Effective Supplier Selection - Boeing 787

UNIVERSITY OF BRADFORD
EFFECTIVE SUPPLIER
SELECTION:
BOEING 787 DREAMLINER
Name : Uyoyo Edosio

Contents
1 Introduction .................................................................................................................................................................2
2 Characteristics of an Effective Supplier Selection Process.............................................................................2
2.1 Process of Supplier Selection .......................................................................................................................2
2.1.1 Problem Definition/ Requirement Specification .............................................................................3
2.1.2 Criteria Formulation ..............................................................................................................................3
2.1.3 Criteria Formulation Models ...............................................................................................................4
2.1.4 Qualification............................................................................................................................................4
2.1.5 Decision Support Models for Supplier Selection............................................................................4
2.1.6 Final Supplier Selection........................................................................................................................5
2.1.7 Model for Final Supplier Selection......................................................................................................5
2.2 Benefits of Effective Supplier Selection ....................................................................................................6
2.3 Risk associated with supplier Selection .....................................................................................................7
2.4 Supplier Selection Strategy and Implementation Issues.........................................................................7
3 Case study on the supplier selection Process of Boeing 780..........................................................................8
3.1 Benefit of Boeing’s Supplier selection process ........................................................................................9
3.2 Implementation Issues................................................................................................................................. 10
3.2.1 Global Selection Strategy over Local Supplier selection created; Communication gap,
higher overhead cost? ........................................................................................................................................... 11
3.2.2 Non uniformity of Technical Specification across Suppliers.................................................... 12
3.3 Risk Associated with Boeing Supplier Selection.................................................................................. 12
3.4 Other: Recommendations For Boeing in Future Aircraft Manufacture ........................................... 13
4 Conclusion .............................................................................................................................................................. 14
5 Appendix ................................................................................................................................................................. 15
6 References................................................................................................................................................................ 15

1 INTRODUCTION
Since the aim of every organization is to increase revenue and reduce cost, developing effective supplier
selection is one of the key strategies to achieve this feat. Using the right criteria and selection model a
buyer/ manufacturer can easily identify suppliers that have flexible supply chain, good logistic
management and Just In Time supply(Ghijsen, et al., 2010). Effective suppliers can proactively seek out
techniques/ ways to deliver new ideas, processes, and products which will benefit manufacture and give
competitive advantages to their manufactures. (Inemek & Matthyssens, 2012).
This report, will highlight the key concepts, and models to effectively select a supplier. The report will
also discuss risks and benefits associated with supplier selection. Finally this report will illustrate real life
application supplier selection strategy using Boeing Company as a case study.
2 CHARACTERISTICS OF AN EFFECTIVE SUPPLIER
SELECTION PROCESS
2.1 PROCESS OF SUPPLIER SELECTION
According to (Arjan Van, 2010), Supplier selection involves all activities aimed at identifying the most
competent supplier; these activities include six processes, which are: Define specification; Select supplier,
contract agreement, ordering, expediting and evaluation.
Some researchers state that in order to effectively select a supplier, an organisation should focus on four
major processes to consider, which are: problem definition, formulation of criteria, qualification and
choice (De Boer, et al., 2001). Out of these four processes, (Hong, et al., 2005) stated that the most
important process for selecting a supplier are prequalification steps and final selection, as other steps are
not as complicated.
The Diagram below illustrates the methodology for selecting a supplier as addressed by Error! Reference
source not found..
Figure 1: Supplier Selection Process
Problem Definition
/Requirement
Specificatiom
- Supplier Strategy
Decision
- Crirteria
Formulation
VendorQualification
Final Vendor
Selection
 Assess
organizational
need.
 Determine if
supplier is needed
or not
 Design Technical
specification.
 Make strategic
decisions such as:
multiple sourcing
vs. single sourcing,
global vs. local etc.
 Choose selection
criteria (e.g. price,
quality etc.)
 Score suppliers
based on selected
criteria
 Prepare long list of
qualified suppliers
 Prepare short list
of most competent
suppliers
 Select final
suppliers
 Prepare contract
and terms of
agreement based
on strategic
decisions

