Group A11

Bharat Subramony Deepak Kumar Priyank Bavishi Shashank Shekhar PGP/16/012 PGP/16/016 PGP/16/037 PGP/16/045

Agenda

1. 2. 3. 4. 5. 6. 7. 8. Traditional v/s Lean Production Supply Chain Supply Chain Integration and Collaboration Airbus 380 program Boeing 787 Dreamliner program Global Outsourcing in Boeing Japan and China Global Outsourcing in Airbus Japan and China Why is Risk so devastating? How to achieve collaborative risk management

Traditional Mass Production SRM

Widely practiced by Western Auto majors like Saab and GM

Majority of components produced in-house Fear of loss of intellectual property, important components in-house

Push-based rather than pull-based production

Higher inventory handling Production flexibility lost, thus leading to partial oursourcing

Suppliers Darwinian Price Competition Low Price sometimes below cost Higher quality and delivery promises Short-term contracts without extension

Manufacturer Arms length, short-term, transactional Lack of trust, no open communication Low involvement in product design Zero-sum game of profit sharing

Lean Production SRM

Tiered supplier network structure, with long-term relationship

Tier-1 : Equipped with technological capabilities, design whole systems Tier-2 : Suppliers to Tier-1, handle component, partial tech capabilities Tier-3 : Suppliers to Tier-2, do-as-directed, no tech capabilities

Early involvement in product development cycle

Every tier focuses on their individual core competencies

Suppliers Fairness of pricing, negotiations Long-term relationship promise Multiple suppliers for same component Open communication, and frequent

Manufacturer Customer specific tech investment High risk complemented by closer links Open-ended contracts, based on trust Low Demand Improved S.C. Efficiency

S.C. Integration and Collaboration

To tackle severely dynamic nature of competitive marketplace

E-Business speeds up the rate of decision-making Strategic alliance and partnerships with suppliers Way to enhanced supply chain coordination

Lack of information visibility and the failure of coordination across the supplier network are the main reasons contributing to the bullwhip effect Objectives of supply chain integration
1. 2. 3. 4. 5. 6. Minimizing the bullwhip effect Maximizing the efficiency of conducting activities along the supply chain Minimizing inventories along the supply chain Minimizing cycle times along the supply chain Achieving an acceptable level of quality along the supply chain Achieving better product design

Airbus 380 Program

555-seat double deck A380 most ambitious civil aircraft program Airbuss ambition in terminating Boeings long-term dominance in the long-haul jumbo jet Designed for a hub-and-spoke airline route system Airbus expected the passenger traffic to increase at staggering rate But most Airlines are restricted by limited runway space available A380 has 35% more capacity than the largest currently operated plane A380 operated in three models
1. 555-seat A380-800 in a three-class configuration 2. Up to 853 passengers in a single-class economy configuration 3. A380-800F, a 590-ton MTOW aircraft with a range of 10,410km (5620nm) that will be able to carry a 150-ton payload (Logistics Purpose Only)

passenger. Table 4.1.1 gives a detailed comparison between the A380 and the 787-400.

Airbus A380 v/s Boeing 747

Table 4.1. 1 Comparison of A380 and 747 40

A380 Supply Chain

Prime Contractors from France, Germany, U.K. and Spain Component suppliers are from Australia, Austria, Belgium, Canada, Finland, Italy, Japan, South Korea, Malaysia, Netherlands, Sweden, Switzerland and the United States The largest Suppliers by value 1. Rolls-Royce 2. SAFRAN 3. United Technologies 4. General Electric 5. Good-Rich Final Assembly takes place in Toulouse, France and then flown to Hamburg for delivery

A380 Customers

As in August 2006, 16 customers had committed firm offers for 159 A380s, with an additional 75 optional orders
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. Singapore Airlines (the launch customer with an order for 10 aircraft Lufthansa (15) Emirates (41) Air France (10) Qantas (12) Malaysian Airlines (6) Virgin Atlantic (6) International Lease Finance (10) Kingfisher Airlines (5) Qatar Airways (2) Federal Express (10), Korean Air (5) Thai Airways (6), Etihad Airways (4), China Southern Airlines (5) and United Parcels Service

Challenges facing Airbus A380

Technological Issues
The wake of A380 creates much more turbulence in air, requiring other flights trailing it, to stay twice the normal distance away from it Greater aircraft separation would take up two landing slots and largely reduce the frequency of aircraft landings Severe impact on landing slots during peak periods

