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Leeham News and Analysis
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Aviation Forum Munich: Boeing moves away from Partnership for Success
By Bjorn Fehrm
November 6, 2019, ©. Leeham News at Aviation Forum Munich: The second day of Aviation Forum Munich had an interesting presentation from Boeing’s VP of Sourcing, Jody Franich.
He described the One Boeing approach for Manufacturing and Sourcing and how Boeing is moving away from its supply chain Partnership for Success program, with the supplier cost down focus replaced by a more long-term cooperation model with a mutual benefit focus.
Boeing’s VP Sourcing Office Jody Franich presents to Aviation Forum Munich.
A total cost of ownership focus for the supply chain
Historically, the Boeing divisions (Commercial airplanes, Defense & Space, Services) had their own manufacturing and supply chain. This precluded as an example the smaller Defense and Space from benefiting from the much larger sourcing and production quantities of Commercial airplanes.
Since 2015 Boeing has changed this into a “One Boeing” model where Manufacturing and Sourcing is a unified organization, with one SVP, Jenette Ramos, reporting to Dennis Muilenburg, the Boeing CEO.
Franich, which is heading up the Enterprise Sourcing office, put Boeing’s sourcing in perspective:
- Boeing sourced for $55bn in 2018 from a total of 12,000 suppliers, whereof 3,000 supplied to production.
- The supply chain payments represent 65% of Boeing’s product costs.
- Boeing has 195,000 deliveries per hour from the supply chain with a total of 1.7bn parts delivered during 2018 to 180 programs.
Franich then described how Boeing is changing its supply chain strategy. Instead of the Partnership for Success which focused a cost down from suppliers a more Total Cost of Ownership model is introduced, with a roll-out over the coming months.
The focus is changing to a long term partnership where both parties shall have success. Cost is still important but it shall come out of joint work with supplier improvement programs and supplier reliability and quality are equal key metrics in the partnership.
Boeing is introducing a production and sourcing industry-standard framework called SCORE. It shall give Common Language, Practices, Metrics and Tools for Boeing and its partners. As part of these efforts, Boeing invests $5bn in programs for its Small and Diverse Businesses suppliers.
Franich also emphasized that the elimination of disruptions to Boeing’s production caused by the supply chain problems is an absolute priority. Boeing’s engagement in verticalization of areas like Cabins, Avionics, APUs and Actuators shall be seen in this context. Additive manufacturing and Sub-Components are also vertical developments.
In summary, it was a Boeing with a changed attitude that presented in front of the European supply chain. The expectations for a Boeing global supplier are not only a competitive cost level but there shall be an understanding of how to fit in the Boeing performance excellence puzzle in terms of cost, quality and delivery.
The changed supply chain concept goes far beyond what Partnering for Success ever did. The partners are now expected to run financially healthy businesses that can together with Boeing invest in affordability, efficiency and innovation.
If I were to be cynical I would suggest that ‘partnering for success’ was about driving more profit out of suppliers and into Boeing’s pockets. This has subsequently weakened suppliers and made them less willing to participate in Boeing programmes if they are in a position to do otherwise. After reapportioning profit more in their favour Boeing is now chiding suppliers to be financially healthy. Go figure. The is a naivety about a lot of Boeing decisions where something that on the surface looks like a ‘neatest idea’ is on reflection less than optimal.
it is a culture of compulsive liars. If you never tell the truth …
What I have difficulty with is how this system developed historically.
The preferred religious environment has a thing for truth ( up front stated to o end. ) A scientific creative mindset has to work on truth or will not be productive.
It it the immigrant and first generation “sane” people that feed this mad hatter system with productivity?
BA starts to have big problems of safety, quality and productivity since moving plant from Seattle to South Carolina that has shown they don’t give a damn about their partners and workers at all. You reap what you sow.
If you shave down margins to paper thinness with ever increasing coverage in a drive towards optimizing the effort to “keep above water”
any small disturbance will now swamp the whole domain.
Currently you just see that working for ( against? ) Boeing nicely.