2.1.1 Problem Definition/ Requirement Specification
According to (De Boer, et al., 2001), Problem formulation is the process in which an organization
assesses the need for a supplier in the manufacture of a certain/ good or service. Before embarking on
supplier sourcing an organization needs to answer the following questions:
 What do we want to manufacture? and;
 What resources do I have and what resources do I need?
 Do we need a supplier?
 Do we need to replace existing supplier?
 How much do we need to manufacture?
These questions are important, as they would help an organization consider if their internal capacity and
resources are sufficient to manufacture a product and they can easily identify areas where supplier
sourcing is required(De Boer, et al., 2001).
After answering the above question, the organization needs to do the following:
 Develop a comprehensive functional specification of problem requirement.
 Prepare a document detailing the technical specification of any product.
 Collaborate with expert in the fields to corroborate the specifications designed(Arjan Van, 2010)
It is important to collaborate with experienced suppliers as well as the internal technical team while
developing the technical specifications as most organizations do not understand the market as good as the
supplier, hence the Problem formulation/ requirement specification document may not be clearly
defined(John, et al., 2012).
2.1.2 Criteria Formulation
After a company has clearly defined its needs; based on demand, a Supply Chain Manager should develop
a list of criteria, which will guide the decision
making process when selecting a supplier. This
process is quite complex as a supplier is usually
assessed using more than one criterion (Weber,
et al., 1998). The Diagram in figure 2 displays
these criteria, numbered in order of their priority.
For instance, a vendor who can produce high
quality clothing may not have the technical
capacity to supply large quantities just-in-time.
This supplier would pass the quality criteria, but
fail delivery criteria. The individual scores for
each criterion may be aggregated to obtain
suppliers overall score (International Federation
for Inforomation Processing, 2005).
The Supply Chain Manager must select the
supplier that best meets set criteria.
Figure 2: Various Selection criteria, numbered from 1 to
12. Number one (1) is the highest important criteria and
twelve is the least important criteria(Aguezzoul, 2011)

2.1.3 Criteria Formulation Models
The foremost research on criteria formulation is that of Dickson in 1966(Mendoza, 2007). Dickson
identified 23 criteria, which should be considered when selecting vendors(Mendoza, 2007).
In recent times, there have been additions to these criteria; these additions have been developed to suit the
dynamism of modern day business such as globalization and sustainable supply chain(Aguezzoul, 2011).
2.1.4 Qualification
After identifying the supply need, developing a supplier criteria and determining the supplier selection
strategy. A Supply Chain Manager can commence sourcing for a supplier.
How to Source for Suppliers
 Long List Qualification: This process involves inviting potential suppliers to bid for projects.
Qualification is based on the supplier’s ability to meet terms, timelines and technical specification.
The organisations explains the criteria’s in documents called a Request for Quote (RFQ )or Request
for Tender (RFT) and sends it to potential vendors.(Arjan Van, 2010)
 Short List /Prequalification
This is the Process of streamlining the long list of potential suppliers received during the RFQ or RFT
qualification phase(Mendoza, 2007). This phase involves identifying the most competent suppliers.
2.1.5 Decision Support Models for Supplier Selection
According to(De Boer, et al., 2001)and (Mendoza, 2007) there are three basic models that can be adopted
when prequalifying a vendor. They include:
 Categorical Method
 Data envelopment analysis (DEA)
 Cluster Analysis Method
The Diagram below presents a brief overview of the Decision Support models for supplier selection.
Figure 3: Decision Support Models for Supplier Prequalification
Categorical Method
•This is the use of historical data to evaluate supplier
•The results maybe "postive", "Neutral", "Negative"
Data envelopment
analysis
•This method judges suppliers on benefit (output) and
Cost(input)
•The supplier ratings using this model are: "Efficient",
"Inefficient",
Cluster Analysis
Method
•Thus method involves making decisions by grouping similar
suppliers into the same clusters.