Production Delay
Excessive complexities in the wiring of various customised components Electronic systems are highly integrated, even a small change would cascade down through the whole system Singapore Airlines reported to have demanded compensation 26% drop in Airbuss parent EADS Stock price

Airbus A380 in brief

Airbus has embraced partnerships since its inception among the core national champions in the respective European countries Brought together under the Airbus umbrella in the early 1970s The core technologies related to complex or key airframe components have typically been in-house within the core respective companies This model has remained essentially unchanged despite outsourcing several components of-late Eg: Airbus has its own international joint design team located in Wichita (U.S) and Filton (U.K.), working together to design a large A380 wing component, while Airbus Korean suppliers are manufacturing the wing panel according to the engineering design specifications handed down by Airbus.

787 Dreamliner

787 was Boeings response to the greater demand for a cheaper aircraft to operate and maintain Targeted at rapid, direct, point-to-point connections with capacity of only 250 passengers (middle of the market) 787 would thus be a high speed, fuel efficient competition for the newly popular A330 from Airbus Offered in three variants
1. 787-8 Dreamliner will carry 217 passengers in a three-class configuration with a range of up to 8,500 nautical miles (15,700 kilometers) 2. 787-3 Dreamliner will carry 289 passengers in a two-class configuration with a range up to 3,500 nautical miles (6,500 kilometers) 3. 787-9 Dreamliner will carry 257 passengers in three classes, with a range of 8,300 nautical miles (15,400 kilometers)

787 Supply Chain & Customers

Majority of the systems and assemblies are designed, developed and tested by principal industrial partners in the USA, Japan and Europe Boeing responsible for only about one-third of the overall production of the entire aircraft The final assembly process complete in three days

Launch customer All-Nippon Airways with 50 units 32 customers, including Monarch, have logged 420 orders and commitments Of these, 377 are firm orders valued at $59 billion at current list prices The most successful commercial airplane launch in history

Risk sharing in Boeing 787

Partnering suppliers to carry all of the non-recurring costs interviewees in this research, for the 787 program, Boeing h But in return gives back to the suppliers the intellectual property (IP) carry all of the non-recurring costs, but in return gives bac rights on the components and systems they provide property (IP) rights on the components and systems they p This marks a reversal of earlier practices earlier practices. Suppliers taking more responsibility in design and development But Boeing slowly moving to what is Systems Integration Model All major components and systems, to be given to risk-sharing partners

Figure 4.3. 1. The workshares distribution in the 787 program

Risk sharing in Boeing 787

Boeing delegates entire system production to tier-1 suppliers/partners

Japans Fuji Heavy Industries Mitsubishi Heavy Industries Kawasaki Heavy Industries Global Aeronautica French Latecoere Goodrich BOEING Wing box

interviewees in this research, for the 787 program, Boeing h Center wing box and installation of the wells

carry all of the non-recurring costs, but in return gives ba

Mid forward section of the fuselage, the wings and andsystems the property (IP) fixed rightssection on the of components they p landing gear

earlier Mid section and rear section ofpractices. the fuselage including the tail-plane
Passenger doors Nacelles and thrust reverser ~ 33% - 35% of total components

Reduced final assembly down to three days Boeing adopted a higher-level of integration at the supplier level Reduced the number of parts and components, subassemblies/sections in final assembly stage

Example of Close-linking of Partner

Major supplier partners would be given additional responsibilities to help them synergise their tech capabilities for efficiency Hamilton Sundstrand
1. 2. 3. 4. 5. Environmental control system Electrical system Cabin pressurization Auxiliary power unit Ram air turbine and the other systems

The wide scope of the contracts allows it to subcontract the design work within each work package and across its divisions This means that the first-tier suppliers are moving upward in the value chain and assuming more the role of the system integrator

787 Supply Chain in few words

Build to Design Modify and Build Design, Develop, Build

First-tier suppliers can offer more integrated and interconnected solution Decreasing the number of the components comprising the airplane First-tier partnering suppliers are also given full control of their own lower-tier supplier networks First time ever when a first-tier supplier is given control of the selection of second and third-tier suppliers in a Boeing commercial aircraft program

Global Outsourcing - Boeing

Foreign content of the Boeing program

In 1960s was only 2 percent for 727 In 1990s was 30 percent for 777 In 2006, it might jump to as high as 70 percent for 787

