Boeing’s transition in supply chain management aims to save hundreds of millions of dollars

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Introduction

Oct. 8, 2018, © Leeham News: As Boeing moves toward more automation, digital twins and 3D printing to streamline manufacturing and reduce costs, behind the scenes another major initiative has been underway for more than a year.

It’s the shift from its decades-old Enterprise Resource Planning system to a new, expanded one called Systems Applications Projects.

ERP manages parts and inventory. SAP is an evolution of ERP, important as Boeing plans to up production of the 737 and 787 and nears a decision whether to launch the New Midmarket Aircraft (NMA).

The transition is complex and will take years to fully accomplish.

Synergizing scores of old processes covering a billion parts, requiring meticulous data entry, is a daunting task. In fact, after running into problems in June, Boeing Commercial Airplanes’ transition has been delayed, reports the aerospace analyst for Cowen & Co.

A glitch in the system can have ramifications that interrupt production and create traveled work that can delay airplane deliveries to customers.

A system that works as it should streamlines delivery of parts and reduces costs for Boeing—and, theoretically, also its suppliers.

It’s a delicate balance where one misidentified entry into the computer can create problems.

Pilot program

None of The Boeing Co. business units agreed to interviews at this time, citing the early stages of the process.

Nor would companies involved comment, illustrating the sensitivities and stakes. Tyssenkrupp previously referred questions LNC wanted to pose, during our interview at the Farnborough Air Show, to Boeing. Accenture, which outlined elements of the ERP and SAP processed during an interview at Farnborough, said it couldn’t make someone available for an interview.

A spokesman for Boeing Commercial Airplanes (BCA) did, however, provide a written statement.

“We’re pleased with the progress we’re making transitioning to new digital tools be more efficient and improve performance and affordability in Boeing’s supply chain,” he wrote in an email.

“The Raw Material Aggregation System is how we manage our global raw material supply chain, and we are currently piloting a program that will give us greater visibility into availability and potential disruptions.  While we continue to fine tune the system, ultimately this tool will be a valuable resource at our disposable to efficiently manage a complex, global supply chain.”

What follows is a picture painted by months of research, information obtained through public domain records, interviews with aerospace analysts who follow Boeing and others with knowledge of the situation. Nearly all interviews were on background.

737 parking lot

During the recent backlog of parked 737s at Boeing’s Renton plant, in which about 50 were parked due to delayed engines and parts, one of the contributors was a breakdown in the ERP parts tracking and delivery system administered by TMX Aerospace, a unit of thyssenkrupp.

Although an aerospace analyst tumbled to this element of the backlog of airplanes, he reported that from what he was told, the issue was largely resolved. Not so, according to LNC sourcing. BCA continues to have ERP and SAP challenges, but milestones have been set and the company is making progress.

Even within ERP, two decades after it was adopted, some systems don’t talk to each other, LNC is told. SAP is intended to fix this disconnect. But full transition is unlikely before 2020 or 2021, LNC is told.

As a result of the 737 production backlog, and in part the ERP-SAP issue contributing to it, the transition from ERP to SAP has been delayed, the Cowen aerospace analyst reports, while ERP problems are fixed.

Workarounds target the specific problems, but it’s important to note that engine delivery delays and missing components (traveled work) are the key issues that affected the parked backlog.

Boeing Global Services (BGS), which made the transition to SAP a year ago, still has challenges through some of the multitude of systems that need to be integrated from ERP to SAP, LNC is told.

Understanding the complexities involved paints a picture not of a system failure, as such, but of how shortcomings small and large can affect the enormous task of shifting from ERP to SAP.

Little things can muck up the works

John Byrne, former VP of Boeing supply chain management, in an interview last month with LNC,  said it’s not the top-tier contractors who are typically a problem, but the down-stream suppliers.

Byrne, who retired in late 2017, was for many years responsible for reducing costs and gaining efficiencies in the supply chain for BCA’s 7-series aircraft production.

The “bottom of the supply chain,” involving raw materials and metals, is one key area where “chaos” in schedule changes can erupt, Byrne told LNC.