2.1.6 Final Supplier Selection
Final selection is the stage where a supplier selects vendors (usually more than one) to supply good(s)or
service(s). There are models that can guide a supply chain manager in selecting a vendor.
2.1.7 Model for Final Supplier Selection
According to (Erdem & Göçen, 2012), the supplier selection process can be broadly categorized into 5
models;
These models include: Linear Weight modelling, Mathematical programming, artificial intelligence,
Statistical, and Total cost of ownership model.
The table below list gives an overview of the types of Models in supplier selection, as well as a brief
description of each of the models
Table 1: the types of Models in supplier selection, and a description of each of the models
S/N
Supplier
Selection Model
Types of the Model Description
1
Linear Weight
Modelling
analytic hierarchy process
(AHP)
Each criteria is given a weight. The total
score of a supplier is the product the
suppliers score on each criteria and the
weight of the criteria (International
Federation for Inforomation Processing,
2005)
Interpretive structural
modeling (ISM)
fuzzy set theory (FST
2
Mathematical
Programming
linear programming (LP) This is the use of mathematical formulas
when selecting a supplier. The model
focuses use of mathematical formulas to
maximising profit and minimising
expenses. (De Boer, et al., 2001)
mixed integer programming
(MIP)
Goal programming (GP)
data envelopment analysis
(DEA)
3
Artificial
Intelligence
Case Based Reasoning (CBR) This is the use of a computer based
software, when making supplier selection
decisions. The computer software is
programmed to make informed decision
based on historical data stored over time
(Mendoza, 2007).
Genetic Algorithm (GA)
Neural Network (NN)
Expert systems (EX).
4 Statistical/
probabilistic
models
Not Applicable This model tackles the issue of vagueness
and uncertainty that relates to selecting a
vendor. (De Boer, et al., 2001)
5 Total cost
of ownership
Not Applicable It is the sum total of all the cost associated
with a particular vendor choice. It can be

S/N
Supplier
Selection Model
Types of the Model Description
models grouped into pre -transaction cost and
post transaction cost. (De Boer, et al.,
2001)
Out of all the models stated above, AHP model is a most commonly adopted model for supplier selection.
The model makes use of both qualitative and quantitative approaches when determining a vendor choice.
It is a very flexible model and it is the most ideal model to adopt when selecting a supplier based on a
combination of more than one criteria (Erdem & Göçen, 2012)
2.2 BENEFITS OF EFFECTIVE SUPPLIER SELECTION
1) Better Innovation:Nowadays, suppliers have evolved from being just an operational arm in a
supply chain. Effective suppliers are proactively seeking out techniques/ ways to deliver new
ideas, processes, and products which will benefit manufacture. For instance if a supplier can
innovatively redesign its production cycle in a manner that will reduce production time. This will
be a great benefit to the manufacture as it will reduce the turnaround time of delivering products
to customers. (Inemek & Matthyssens, 2012)
2) Higher Responsiveness: Effective supplier selection can improve the responsiveness of a
product. Using the right criteria and selection model a buyer/ manufacturer can easily identify
suppliers that have flexible supply chain, good logistic management and Just In Time supply. A
combination of all these factors directly influences the responsiveness of a product. This can give
manufacturers a competitive advantage. The supplier can also maintain a long term relationship
with the supplier, for sustainable supply chain.(Ghijsen, et al., 2010)
3) Reduction of Cost through benefits globalization of Suppliers: If a manufacturer adopts an
effective supply chain, with a major criteria to reduce cost ( For instance a manufacturer design
its supplier selection process in such a way that suppliers are sourced from countries with low
minimum wage, cheaper suppliers, who can deliver quality products); this may directly reduce
cost incurred on worker wages significantly. Hence, supplier can effectively apply the
mathematical model of reducing cost and maximizing profit by so doing.(Inemek & Matthyssens,
2012)

