Gomme, Johnson, Langkammer, Lpez Rivera, Papadellis2. Key Corporate Objectives - Airbus Airbus Industrie Headquarters: Toulouse, France

Vision: Creating the Best and Safest Aircraft Mission Statement: Meet the needs of airlines and operators by producing the most modern and comprehensive aircraft family on the market, complemented by the highest standard of product support Long Term Goals:Deliver strong results in a sustained mannerMarket Share: at least HALF of the world commercial aircraft over the long termKey Objectives: Further internationalization Focus on Key Geographic Markets Expand Customer Service Offering Restore Competitive edge Flexibility EfficiencyPage #Team Claro! Chaves Guillermo, Gomme, Johnson, Langkammer, Lpez Rivera, Papadellis2. Key Corporate Objectives - Boeing Boeing Headquarters: Chicago, Il, USA

Vision: People working together as a global enterprise for aerospace leadership Mission Statement: Be the leader among the premier industrial concerns in terms of quality, profitability and growth Objective: Attain the following Core Competencies:

Customer Knowledge and Focus Large Scale system integration on a global level by outsourcing Lean EnterprisePage #Team Claro! Chaves Guillermo, Gomme, Johnson, Langkammer, Lpez Rivera, Papadellis3. Marketing Strategies - Airbus

Airbus believes in Hub-and-SpokeAirbus expects high traffic between international hubsLarge airports with constraints of airport slotsA380 maximizes yields per slot for connecting flight

Strategy: Airbus wanted to break Boeings stronghold in long range, big capacity Airplanes with the new A380 and new technologyDelivers efficiency through economies of scaleLarge airplane offers economies of scale (-20% cost per seat than Boeing 747)New seat 840 seat configuration cuts cost by 70%-80%Most luxurious cabins in the industry; adds to the image of high quality airlines I+D: Risks and InnovationPage #Team Claro! Chaves Guillermo, Gomme, Johnson, Langkammer, Lpez Rivera, PapadellisStrategy: Boeing wanted to meet its need to have a product to compete in the market for mid-long range air transportDelivers economy through technological innovation B787 Dreamliner competes in the mid-long range aircraftFuel-efficient twin enginesLightweight composite materialsAvailability of different cabins for different classes: Moodlight function allows differentiation of cabins without physical walls

3. Marketing Strategies - BoeingBoeing bets on Point-to-Point ModelThe plane travels directly to a destination, rather than going through a centralhubNew market segment: long-haul aircraft but average size Secondary airports with no facility to accommodate large aircraftsMake it simple and cost-effective for airlines to operate

Page #Team Claro! Chaves Guillermo, Gomme, Johnson, Langkammer, Lpez Rivera, Papadellis4. Order Qualifiers and Order WinnersReliabilityThe Company has to be as reliable as their aircraft. Boeing and Airbus sell multi-million dollar products to their civil aviation customers. Airlines base their operations in this aircrafts and reliability is expected.

ConformanceProduct conformance is a must in the civil aviation industry. Safety standards and Aviation regulatory bodies establish very clear rules that have to followed.

Perceived QualityHow the product is perceived is very important in this industry. Current events are a clear example

Dependability (Delivery Time)So much as it might sound weird... Yes, it is a qualifier.

Order Qualifiers

Order WinnersDurability (15%) Oh yeah!! And it has to last Serviceability (20%) Make it easy for my operations and give me support in time, every timePerformance (65%) Do better than the rest, with less fuelPage #Team Claro! Chaves Guillermo, Gomme, Johnson, Langkammer, Lpez Rivera, Papadellis

5. Main Transformation Process - BoeingOrganizational Transformation: Global Supplier Coordination through Supply Chain ManagementBoeings supply chain had to be transformed to accommodate management of suppliers through four continents. Timing is critical, and so are specifications and technical coordination when we talk about tolerances of up to 1/5000th of an inch.

Operational Transformation:From integrating separate designs to design with suppliersComponents had to be built from scratch, and compatibility had to be gained from the design phase.From manufacturing for customers to manufacturing with customersCustomers were asked to come onboard during the assembly process. Insight is gained on both sides.

