Global Operations and Supply Chain Management: Airbus vs. Boeing Final Assignment - Jamar Johnson

GMBA+ BLENDED 2
GLOBAL OPERATIONS AND SUPPLY CHAIN MANAGEMENT
PROFESSOR
LUIS EDUARDO SOLÍS GALVÁN
TEAM CLARO!
CHAVES GUILLERMO, GOMME,
JOHNSON, LANGKAMMER,
LÓPEZ RIVERA, PAPADELLIS
Competing in Commercial Aviation for the
Airlines
Case in point : Airbus A380 vs. Boeing 787
Operations and SCM

Team Claro!– Chaves Guillermo, Gomme, Johnson, Langkammer, López Rivera, Papadellis
1. Industry Context and Competitive Environment
Headquarters: 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 Overviews
Headquarters: 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%

Primary 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 Growth
Fuel Price – Driving innovation

Threat of new entrantsRivalry among existing competitors
Bargaining power of buyersBargaining power of suppliers
Threat of substitute products
• Industry 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:
i. High costs involved
ii. Takes time to build product – long
time before sale
iii. Large degree of technical expertise
required.
• Manufacturers engage a huge variety of
subcontractors to develop end product
• The 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 influence
• Ultimately 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

2. 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 manner
• Market Share: at least HALF
of the world commercial
aircraft over the long term
Key Objectives:
• Further internationalization
• Focus on Key Geographic Markets
• Expand Customer Service Offering
• Restore Competitive edge
• Flexibility
• Efficiency

2. 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 Enterprise

3. Marketing Strategies - Airbus
Airbus believes in Hub-and-Spoke
o Airbus expects high traffic between international hubs
o Large airports with constraints of airport slots
o A380 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 technology
Delivers efficiency through economies of scale
o Large airplane offers economies of scale (-20% cost per
seat than Boeing 747)
o New seat 840 seat configuration cuts cost by 70%-80%
o Most luxurious cabins in the industry; adds to the
image of high quality airlines
o I+D: Risks and Innovation

Strategy: Boeing wanted to meet its need to have a product to compete in the market
for mid-long range air transport
Delivers economy through technological innovation
o B787 Dreamliner competes in the mid-long range aircraft
o Fuel-efficient twin engines
o Lightweight composite materials
o Availability of different cabins for different classes:
Moodlight function allows differentiation of cabins without
physical walls
3. Marketing Strategies - Boeing
Boeing bets on Point-to-Point Model
o The plane travels directly to a destination, rather than
going through a central hub
o New market segment: long-haul aircraft but average size
o Secondary airports with no facility to accommodate large
aircrafts
o Make it simple and cost-effective for airlines to operate

4. Order Qualifiers and Order Winners
• Reliability
The 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.
• Conformance
Product conformance is a must in the civil aviation
industry. Safety standards and Aviation regulatory bodies
establish very clear rules that have to followed.
• Perceived Quality
How 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 Winners
Durability (15%)
Oh yeah!! And it has to last
Serviceability (20%)
Make it easy for my operations and give me support
in time, every time
Performance (65%)
Do better than the rest, with less fuel

5. Main Transformation Process - Boeing
• Organizational Transformation: Global
Supplier Coordination through Supply
Chain Management
Boeing’s 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:
o From integrating separate designs to
design with suppliers
Components had to be built from scratch, and
compatibility had to be gained from the design
phase.
o From manufacturing for customers to
manufacturing with customers
Customers were asked to come onboard during the
assembly process. Insight is gained on both sides.
• Technical Transformation : From Aluminum
to Composite
The 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, USA
General Electric Genx Engine, Created for and with the 787

5. Main Transformation Process - Airbus
• Organizational Transformation: European-
centered Supplier Coordination
• Construction of Port facilities
• Development of new roads
• Oversized road convoys
• RORO fleet ship and barges
• Operational Transformation:
o Design
A3XX project / Not just a copy – paste product
Double digit operating cost reduction
More range, quieter and more cargo volume
o Production
Main fuselage, wings, fins and control surfaces
manufactured all over Europe. Assembly takes
place in Toulouse, France. Interiors & further
testing in Hamburg, Germany.
• Technical Transformation
• Systems Integration
• Control / System redundancy
• Size / Performance
• Active load alleviation
• Digital mock up systems
• Advanced composite materials
• Central wing box
• Smoothly contoured wing cross section
A380 Parts, on their way to Toulouse, France
Timeline, A380

6. Major Infrastructure Dimensions of the Operation Strategies - Airbus
• 1.500 suppliers in 30 countries
• Five spare part centers
• 120 field sites
• Three training centers
• Six Center of Excellence (CoE)
Streamline and unify design and production processes
• Reinforce cross-national relationships
o Operations: Six CoE are responsible for
manufacturing components and final assembly
o UK: Wings in UK
o Germany: Forward, tails and fuselage
o France: Pylon and Nacelle
o Spain: Horizontal tail
o Toulouse / Hamburg: Final assembly
o US: A350

• 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 orders
•RFID 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 chain