2.3 RISK ASSOCIATED WITH SUPPLIER SELECTION
The following are the risk associated with supplier selection:
1. Turnaround time risk: Poor supplier selection can create a lag in the production time for a good.
This can lead customer dissatisfaction due to delay in product delivery(Russill, 2010)
2. Financial risk: When suppliers are not effectively selected, an organisation may spend more than
budgeted(Christopher & Lee, 2004).
3. Non-performance Risk: Suppliers that are ineffective may not be able to deliver agreed output or in
some cases may deliver low quality output. This can directly reduce the competitiveness of a product
in the market(Russill, 2010).
4. Communication / Coordination risk: This is the risk of suppliers mismanagement due to poor
communication or lack of proper oversight on the supplier (Christopher & Lee, 2004).
5. Environmental Risk: An effective supplier chain can be affected by environmental disasters like
earth quakes, floods or volcanoes. This may impede the production life cycle if a supplier is affected.
To mitigate this risk a manufacturer should have at least two suppliers supplying similar
products(Christopher & Lee, 2004).
2.4 SUPPLIER SELECTION STRATEGY AND IMPLEMENTATION ISSUES
The supplier selection strategy can directly influence the value derived from a supplier relations, as
strategic decisions can help an organization reduce total cost of manufacturing a product (logistics,
labour, technology etc.) and increase profitability(Arjan Van, 2010).
The table below describes some of the strategic decisions taken when selecting a supplier:
Table 2: Some Strategic decisions to be considered when selecting a supplier(Arjan Van, 2010)
S/N Sourcing Strategy Implementation Issues
1 Single Vs. Multiple
Sourcing
The organisation needs to critically assess if it requires a single or multiple
supplier (Arjan Van, 2010). According to (Sawik, 2010)
Single Sourcing tends to be cheaper overall, but a delay in production will
affect the manufacturer adversely. While multiple sourcing mitigates this
risk, and it is usually more expensive.
2 Global Sourcing Vs.
Local Sourcing
The organisation has to ascertain if a supplier is need globally or locally.
Global Supplier may be considered if:
 A manufacturer is purchasing in bulk (Arjan Van, 2010).
 A manufacturer requires buy at reduced cost
(Supply Management and Purchasing Website, 2008).
Local Supplier maybe considered:
 Highly responsive products.
 High tech products

S/N Sourcing Strategy Implementation Issues
3 Partnership Vs.
Competitive Sourcing
The organisation will determine whether or not to enter into partnership with
their suppliers. The risk of choosing a partnership include: disclosure of
sensitive information to suppliers. Leakage of such information may lead to
loss competitive advantage. However partnership is much more long-term
oriented and can endear better research and development in the production
life cycle, due to commitment of the vendor.
While the competitive supplier sourcing involves requesting for tenders or
quotes and evaluating them to select the best vendor.
3 CASE STUDY ON THE SUPPLIER SELECTION PROCESS OF
BOEING 780
Brief Overview of Boeing Company
Boeing is one of the leading aerospace company in the
world. They are involved in the manufacture of:
 Commercial jetliners ,
 Defense Jetliners,
 Commercial and Military Aircrafts,
 Space and security systems,
 Weapons and,
 Satellites
Boeing has more than a 100 customers located globally.
The company has offices in 70 countries, with its corporate
headquarters in Chicago (Boeing Public Relations, 2013).
According to
(Market Watch,
2013), the
company made
a total sales revenue of $81.7 billion in 2012; this
represented 18.86% sales growth between 2011 and 2012.
Today, Boeing is one of the most innovative aerospace company; it has rapidly developed their IT
systems, research and development, and supplier training. Boeing started out as merely a fabrication
company, currently Boeing has a very complex supply chain, involving global suppliers and partners.
(Nolan, 2012).
The table below highlights the evolution of Boeing to a highly innovative company.
Figure 4: Overview of Boeing (Market
Watch, 2013), (Boeing Public Relations,
2013).

Figure 5: Supply chain strategy of Boeing from 1916 to 2000 based on (Nolan, 2012)
Boeing commercial aircraft include; 737, 747, 767 and 777 and the latest is Boeing 787 Dreamliner, and
the 747-8. (Boeing Public Relations, 2013).
For the purpose of this case study, we will review the supplier selection process in the manufacture of the
Boeing 787 Dreamliner.
3.1 BENEFIT OF BOEING’SSUPPLIER SELECTIONPROCESS
The major benefit of Boeing supplier selection process during the manufacture of the Dreamliner 787 is :
Better Innovation:According to (Inemek & Matthyssens, 2012) suppliers can partner with manufacturers
(through reseach and developmet) to develop more innovative and competive products. This was the case
with Boeing; the company partnered with 50 different suppliers globally during the manufacture of the
Dreamliner 787 and outsourced 70% of the manufacturing operations to suppliers around the globe. The
aim of this was to reduce the cost of development from $10 to $6 billion(Denning, 2013)( Thomson
Reuters, 2011).
Although there was more than 3 years delay in manufacturing; Boeing was successful able to develop the
innovative Dreamliner 787 with the help of its global suppliers (see Appendix 1 for details of the
suppliers).
1916-1963
Boeing purchased
parts and fabricated
aircraftsfrom start
to finish
1940-1945
Boeing began
outsourcing
engine
production
1955-1960
Boeing broaden
its group of US
based
outsources.
The company
launched 707
1970-1980
Boeing
commenced
global
outsourcing
2000's- to Date
Boeing
commenced
Global strategic
partnership/
Global
outsourcing