Indeed, according to Cowen & Co.’s aerospace analyst it was the transition from ERP to SAP with TMX Aerospace involving titanium and raw materials in June that contributed to Boeing’s 737 parked backlog.

“TMX delays reflect conversion in early June of the Boeing-owned titanium ordering system to SAP, disrupting timely deliveries. TMX delays are abating, and SAP conversion for other materials supply is being put off,” reports the Cowen analyst.

The transition to SAP

BGS is the first of The Boeing Co.’s business units to make the transition, last October, and still is integrating systems.

In a 2017 article, The Seattle Times reported BCA CEO Kevin McAllister wanted “a fresh look at how we can manage our supply chain better,” quoting a Boeing spokesperson.

“The logistics of delivering those supplies at just the right time — is the focus of Boeing’s plan,” the article reported. “It’s figuring out how do we operate more efficiently and improve performance and affordability in Boeing’s supply chain.

“One tool McAllister specifically wants to apply is increased use of modern information technology and digital analytics to track supplies and identify blockages in the pipeline,” The Times reported.

This is the crux of ERP and the successor, SAP. The Times did not cite either process in its reporting, however.

“Every transaction [in ERP] should get smarter,” Byrne says. “When you make a data transition, it can just kill you” if things go wrong.

“It can ripple through the supply chain, [but] it takes a while to manifest itself,” he said.

Adopting ERP

BCA adopted ERP after its 1997 production meltdown, in which assembly of the 737 and 747 was suspended for a month because the supply chain couldn’t keep up with what was then unprecedented rates with the 737. At the time, Boeing was assembling 21 737s a month.

Supply chain shortfalls also affected the 747 line.

Byrne said when Boeing transitioned to ERP following the 1997 production meltdown, Boeing couldn’t print orders for six weeks—and it had only prepared a four-week supply of orders in anticipation of the transition.

Boeing took a loss of more than $1bn, its first since World War II. The fiasco cost BCA CEO Ron Woodard his job, a move some considered also should have included company CEO Phil Condit. Condit survived, however.

It was mis-address shipping labels on parts under ERP that contributed to the backlog of 737s parked around Renton Airport, wrote the aerospace analyst for Cowen in August. (The lack of CFM engines was the most visible cause, but the issues went deeper.)

Mixed success

From an industrial standpoint, ERP has been a mixed success. Internet searches reveal lawsuits and even on bankruptcy tied to failed ERP integration.

Searches also reveal successes.

Boeing’s use of ERP, despite whatever glitches occurring leading up to the revelations in the Cowen note, can only be rated a success, even if time has come to move on.

According to one insider with knowledge of the situation, one of Boeing’s ERP system is that too many systems don’t talk to each other—a problem moving to SAP is supposed to solve. This person does not see BCA making the transition until 2021 or 2022.

The task

BCA handles more than 1bn parts a year. The sheer quantity of keeping track of these is mind-boggling.

All it takes to create problems is something as little as a typographical error.

In an hour-long webcast last year with a company called Azul Partners, which published a magazine called Metal Miner, Trevor Stansbury, CEO of the firm Supply Dynamics, cited how leaving something as small as a hyphen out of data entry can create a problem.

“Somebody calls a material ‘titanium six four,’ and others put a dash between the ‘6’ and the ‘4,’” said Stansbury. “I would suggest that one of the biggest challenges is getting information about material to conform to a common taxonomy,” a write-up in Spend Matters said.

In the webinar, Byrne said “structured” data is a must—and there has to be “100% participation” among suppliers.

In the absence of good, structured data, opportunities for “aggregation” are limited, Byrne said.

Material Demand Aggregation, explained by Stansbury here, is better than Lean Manufacturing for potential in cost reduction, Byrne said.

  • Material Demand Aggregation, or MDA, is the practice of leveraging common raw material and off-the shelf component demand from multiple sites and sub-tier suppliers to optimize price, inventory, service levels, cycle time, and accountability across your extended supply chain.—Supply Dynamics website, 2018.

“Material-inputs (e.g. bar, sheet, plate, etc.) and other purchased details (fasteners, bearings, wires, etc.) can account for 30-75% of the cost of the average metallic part or assembly and in some cases even greater,” Stansbury said on the Supply Dynamics website.