Technical Transformation : From Aluminum to CompositeThe hardest change. Weight reduction means one thing: Aluminum alloys, the lightest aircraft manufacturing metal is just too heavy for the 787.

Boeing Suppliers, from four continents to Everett, WA, USAGeneral Electric Genx Engine, Created for and with the 787Page #Team Claro! Chaves Guillermo, Gomme, Johnson, Langkammer, Lpez Rivera, Papadellis5. Main Transformation Process - AirbusOrganizational Transformation: European-centered Supplier Coordination Construction of Port facilities Development of new roads Oversized road convoys RORO fleet ship and barges

Operational Transformation:DesignA3XX project / Not just a copy paste productDouble digit operating cost reductionMore range, quieter and more cargo volume

ProductionMain fuselage, wings, fins and control surfaces manufactured all over Europe. Assembly takes place in Toulouse, France. Interiors & further testing in Hamburg, Germany.

Technical TransformationSystems IntegrationControl / System redundancySize / PerformanceActive load alleviation Digital mock up systemsAdvanced composite materialsCentral wing boxSmoothly contoured wing cross sectionA380 Parts, on their way to Toulouse, FranceTimeline, A380

Page #Team Claro! Chaves Guillermo, Gomme, Johnson, Langkammer, Lpez Rivera, Papadellis6. Major Infrastructure Dimensions of the Operation Strategies - Airbus1.500 suppliers in 30 countriesFive spare part centers120 field sitesThree training centers

Six Center of Excellence (CoE)Streamline and unify design and production processes Reinforce cross-national relationshipsOperations: Six CoE are responsible for manufacturing components and final assemblyUK: Wings in UKGermany: Forward, tails and fuselageFrance: Pylon and NacelleSpain: Horizontal tailToulouse / Hamburg: Final assemblyUS: A350

Page #Team Claro! Chaves Guillermo, Gomme, Johnson, Langkammer, Lpez Rivera, Papadellis6. Major Infrastructure Dimensions of the Operation Strategies - Airbus

Chose suppliers on best-value basis First-tier suppliers are involved in concept and product development Information systems to streamline communication within the network Supplier portal to share documents & specifications and to manage inventory levels and ordersRFID technology to trace parts, make maintenance easier New R&D capabilities & financial backing Full supplier responsibility Globalization (spread financial risks, open new markets)Efficient and integrated supply chainPage #Team Claro! Chaves Guillermo, Gomme, Johnson, Langkammer, Lpez Rivera, Papadellis6. Major Infrastructure Dimensions of the Operation Strategies - Airbus

Risk of loosing competitive edge Suppliers are less willing today to take risks After 9/11 many suppliers cut back their risk sharing agreements Difficult to efficiently manage its overall supply chains Long-term risk of loosing competitive edge

Supply Chain risk sharing partnerships Significant risk for Airbus of economic crisis or terror attacks on airplane demandRisk bearing-contracts a central tenet of Airbus growth strategyRisk-sharing partnerships with 30 key supplier 3.1 US $ / approximately 25% of non-recurring costs of A380 covered by suppliersPage #Team Claro! Chaves Guillermo, Gomme, Johnson, Langkammer, Lpez Rivera, Papadellis6. Major Infrastructure Dimensions of the Operation Strategies - Boeing

The entire Boeing supply network includes some 28,000 suppliers

783 million parts are procured each year

The Company also has 6 R&D centres and relationships with over 50 international universities.