Benefits of the Dreamliner
Before the design of the Dreamliner 787, Boeing stakeholders were faced with a dilemma on whether to
design a fuel efficient airplane or an airplane with better speed. However, after the terrorist attack on 11
September 2001, fuel priced increased, and the cost of transportation equally became higher. This event
led Boeing to choose the option to develop a fuel efficient, light weighted airplane called the Dreamliner
(Norris & Wagner, 2009).
The Dreamliner 787 has the advantages:
 One of the greatest advantages of the Dreamliner 787 is the fact that is manufactured using of
composites materials. Composite materials are lighter, cheaper, unlike metals have lesser corrosion,
and the component materials improve pressure inside the cabin (Brosius, 2007).
 The Dreamliner is 20% more fuel efficient than airplanes that are the same size with the
Dreamliner(Norris & Wagner, 2009).
 It creates better customer experience using composite materials like fuselages that have low cost
of maintenance.( Boeing Company, 2013)Brosius, 2007).
 And 15% lower cash operating cost( Boeing Company, 2013).
3.2 IMPLEMENTATION ISSUES
In 2007 Boeing reported that the forecasted bolts and screw needed for the manufacture of the Dreamliner
787 was not sufficient, this lead to a delay in production time(Lunsford & Glader, 2007). In 2008, the
workers went on a 58 day strike. Most recently the Boeing has been experiencing battery over heating
which has caused series of fire incidents(Brinson, et al., 2013). The diagram below presents an overview
of the various implementation issue faced during the manufacture of the Boeing 787.

Figure 6: implementation Issues faced by Boeing during the manufacture of the Boeing 787 from 2007 to 2013
(based on (Brinson, et al., 2013),(Lunsford & Glader, 2007),(Marsh, 2009) and (Peterson, 2011))
3.2.1 Global Selection Strategy over Local Supplier selection created; Communication gap,
higher overhead cost?
Boeing chose to adopt a combination of “Global supplier sourcing strategy” and “partnership
supplier sourcing strategy”.
Boeing chose to outsource over 70% of the manufacturing operations to suppliers around the globe. The
aim of this was to reduce the cost of development from $10 to $6 billion(Denning, 2013).Boeing radically
changed it traditional supply chain which was between 35% to 50% outsourcing , to adopt over 70%
outsourcing(Tang, et al., 2009). According to (Denning, 2013) such drastically dispersed supply chain can
lead to tribal risk. Different countries speak different languages and hence may interpret data differently.
The Company partnered with 50 different suppliers globally during the manufacture of the Dreamliner
787 ( Thomson Reuters, 2011).
 Also Boeing adopted the use of multiple source supplier strategy when designing the engines of
the plan. Customers select either a Rolls- Royce Trent Engine or a General Electric GEnx Engine
(Marsh, 2009).
 The supply chain of Boeing was structured such that preassembled goods are supplied to Boeing by
Teir one suppliers.