“If you can’t keep up to date, you’re dead,” he said on the webinar.

In the LNC interview, Byrne broadly agreed with Stansbury’s view. He sees more potential to come in Lean Manufacturing overall for cost savings.

But he added that only 30% of the airplane’s cost comes from manufacturing and the rest is from the supply chain.

SAP benefits and requirements

SAP might be described as ERP on steroids, such is the advertised advances in technology.

But SAP requires massive commitment to oversight.

It’s an important program and it needs to be well-connected. As Stansbury, the Supply Dynamics CEO, and Byrne, the former Boeing VP, said in that 2017 webinar, accuracy and completeness are keys to success.

Impact on the Supply Chain

Byrne said SAP is “much bigger” and ERP.

“The question becomes, how efficient is it?” he said.

SAP’s goal is to reduce cost, reduce inventory and increase efficiencies.

“With a focus on cost and to reduce lead time, you lose some buffers and you can have some pretty rocky moments,” Byrne told LNC. “The amount of chaos in schedule changes is unbelievable.

“I think you still have great opportunities,” he said. “If you have inventory staged in various locations, the overhead is tremendous.” Boeing’s effort to resolve the infamous 787 fastener supply chain problems reduced costs by hundreds of millions of dollars, he said.

Suppliers must be prepared to step up to SAP. The impact will vary.

Byrne said that if a supplier made money on the inefficiencies in the supply chain—“and there were some who did”—they will feel some pain.

Others, who already are efficient or making progress, will benefit, he says.

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Raw Materials Aggregation

The BCA spokesman referred to Raw Materials Aggregation System (BRMS), which one person familiar with the process likened to another round of major cost cutting that follows Boeing’s previous Partnering for Success programs.

An aerospace analyst familiar with the process says this is too broad a characterization, at least for now.

A Chinese raw materials supplier, BaoTi, of all companies, explains BRMS on its website.

As part of the BRMS, the aviation giant has invested in a key piece of technology: their Raw Material Aggregation System (RMAS), which simplifies its purchases of raw materials — including BaoTi’s titanium. The RMAS spans a set of integrated systems that manage the acquisition and distribution of their raw material supply chain to minimize delivery costs and contains four key parts:

  • Core Enterprise Resource Planning (ERP) software system that handles order fulfillment
  • Forecasting
  • Optimization
  • Inventory Management

The diagram below shows how these key components interact. When taken together, Boeing’s strategy and RMAS have had major ramifications for BaoTi, which needed to align its technology and supply chain with Boeing’s ERP to grow its crucial customer relationship.

Source: Bao Ti

What does an employee do in SAP ERP?

SAP ERP is hardly unique to Boeing. The process goes across a broad base of industries. Boeing’s chief rival, Airbus, also uses it and recently posted a job listing similar to Boeing’s below (which has since been filled). The Boeing listing provides a good synopsis of duties.

Boeing Job Description: Systems Architect – SAP ERP

We have an immediate opening for a SAP enterprise architect. Because ERP affects changes across a vast number of process and systems throughout the enterprise, the following four operational value streams are of current priority:

Procure to Pay: The end-to-end procurement and logistics processes, including vendor management, purchase order management, inbound logistics, inventory management and spend analysis, as well as global trade integration and Environment, Health & Safety (EHS) chemical management integration.

Plan to Produce: The processes required for Supply Chain planning, including project systems integration, Sales & Operations planning, integration on manufacturing processes and product costing.

Opportunity to Cash: The business processes involved in receiving and fulfilling customer requests, including market intelligence and shaping, opportunity identification, order management, contract and sales order development and management goods issues, outbound logistics management, as well as global trade and EHS chemicals management integration.

Close to Report: The processes for managing financial transactions, including general ledger activities, asset accounting and consolidation, as well as financial compliance and reporting activities.

Additional value streams are being anticipated, including Customer Relationship Management, Program Management, Plan to Perform, Recruit to Retire and EHS.

Boeing continues to post on its jobs website and in LinkedIn jobs for ERP/SAP, located in India.

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