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 demand
• Risk bearing-contracts a central tenet of Airbus
growth strategy
• Risk-sharing partnerships with 30 key supplier
• 3.1 US $ / approximately 25% of non-recurring
costs of A380 covered by suppliers

6. 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 Deal
Vice President and General Manager
Supply Chain Management &
Operations
Supply chain management is therefore a vital part of Boeing’s
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 & developments
Hold an annual “Supplier of the
Year” ceremony where all suppliers
come together and best performers
are recognized for their efforts

Air Cruisers Escape slides
Alenia Aeronautica Centre Fuselage, horizontal stabilizer
Bridgestone Tires
C&D Zodiac Windows, Doors
Dassault Systemes Tools/software
Delmia Corp. Software
Diehl Aerospace Main cabin lighting
Donaldson Air purification system
Eaton Aerospace Pumps, valves, hydraulics etc.
Esterline Flight deck control panels
Fuji Heavy Industries Centre wing box
GE Aviation Landing gear actuation and control system, etc
GE Engines Engines
GKN Aerospace Composuite mat for wing ice protection
Goodrich Engine nacelles, numerous systems
Hamilton Sundstrand
Auxilliary power unit, environmental control
systems
Honeywell Navigation
Intercim Software
Intertechnique & Avox Oxygen systems
Ipeco Flight deck seats
Jamco Lavatories, galleys, bar units etc
Kawasaki Heavy Industries Fixed trailing edge, forward fuselage
Kidde Technologies Fire protection system
Korean Airlines Wing tips, stringers, nose wheel well
Safran Labinal Wiring
Latecoere Passenger doors
Messier-Bugatti Electric brakes
Messier-Dowty Landing gear structure
Mitsubishi Heavy Wing box
Monogram Systems Water & waste systems
Moog Flight control actuation system
Panasonic Cabin services system
Parker Aerospace Hydraulic subsystem
PFW Metallic tubing and ducting
PPG Aerospace Dimmable windows
Rockwell Collins
Displays, pilot control systems,
communications
Rolls-Royce Engines
Saab Cargo doors
Securaplane Emergency lighting systems
Spirit Aerosystems
Forward fuselage, flight deck, engine
pylons etc
Toray Prepreg composites
Ultra Electronics Wing ice portection
The 787 brings together more than 40 diverse suppliers –
more than any other model in Boeing’s history.

Centre Fuselage
Italy
Forward Fuselage
Japan
Cargo access doors
Sweden
Landing Gear
UK
Passenger entry doors
France
Forward Fuselage
Kansas
Wing
Japan
Wing tip
Korea
Tail fin
Washington, US
Stabilizer
Italy
Aft Fuselage
Charleston, US
Engines
UK & Ohio, US
Moveable trailing edge
Australia
Picture of a
Truly Global
Supply Chain

Ensuring Quality in the Supply Chain
Boeing have implemented infrastructure that
guarantees the highest standards throughout their
supply chain
• In order to become a Boeing supplier, organizations must
certify that their production systems meet Boeing’s 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

Diligence in Handling Design Changes
Design 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
Boeing’s operations and its supply chain.
Develop change
proposal
Obtain program
approval
Develop
plan
Execute
change
Certify
change
• When 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.

7. Companies Culture and Values - Airbus
AFCs, Airbus Key Competencies,
a set principles within Airbus
that encapsulates the mission
statement of the organization.
The skill of Airbus employees
are cultivated through regular
workshops and training,
ultimately leading to career
advancement and staff
retention.
ISO 14001Certified.
Environmental awareness and
responsibility permeates the
procedures and processes
associated with R&D.
Suppliers and vendors must
adhere to the CSR philosophy of
Airbus. Regular audits occur to
check compliance.
Company’s Culture: “Airbus’ day-to-day operations are
guided by a strong commitment to integrity, 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 Value
• Develop Oneself and Others
• Drive Improvement and Innovation
• Practice Teamwork

7. Companies Culture and Values - Boeing
Company’s Culture: “Proud, but not satisfied.
Continuous innovation, aspiration and imagination”
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”
1. Leadership
2. Integrity
3. Quality
4. Customer Satisfaction
5. People Working Together
6. A Diverse and Involved Team
7. Good Corporate Citizenship
8. Enhancing Shareholder Value

8. Major Capabilities Developed - Supply Chain Management
• The Organizational Transformation has led to
improvements in the Supply Chain
Management
o 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
o Better management of infrastructure,
facilities and work flows
Clear 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

8. Major Capabilities Developed - Technical and Operational
Boeing Gold Care Program: Lifecycle maintenance and consulting
• Operational Transformation has led to Improved
Services to Customers :
o 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.
o Offering a more comprehensive After-Market Service
Full 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
o Solving Composite Structural Problems
Many unforeseen problems occurred after the design phase.
Engineering took care of it through test after test.
o Developed Worker Expertise and Internal Know-how
Both Companies have learnt the fast and hard way
o Environmental Advances
Emissions and Noise standards are more stringent.
Boeing Everett: Assembly of Composite main Structures

