Boeing’s Lean Bet
Kevin Meyer at Evolving Excellence commented the other day on the Wall Street Journal article about Boeing's recent supply chain challenges. I'd like to add to what he said from a broader perspective on the industry, and how I think Boeing's lean effort fits, if their commitment is real.
The aerospace industry, perhaps more than most, is plagued by severe economic cycles. During good times, airlines fly vacationers and business folks to their destinations at premium prices. They buy new batches of more efficient, higher-tech planes. Manufacturers take it straight to the bank. On the down side of the cycle, vacationers drive, business people stay home, and airlines and manufacturers lose money, layoff, and go idle. Making matters worse, airlines often find themselves entering such downturns with aging, inefficient airframes. Maintenance costs and reliability, instead of being level-loaded across a fleet of mixed ages, rise and fall with each replacement cycle. The effect is particularly harsh when fuel costs rise during a downturn as they have in the past two recessions. When money becomes available again, it's time to buy another batch of aircraft, quickly. These cycles perpetuate non-lean processes throughout the industry and the supply chain. (The defense side of the business exacerbates this with downright bulimic acquisition budgets, but that's another topic.)
Other commentators have already contrasted Boeing's lean point-to-point 787 strategy with Airbus's batch and queue A380 superjumbo. The airlines, judging by their orders, have bought into Boeing's lean point-to-point concept. Boeing's challenge today is to sell its customers on what lean level-loading of their fleet replacements can mean to them. Buying aircraft gradually, over several years, good and bad, will even out the ages of the airlines fleets. This will make them less vulnerable to unpredictable fuel cost spikes since they'll have mix of the most efficient and less efficient aircraft. It will also level their maintenance costs and reliability. Level maintenance loads over the years mean a more stable maintenance workforce, which could mean better labor relations. Leveling reliability protects your reputation with the flying public, by reducing cancellations. The worst case scenario for airlines in the past few decades has been to be in a recession with an aged fleet and no capital to rebuild. Buying gradually means less vulnerability to that risk as well.
In the early days of commercial aerospace, technology advanced so quickly that airlines faced block obsolescence as pistons gave way to turboprops and turboprops gave way to jets, then turbofans. Today's 737 and 747–even the new 777– represent thirty-year-old technology, yet they are still dominant in the industry. The composite 787 is a revolutionary step, but the next big step is probably another thirty or forty years away. This means there is not time pressure to recapitalize all at once.
If Boeing has truly embraced lean and starts taking the lean gospel to its supply chain, their production capacity will grow through continuous improvement. While their current order book is full through 2011, steady improvements will free up capacity to increase production without breaking the supply chain. In theory, this means they can offer production slots to their US and European customers gradually, as they open up. Another requirement is to sell the Asian airlines on the same idea, and to spread those orders further into the future, integrating US and European airlines into the mix.
Boeing's global supply chain has understandably caused a lot of people to doubt the company's commitment to lean. How they react to the current supply chain challenge is the ultimate test. If Boeing's lean commitment is real, they could use this opportunity to change the entire industry for the better.
Here is a related article on American moving up the purchase of some replacement jets (737's).
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