China Japan Rest of World

Boeing 787

Boeing Japan

Boeing depends greatly on Japanese airframe and composite tech Long-standing, mutually-beneficial relationships with the Japanese aerospace and aviation industries Boeing and Japanese aerospace collaboration started in the 1970s Japanese aerospace manufacturers are partners supplying about 20 percent of the 777 airframe, including fuselage panels and doors, the wing center section, the wing-to-body fairing and the wing inspar ribs Government of Japan, Japan Developmental Bank and ExportImport Bank provided loans to Boeing

Boeing Japan for 787

Japanese partners take up a significant percentage of the work, about 35%, in designing and manufacturing airframe structures Formal contract for research and development on composites for 787 Dreamliner project Japanese govt will be subsidizing the 787 program up to $3 billion Entire manufacturing process for the final assembly of the wing will be created by
1. Mitsubishi Heavy Industries 2. Fuji Heavy Industries and 3. Kawasaki Heavy Industry

FIRST TIME EVER WING MFG & ASSEMBLY TO JAPAN Japanese aerospace manufacturers are thus playing a significant role

Boeing Japan for 787

Airframe Wing Center Wing Box Front Fuselage After Fuselage Empennage Nose 727 US US US US US US 767 US Japan Japan Japan US US 777 US Japan Japan Japan Foreign US 787 Japan Japan Japan/US Italy Italy/US US

Boeing China for 787

Beginning of the Boeing-China relationship in 1972 Boeing has provided 565, or about 61 percent of the 924 commercial jetliners operating in China
while only 251 or 27 % of them have been provided by Airbus

Recent supplier contracts signed in Beijing are worth $600 million

including work in the 737, 777 and 787 programs

Active supplier contracts between Boeing & Chinas aerospace suppliers are valued at $1.6 billion in total Chengdu Aircraft Industries the single source for the rudder Shenyang Aircraft Industries the vertical fin leading edge Hafei Aircraft Industries upper & lower wing-to-body fairing panels

Boeing China for 737

Boeing China for 787

Boeing Investments in China

Since 1993, transferring its technical expertise and operational experience to

Chinas aviation industry Regulatory authority

Aimed at improving flight safety, reliability and efficiency Production quality control initiatives to help improve product quality A resident team in China, offering direct technical assistance/support to the Chinese factories Continued to expand its training facilities in order to address the needs of the growing Chinese aviation professions.

Airbus Japan and China

In 2001, Airbus set up a Japanese subsidiary Mitsubishi, Fuji and Japan Aircraft Manufacturing Co., were contracted as suppliers of airframe assemblies Despite its efforts, Airbus is encountering tremendous difficulties
1. No Japanese airline has placed any order for the Airbus A380 2. Aerospace manufacturers have so far declined Airbus contract offers 3. Claim their production capacity is fully committed to the 787 program

Staggering economic growth and Olympics in 2008, boost for Airbus Airbus A380 could be seen as a great choice for airlines to operate on routes connecting mega-hub cities Chinas commitment to more orders came at
Intensified cooperation signing contracts worth $300 mn Double its procurement of local content from local suppliers to $120 mn

Airbus Japan and China

Airbus announced that Tianjin will be the site for Airbus first final assembly plant outside Europe The plant is exclusively dedicated to the manufacturing the A320 aircraft and is expected to roll out assembled airplanes by 2008

Risk-Management

No one link in the supply chain has all the information necessary to identify and monitor risk comprehensively They cannot see many risks that are emerging and changing Following risks need to be carefully evaluated, and taken into perspective
1. 2. 3. 4. Financial Geopolitical Regulatory Operational

Risk-Management
Inventory Turnover for supplier tiers

Collaborative Risk Management

1. Treat all suppliers as critical members of program team

Must encourage innovation across industry Must be prepared to accept and share risk Any prime contractor is only as good as its supply chain and each member in that chain is as important as the last

2.

Bring the best minds to supply chain risk identification

Too many contractors do not know all the links in their supply chain How can they know where the risks lie ? Map the entire supply chain, assess risk by supplier, & then start managing A collaborative partnership with suppliers involving personnel from all suppliers and cross-functional

Collaborative Risk Management

3. Seek out early warning signs

Systematically filter and communicate supply chain information Better visibility into the fabricators levels of resource allocation, numbers of internal corrective actions, and aging might provide an early warning and allowed an earlier, less costly intervention.

4.

Create a culture of proactive risk reporting

Primes paying, subcontractors delivering according to price, quality, and schedule estimates in old transactional model Each side tried to minimize its liability for execution failures, and subcontractors took sole responsibility for their own suppliers Shift away from fine-print supplier agreements to solid, transparent policies with accountability and sufficient support for training

Thank You