9. Level of Alignment
- +35% seating
- +49% more floor space
- -15-20% cost per seat
- -13% less fuel
- Cheaper and efficient airplanes
- -20% less fuel & -10% costs/seat
- -20% operating costs
- -30% maintenance costs
- Use of 25% composites
- High quality standards
- Use of >50% composites
- High quality standards
- Adds capacity for bottleneck
routes
- Downtime because of safety
issues
- -30% airframe maintenenace
- Interchangable engines easier to maintain
- Downtime because of saftey issues
Order Winners
Durability (15%)
Serviceability (20%)
Performance (65%)
Order Qualifiers
- Severall safety issues with fuel
leaks and battery fires
- July 2013 787 fuselage fire in
Heathrow, London, UK
- Engine blowout Quantas in
2010

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total
Orders 78 0 34 10 10 24 33 9 4 32 19 9 0 262
Deliveries 0 0 0 0 0 0 1 12 10 18 26 30 9 106
• First time in 2011 delivered according to schedule / As of July 2012 three aircraft per month
• Selling price as of 2013: $403 Mn
• Production cost will be equal to selling price at 2015
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total
Orders 56 235 157 369 93 -59 -4 13 -12 82 930
Deliveries 0 0 0 0 0 0 0 3 46 17 66
• Up until 2009 announced 5 consecutive delays / 787 was first certified in August 2011
• Selling price as of 2012: $206.8 Mn (787-8) and $243.6 Mn (787-9)
• Production cost at 2013: $200 Mn
9. Level of Alignment - Orders and Deliveries

10. Future Challenges
• Internal:
o Safety Standards
As of late, there have been noticeable lapse in the enforcement of safety standards.
Which reduces brand reputation and customer confidence
o 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.
o 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.

• External:
o Tight margins and capital intense projects
negatively affect the economic performance of Boeing. Boeing relies
more on market efficiencies to translate its value propositions
o Fuel price
Although fuel prices are purchases on margins, the cost of fuel has
increased in volatility
o CO2 quota reduction
Rising awareness in regards to environment fronts requires Boeing to
allocate significant R&D to comply with increased standards of
environmentally friendly aircraft
o Politics:
Cut budgets to defense purchases threaten the jobs markets of local
communities where Boeing offices are located.
o 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.

GMBA+ BLENDED 2
GLOBAL OPERATIONS AND SUPPLY CHAIN MANAGEMENT
PROFESSOR
LUIS EDUARDO SOLÍS GALVÁN
TEAM CLARO!
CHAVES GUILLERMO, GOMME,
JOHNSON, LANGKAMMER,
LÓPEZ RIVERA, PAPADELLIS
Competing in Commercial Aviation for the
Airlines
Case in point : Airbus A380 vs. Boeing 787
Operations and SCM
Thank You!!

Main Sources
http://www.srr.com/article/aerospace-industry-overview-and-update-fall-2011
http://travel.cnn.com/explorations/life/boeing-747-8-and-airbus-a380-death-match-152563
http://www.boeing.com/boeing/commercial/cmo/
2. Key Corporate Objectives
Airbus vs. Boeing: Strategic Management Report - Sacha Mayer, 2007
3. Marketing Strategies
http://www.airbus.com/aircraftfamilies/passengeraircraft/a380family/
http://www.boeing.com/boeing/commercial/787family/index.page
4. Order Qualifiers and Order Winners
5. Main Transformation Process
Boeing: The Dreamliner Quiet Revolution, Smithsonian Air & Space, July 2012 http://www.airspacemag.com/flight-today/The-Quiet-Revolution.html?c=y&page=1
Airbus: http://www.airbus.com/innovation/
6. Major Infrastructure Dimensions of the Operation Strategies
“The Airbusway” http://www.airbus.com/work/why-join-airbus/our-culture/
7. Companies Culture and Values
Boeing: http://www.boeing.com/boeing/aboutus/culture/#vision
Airbus: http://www.airbus.com/company/people-culture/company-culture/
1. Major Capabilities Developed
9. Level of Alignment
http://www.boeing.com/aboutus/environment/environmental_report_09/carbon-dioxide-emissions.html , Boeing,Carbon Dioxide Emissions
http://www.eci.ox.ac.uk/research/energy/downloads/jardine09-carboninflights.pdf, Calculating The Carbon Dioxide Emissions Of Flights
http://www.faa.gov/news/updates/media/2013_02_22_10_00_10.pdf, Official U.S. Government Notice of Budget Cuts

Global Operations and Supply Chain Management: Airbus vs. Boeing Final Assignment - Jamar Johnson

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Global Operations and Supply Chain Management: Airbus vs. Boeing Final Assignment - Jamar Johnson

Similar to Global Operations and Supply Chain Management: Airbus vs. Boeing Final Assignment - Jamar Johnson (20)

Recently uploaded

Recently uploaded (20)

Global Operations and Supply Chain Management: Airbus vs. Boeing Final Assignment - Jamar Johnson