There are more than 500,000 people caught up in the supply chain

Stanley DealVice President and General ManagerSupply Chain Management & OperationsSupply chain management is therefore a vital part of Boeings operations. They have invested heavily in establishing close relations with suppliers and infrastructure that involves constant dialogue and feedback.Web portal developed exclusively for suppliers to give them constant access to evolving standards & developmentsHold an annual Supplier of the Year ceremony where all suppliers come together and best performers are recognized for their efforts Page #Team Claro! Chaves Guillermo, Gomme, Johnson, Langkammer, Lpez Rivera, PapadellisAir CruisersEscape slidesAlenia AeronauticaCentre Fuselage, horizontal stabilizerBridgestoneTiresC&D ZodiacWindows, DoorsDassault SystemesTools/softwareDelmia Corp.SoftwareDiehl AerospaceMain cabin lightingDonaldsonAir purification systemEaton AerospacePumps, valves, hydraulics etc.EsterlineFlight deck control panelsFuji Heavy IndustriesCentre wing boxGE AviationLanding gear actuation and control system, etcGE EnginesEnginesGKN AerospaceComposuite mat for wing ice protectionGoodrichEngine nacelles, numerous systemsHamilton SundstrandAuxilliary power unit, environmental control systemsHoneywellNavigationIntercimSoftwareIntertechnique & AvoxOxygen systemsIpecoFlight deck seatsJamcoLavatories, galleys, bar units etcKawasaki Heavy IndustriesFixed trailing edge, forward fuselageKidde TechnologiesFire protection systemKorean AirlinesWing tips, stringers, nose wheel wellSafran LabinalWiringLatecoerePassenger doorsMessier-BugattiElectric brakesMessier-DowtyLanding gear structureMitsubishi HeavyWing boxMonogram SystemsWater & waste systemsMoogFlight control actuation systemPanasonicCabin services systemParker AerospaceHydraulic subsystemPFWMetallic tubing and ductingPPG AerospaceDimmable windowsRockwell CollinsDisplays, pilot control systems, communicationsRolls-RoyceEnginesSaabCargo doorsSecuraplaneEmergency lighting systemsSpirit AerosystemsForward fuselage, flight deck, engine pylons etcTorayPrepreg compositesUltra ElectronicsWing ice portectionThe 787 brings together more than 40 diverse suppliers more than any other model in Boeings history.

6. Major Infrastructure Dimensions of the Operation Strategies - BoeingPage #Team Claro! Chaves Guillermo, Gomme, Johnson, Langkammer, Lpez Rivera, Papadellis

Centre FuselageItalyForward FuselageJapanCargo access doorsSwedenLanding GearUKPassenger entry doorsFranceForward FuselageKansasWingJapanWing tipKoreaTail fin Washington, USStabilizerItalyAft FuselageCharleston, US

EnginesUK & Ohio, US

Moveable trailing edgeAustraliaPicture of a Truly Global Supply Chain6. Major Infrastructure Dimensions of the Operation Strategies - BoeingPage #Team Claro! Chaves Guillermo, Gomme, Johnson, Langkammer, Lpez Rivera, PapadellisEnsuring Quality in the Supply ChainBoeing have implemented infrastructure that guarantees the highest standards throughout their supply chainIn order to become a Boeing supplier, organizations must certify that their production systems meet Boeings Quality Management System requirements an extensive set of international standards and criteria covering almost every aspect of their operations.

All suppliers must also have their systems approved by the Federal Aviation Administration before Boeing will accept them as a supplier.

Suppliers are audited regularly, undergoing full site visits by Boeing audit teams.

Boeing personnel are embedded within supplier organizations globally to monitor quality, work with suppliers on process improvements, and ensure adherence to Boeing standards and schedules

6. Major Infrastructure Dimensions of the Operation Strategies - BoeingPage #Team Claro! Chaves Guillermo, Gomme, Johnson, Langkammer, Lpez Rivera, PapadellisDiligence in Handling Design ChangesDesign changes to commercial airplanes such as the 787 Dreamliner often have to be made to improve efficiency or performance, meet new regulations or address evolving customer demands.

When they required to make design changes, Boeing follows a very rigid process to ensure that the overall integrity of the aircraft is not compromised. This redesign is a process that involves participation from representatives throughout Boeings operations and its supply chain. Develop change proposalObtain program approvalDevelop planExecute changeCertify changeWhen the need for a product change is identified, representatives from throughout the entire of Boeing come together to analyse the potential change options.

When a solution is decided upon a change proposal is drafted which must then be approved by management. All groups who the change will affect are duly notified

Senior engineers for all different parts of the aircraft go over the proposal to determine how the proposed change it will affect their section.

