2. The Issue
• Boeing had two concurrent contracts with Germany and the US Navy to build
a total of 300 V-22 Osprey aircraft. 180 for Germany and 120 for the US Navy
over 5 years.
• Germany is having trouble financing
• Suppliers are behind on delivery times
• We now have to restructure our supply chain as well as scale back on labor
while maintaining a 10-15% profit margin.
3. Where Are We Heading?
1. Restructuring the supply chain with new suppliers
2. Rearranging the work force
3. Reestablishing our finances
4. Reinforcing communication with new suppliers
4. 1) Restructuring the Supply Chain
• Analyze the current supply chain
• Look for improvements on quality, delivery times and costs
5. Assumptions About the Supply Chain
• In order to start the work in January 2016, Boeing must have already ordered
some parts for their lead time in advance.
• Lot 4 Lot supply chain strategy, we order right in time so we eliminate storage
costs.
• Price include shipping price.
7. Old Supply Chain
• Red: Pieces ordered
• Black: Pieces received
• Planes per months: 5
• Production starts in January 2016 and finishes in December 2020
8. Changes to the Supply Chain
• Order from different supplier (lead times change) starting in December 2015
• Order 1 month in advance in case suppliers are still late one delivery
○ Enforced for the first 6 months to 1 year in hope that on time delivery will be fixed through our
closer relationship with suppliers.
○ Storage costs will be added
9. New Supply Chain (old suppliers)
• Red: Pieces ordered
• Black: Pieces received
• Planes per months: 3.5
• Still have to honor contracts with old suppliers
10. New Supply Chain (new suppliers)
• Red: Pieces ordered
• Black: Pieces received
• Planes per month: 3.5
• Starting to order from new suppliers
11. How we Improved the Supply Chain
• Improved Quality, Delivery Times and lowered costs of parts
• Ordered 1 month in advance to anticipate potential delays from suppliers
12. 2) Rearranging the Labor Touch Workforce
• Getting rid of overtime
• Workers will work 7.5 hours a day rather than 8
• Re-allocation of some of the workforce to other projects in need
13. Assumptions About the LT Workforce
• Each labor touch workers originally worked 8.4 hours per day (8+5% overtime)
• Workers work a total of 241 days (365= 251 working days, including 10days of
paid vacation+ 104 days worth of weekends+ 11 public holidays)
15. Changes Made to the LT Workforce
• Calculated new hours needed based on how many hours each planes takes
• Got rid of any overtime
• Shortened labor touch hours from 8 to 7.5 per day
17. How we Improved the LT Workforce
• Tried to keep as many employees as possible by shortening hours per day to
7.5. Their salary would still be respectable ($45,187 gross per year, benefits
excluded)
• Provided a career transition option (explained in later slide)
• Honored values Boeing holds towards its employees
18. Overall Old Work Force
• Total work force while old contract:
○ 1800 Labor touch employees
○ 1000 Support engineers
○ 130 Managers
19. Changes Made to the Overall Work Force
• Lowered labor touch workforce
• Going from 300 to 210 planes is doing about 70% of the job, therefore assumed
at least 70% overall work force would remain
• Assumed 70% (700) of engineers would be kept for this project (plus 75 which
will assist, if shortage, as well as complete another task given, explained in later
slide)
• Same assumption made for managers (91+14 will be kept for the project)
20. Career Transitions
Solution: Allocation of managers (25 people),
touch labor (422 people) and support staff (225
people) to other profitable projects (total of 672
people):
According to The Economic Times article
“Boeing says 777 output may fall as losses
narrow on 787” on 22 Oct, 2015
1) Single-aisle 737 - one of the main cash
cow (in Everett)
2) Concentrate on developing newer model
777X which is predicted to generate a lot
of profit (in Everett)
3) Move to Chinook program (in Philadelphia)
Allocating $15M to help employees move.
21. Overall New Work Force
• Total work force for new contract:
○ 1378 Labor touch employees (76.5% remaining)
○ 775 Support engineers (77.5% remaining)
○ 105 Managers (80.8% remaining)
22. 3) Reestablishing our Finances
• Changes made so far that will impact our finances:
○ Changes in the Work Force
○ Changes in the Supply Chain
24. Calculations
What does this mean for Boeing?
An investment is acceptable if the NPV is positive showing a good projected investment.
The ROS is an evaluation of our operational efficiency and shows our operating profit margin.
Equation New Contract Old Contract
Return On Sales
(ROS)
20.69 26.38
Return On
Investment (ROI)
26.09 35.38
Net Present Value
(NPV)
4,101,186,834 6,950,281,397
25. We are not losing profit!
Old return on sales: 26%
New return on sales: 20%
With reduced touch labor hours we still have...
Manufacturing support: $62,000,000
Managers: $11,250,000
26. 4) Reinforcing Communication with New Suppliers
• One issue we Boeing is currently running into is that our suppliers are increasingly late on
deliveries
• We believe new intensive communication steps with our suppliers will improve our
relationship with them and reduce late deliveries
• As shown earlier, choosing new suppliers with better on time delivery percentage rate will
substantially help with this issue
27. Transitioning Suppliers
We have two variables:
1) On-time delivery, which can be gradually improved by sending some of the
managers and support to suppliers (which will be explained in a later slide)
• Allocation of $24,000 monthly to visit our suppliers
• As a result, we give our employees work and improve the suppliers’ job
28. Transitioning Suppliers Continued
2) Quality, so we can stay true to our values.
• We feel like we have a higher influence on delivery time than quality, so we
ultimately chose to prioritize higher quality as main deciding variable.
Moreover, by choosing a higher quality we are saving time, reducing transportation
cost and labors hours that would go on replacing faulty parts.
29. Reasoning Behind Some of Our Choices:
• Won’t honor our commitments to our employees (Integrity)
• We would lose trust with our suppliers, prospective employees, current
employees, and shareholders (Trust and Respect)
• Lose talent to competitors and it might be hard to replace some of the talent
that is working on the project (Quality)
30. Why Laying off is not a Boeing Solution
• Hurt the many communities that the company works in while also ruining the
morale of the employees (Corporate Citizenship)
• If Boeing goes against their values their mission statement would be violated
"People working together as a global enterprise for aerospace leadership.“
• “Where reductions are necessary, we provide a variety of career transition
services to assist employees”-Jill Goodshall, Boeing Spokesperson
31. In Summary
• Changed the supply chain for an improved delivery, quality and price
• Reduced employees’ hours rather than lay offs
• Allocated “non needed” employees to other projects in need
• Increased communication with suppliers to resolve some delivery problems
• Revised financial statement and able to maintain outstanding profitability
• Honored Boeing’s values towards stakeholders
32. Resources
"Boeing Says 777 Output May Fall as Losses Narrow on 787 - The Economic Times." The Economic Times. Web. 2 Nov. 2015.
http://economictimes.indiatimes.com/news/international/business/boeing-says-777-output-may-fall-as-losses-narrow-on-
787/articleshow/49488440.cms
"Viking Squad - Google Search." Viking Squad - Google Search. Web. 2 Nov. 2015.https://www.google.com/search?
q=Viking+squad&espv=2&biw=1920&bih=1099&source=lnms&tbm=isch&sa=X&ved=0CAgQ_AUoA2oVChMIld-
sxN3yyAIVTSmICh13AQFH#imgrc=F5VSXQln1vibVM%3A
http://www.heraldnet.com/article/20150227/BLOG01/150229256