Figure 7: Boeing 787 Supply Chain Process based on (Marsh, 2009).
3.2.2 Non uniformity of Technical Specification across Suppliers
According to(Nolan, 2012), prior to the manufacture of the Dreamliner 787, Boeing the technical
specification team is usuallya group of 100 and 200 people. The team composition includes, Boeing
engineers, Boeing Suppliers and contractors. This group of people collaborates to develop a
comprehensive airplane design. This design is then sent to allBoeings suppliers, who will formulate a
detailed design and engineering drawing. This process was called “build to print”.
However, Boeing chose to scrap this process of “Build to print” and adopt the “build to performance”
during the manufacture of Dreamliner 787. In this case Boeing will only list performance criteria and
each partner (Teir 1 Supplier) was tasked with designing detailed engineering drawings of the Boeing
787.
3.3 RISK ASSOCIATED WITH BOEING SUPPLIER SELECTION
Boeing selected Suppliers based on trust and confidence in thesuppliers because they felt the suppliers
were very experienced in their fields(Gates, 2013) . Boeing did not maintain proper oversight on their
suppliers. From research it appears that Boeing specifically selected suppliers with good market
reputation in the various services required.
Boeing took a drastic step to suddenly change its traditional supplier selection sourcing to a global
supplier selection, also they decided to form partnership with tier one suppliers. This partnership included
sharing of risk between Boeing and its tier one supplier. This changes were met with some repercussions,
as follows:
Tier Three
Tier Two
Tier One
Boeing
Supplies
Preassemble and Supplies
Preassemble and Supplies
Boeing
Final Assembly of
parts from all
Tier one supplier

 Communication Risk :
 Vought Incorporated, (a Tier one supplier of Boeing responsible for the design of the
fuselage)outsourced the Automation Integrator Technology to a tier two supplier. Vought experienced
severe communication gaps between its Tier two and three suppliers (including AIT which was very
crucial to integrate the systems). The Tier three and two suppliers did not enter accurate and timely
information in their web based communication system called Exostar(Tang, et al., 2009).
 Vought was not able to accurately disseminate problems faced by these suppliers in time. This
problem caused a delay of the Boeing Dreamliner by six months (Greising & Johnsson, 2007)
 Financial Risk:
 The delay described above, cost Vought Technology a lot of money to rectify the problems with its
tier two and tier three suppliers. Vought did not have the financial capacity to continue the
manufacture of the fuselage. Hence,Boeing bailed Vought out by purchasing $1 billion worth of
shares from Vought to become a controlling Shareholder (Marsh, 2009).This was an unbudgeted cost
for Boeing and hence is a financial risk.
 Boeing had to incur the overhead cost of transporting air plane parts, they had to design an
aircraft called Dreamlifter. This was cost ineffective, if Boeing had selected their suppliers locally
or in countries which are nearby they would have reduced the cost of logistics (Tang, et al., 2009).
 Coordination risk:
 Due to the pressure to meet stipulated delivery dates, a lot of suppliers were delivering unfinished
products to one another. Boeing only noticed these problems during the assembly of the preassembled
airplane components from Teir one suppliers(Marsh, 2009).
 Boeing officials did not notice this issue until the testing phase due to the fact that they did not
monitor the activities of each of the suppliers closely.
3.4 OTHER: RECOMMENDATIONS FOR BOEING IN FUTURE AIRCRAFT
MANUFACTURE
The production of hi tech products, manufacturers should be weary of using global suppliers. These
products are highly responsive and may require flexible supply chain, where things can be quickly
returned to the suppliers(Sako, 2003).
Boeing should develop a supplier park (a supplier pack is a constellation of key suppliers inside or close
to a final assembly plant(Reichhart & Holweg, 2008).).
This will help Boeing:
 Reduce overhead cost of transporting parts across the 50 suppliers across the globe,
 create flexible supply chain,
 Have better oversight and better communication amongst suppliers.
 Suppliers will be able to discuss manufacturing issues amongst themselves.

Above all they will be able to achieve a shorter manufacturing cycle (Just-in-time delivery) by adopting a
supplier park(Sako, 2003) .
4 CONCLUSION
Effective supplier selection is key, as it can directly impact the profitability of a particular product.
However, to select an effective supplier, management must make key strategic decisions, of Where?
How? And What supplier to select?. After deciding on a strategic direction, the management must set
clear criteria, which will be considered when shortlisting suppliers. As mentioned above, there are
different decision support models that can guide a supply chain manager to pick the best supplier.
However, supply chain managers should avoid cheaper cost of labour as a priority. In the case of Boeing
the major supplier selection criteria was to cut cost, hence, they radically outsourced highly sensitive
manufacturing operations. Boeing ended up spending more than budget and ran into huge loss during the
manufacture of the Boeing 787.

5 APPENDIX
Appendix 1: Overview of Boeing Global supplier selection and their roles in the manufacture of the
Boeing 787
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