6. Major Infrastructure Dimensions of the Operation Strategies - BoeingPage #Team Claro! Chaves Guillermo, Gomme, Johnson, Langkammer, Lpez Rivera, Papadellis

7. Companies Culture and Values - AirbusCompanys Culture: Airbus day-to-day operations are guided by a strong commitment tointegrity, transparency and professionalism across its operations:each and every employee is committed to defending high ethical standards in business relations inside as well as outside the company. Values: The Airbusway

Deliver Customer ValueDevelop Oneself and OthersDrive Improvement and InnovationPractice TeamworkPage #Team Claro! Chaves Guillermo, Gomme, Johnson, Langkammer, Lpez Rivera, Papadellis7. Companies Culture and Values - BoeingCompanys Culture: Proud, but not satisfied. Continuous innovation, aspiration andimagination

Our Values: At Boeing, we are committed to a set of core values that not only define who we are, but also serve as guideposts to help us become the company we would like to be.And we aspire to live these values every day LeadershipIntegrityQualityCustomer SatisfactionPeople Working TogetherA Diverse and Involved TeamGood Corporate CitizenshipEnhancing Shareholder Value

Page #Team Claro! Chaves Guillermo, Gomme, Johnson, Langkammer, Lpez Rivera, Papadellis8. Major Capabilities Developed - Supply Chain ManagementThe Organizational Transformation has led to improvements in the Supply Chain Management

Information Control Currently, throughout the production process, performance, operations, financial aspects and strategy are continuously monitored, which provides extremely important information on all levels of the supply chain

Better management of infrastructure, facilities and work flowsClear improvements support the complete process related to material, logistics and suppliers, thanks to a flexible value-adding material management service that fits with customer needs.

Airbus Managed Inventory: Automated Component Replenishment

Airbus Beluga: Air Transport of large A380 fuselage components

Page #Team Claro! Chaves Guillermo, Gomme, Johnson, Langkammer, Lpez Rivera, Papadellis8. Major Capabilities Developed - Technical and OperationalBoeing Gold Care Program: Lifecycle maintenance and consulting

Operational Transformation has led to Improved Services to Customers :

Offering Telemetric Services for their Aircraft See the performance of your Aircraft real time, all the time. Immense advantage for airlines in terms of operation efficiency. Offering a more comprehensive After-Market ServiceFull service during all the Aircraft lifecycle has been improved due to all the eventualities found during the development of these projects

Technical Transformation has led to mastery of complicated new techniques

Solving Composite Structural Problems Many unforeseen problems occurred after the design phase. Engineering took care of it through test after test.Developed Worker Expertise and Internal Know-howBoth Companies have learnt the fast and hard wayEnvironmental AdvancesEmissions and Noise standards are more stringent.

Boeing Everett: Assembly of Composite main Structures

Page #Team Claro! Chaves Guillermo, Gomme, Johnson, Langkammer, Lpez Rivera, Papadellis9. Level of Alignment+35% seating+49% more floor space-15-20% cost per seat -13% less fuelCheaper and efficient airplanes-20% less fuel & -10% costs/seat-20% operating costs -30% maintenance costsUse of 25% compositesHigh quality standardsUse of >50% compositesHigh quality standardsAdds capacity for bottleneck routesDowntime because of safety issues -30% airframe maintenenaceInterchangable engines easier to maintainDowntime because of saftey issues

Order WinnersDurability (15%) Serviceability (20%) Performance (65%)

Order QualifiersSeverall safety issues with fuel leaks and battery firesJuly 2013 787 fuselage fire in Heathrow, London, UKEngine blowout Quantas in 2010

Page #Team Claro! Chaves Guillermo, Gomme, Johnson, Langkammer, Lpez Rivera, Papadellis2001200220032004200520062007200820092010201120122013TotalOrders780341010243394321990262Deliveries000000112101826309106First time in 2011 delivered according to schedule / As of July 2012 three aircraft per monthSelling price as of 2013: $403 MnProduction cost will be equal to selling price at 20152004200520062007200820092010201120122013TotalOrders5623515736993-59-413-1282930Deliveries00000003461766Up until 2009 announced 5 consecutive delays / 787 was first certified in August 2011Selling price as of 2012: $206.8 Mn (787-8) and $243.6 Mn (787-9)Production cost at 2013: $200 Mn9. Level of Alignment - Orders and Deliveries

Page #Team Claro! Chaves Guillermo, Gomme, Johnson, Langkammer, Lpez Rivera, Papadellis10. Future ChallengesInternal:

Safety Standards

As of late, there have been noticeable lapse in the enforcement of safety standards. Which reduces brand reputation and customer confidence

Supply Chain Management Outsourced

In the future, the efficiency of outsourcing the various parts of a these aircraft may no longer be as cost efficient . The cause might be the increasing competitiveness of external manufacturers due to the advent of globalization and changes within the global economic landscape

Internally, domestic sentiment may compel Airbus/Boeing to produce greater manufacturing capabilities within Europe/the U.S. in direct contrasts to the current manufacturing trend.

Vanishing Technological Advance

Other manufacturers may catch up to the technological advances that Boeing or Airbus currently provide to end-customers, thereby reducing their competitive strengths within the market. They must keep the internal progress of R&D.

Page #Team Claro! Chaves Guillermo, Gomme, Johnson, Langkammer, Lpez Rivera, Papadellis10. Future ChallengesExternal:

Tight margins and capital intense projectsnegatively affect the economic performance of Boeing. Boeing relies more on market efficiencies to translate its value propositions

Fuel priceAlthough fuel prices are purchases on margins, the cost of fuel has increased in volatility

CO2 quota reductionRising awareness in regards to environment fronts requires Boeing to allocate significant R&D to comply with increased standards of environmentally friendly aircraft

Politics:Cut budgets to defense purchases threaten the jobs markets of local communities where Boeing offices are located.

New Competition:New market entrants may vie to compete with Boeing on a quality and technological front while reducing prices to increase its viability in the market.

Comac, Chinese Aerospace Manufacturer

CO2 emission reduction initiatives will gain greater public support. Page #Team Claro! Chaves Guillermo, Gomme, Johnson, Langkammer, Lpez Rivera, Papadellis

GMBA+ Blended 2Global Operations and Supply Chain ManagementProfessorLuis Eduardo Sols Galvn Team Claro!Chaves Guillermo, Gomme, Johnson, Langkammer, Lpez Rivera, Papadellis

Competing in Commercial Aviation for the Airlines Case in point : Airbus A380 vs. Boeing 787 Operations and SCMThank You!!

Main SourcesIndustry Context and Competitive Environmenthttp://www.srr.com/article/aerospace-industry-overview-and-update-fall-2011http://travel.cnn.com/explorations/life/boeing-747-8-and-airbus-a380-death-match-152563http://www.boeing.com/boeing/commercial/cmo/

Key Corporate ObjectivesAirbus vs. Boeing: Strategic Management Report - Sacha Mayer, 2007

Marketing Strategieshttp://www.airbus.com/aircraftfamilies/passengeraircraft/a380family/http://www.boeing.com/boeing/commercial/787family/index.page

Order Qualifiers and Order WinnersMain Transformation ProcessBoeing: The Dreamliner Quiet Revolution, Smithsonian Air & Space, July 2012 http://www.airspacemag.com/flight-today/The-Quiet-Revolution.html?c=y&page=1Airbus: http://www.airbus.com/innovation/

Major Infrastructure Dimensions of the Operation Strategies The Airbusway http://www.airbus.com/work/why-join-airbus/our-culture/

Companies Culture and ValuesBoeing: http://www.boeing.com/boeing/aboutus/culture/#visionAirbus: http://www.airbus.com/company/people-culture/company-culture/

Major Capabilities Developed

Level of Alignment

Future Challengeshttp://www.boeing.com/aboutus/environment/environmental_report_09/carbon-dioxide-emissions.html , Boeing,Carbon Dioxide Emissionshttp://www.eci.ox.ac.uk/research/energy/downloads/jardine09-carboninflights.pdf, Calculating The Carbon Dioxide Emissions Of Flightshttp://www.faa.gov/news/updates/media/2013_02_22_10_00_10.pdf, Official U.S. Government Notice of Budget Cuts


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