Sowerbob,
I see this presentation as a way of Boeing trying to sucker European Suppliers into signing ruinous deals on the promise – just the promise – to change the way it treats its suppliers. I men, why doesn’t Boeing first implement the new system with its North American Suppliers and then go to Europe and say to the European Suppliers, “See how happy our suppliers are now…seriously, we have changed – go ahead and talk to our North American Suppliers and confirm it for yourselves”. But Boeing won’t do that – for that would require real change!
I wonder what happened. Did Boeing’s “Pandering for Success” program so financially break and embitter its North American supplier base that they now must go overseas in search of fresh suppliers (i.e., suckers)? I’d bet you that is the case.
If Boeing told me the sky was Blue, I’d imediatly run outside and check it.
Years back I saw a program rolled out that the claim was 10 million savings company wide.
When the costs hit 7 million, we never hear from or about it again.
Ya, any company that has ever had one of Boeing’s “SEAL” teams on their production floor knows the horror that allowing Boeing to dictate production and quality processes to your company represent.
European suppliers, get ready to have your entire operations dictated to you by unformatted and scattered spreadsheets emailed around between different people while you are charged a “consulting” fee while yelling at your employees to work faster.
Boeing should focus on cleaning up their production floor processes (how many loose debris issues have come up this past year?) and fixing their disaster of a SAP system rollout to suppliers before trying to tell other companies how to run their businesses.
What surprises me is the condemnation for Boeing’s tactics and practices concerning their suppliers.
Not that I disagree but Airbus has certainly been doing much the same to their own supply chain.
I should know, I had worked for one of the companies Airbus (and to a certain degree, Boeing) had pretty well bankrupted. In the end, due to their specific work, and the fact that no other source/supplier could be found for their parts, Airbus had to buy them. Then the Company was chopped up and the individual parts sold off.
It kind of ended up well for most of the individual parts of the Company (at least most of the people still had jobs, even if the conditions, as usually happens, are not as good as they used to be, but this was a rare exception to the case.
Sounds par for the course and fortunate it was Aviation and a supply chain issue it could not just be killed off.
Our non aviation supply company went bankrupt and it worked well during bankruptcy as I got a huge raise (put the sticker in while they are down)
Latter poorly to god awful, when our part got picked off they just harvested what was there and put nothing back in. Its on its way out, takes some years to gut it and then get canned.
Original company was good and you could negotiate and deal with them and they kept their bargains (but then so did we)
Boeing, because of their size(quickly dwindling) and Economic importance to its Shareholders, think they have the solemn right to squeeze their small suppliers into rendition from making a reasonable business case, however, the typical Hyper Capitalist/Monopolíceme appetite is for the Biggies to munch on the Small/Medium sized suppliers.
Consequences of these Arrogance/Blackmail is perhaps consequences with their B737 NT and MAX Fiascos leading to poor workmanship and products being installed in these aircrafts.
Has not GE done the same over and over, help build small effective suppliers to a certian size then start to squeeze them on price when they are stuck in expesive investments. Some companies actually work long time with suppliers to mutual benefit. Scania trucks is one. Normally in the US after a reorganisation a new Purchasing manager forgets all about this and starts squeezing suppliers and cash in his/her bonuses.
Well we see how GE is doing these days.
Its a short term strategy that looks great but long term it goes into the toilet.
But by then the rats of the moment are gone and it may be a rat or two rat group down the road that get caught on the sinking ship (not that I am sorry for them, they just got caught as non successful thieves)
I agree, but GE is in a pretty god position at the moment as cash will start rolling in when all the 737MAX’es are picked up and paid in addition the monthly Power by the hour Engine Revenue will start rolling in as well. Logically if no major crisis happens the GE stock should jump by mid 2020. An extra icing on the cake would be for the GE Passport to be selected fot the B-52 reengine program.
Boeing needs the supply chain now.
Squeezing them for their own short term profits, bonusses and buy backs maybe was just a stupid, short sighted idea. While they convinced many it was the right, inevitable, natural way of the future, they didn’t get away with it.
Chickens, home, roost.
Or Spyder inviting flies into its den…🤬 IMO unlikely many shall accept invite!
Last time the job of mending ailing Boeing “partners” fell to Airbus ( just for keeping their shared suppliers intact.) That “aircraft tubing” company comes up first in my mind. Airbus was kept rather busy …
( that was around 787 times and then a FUBARed project only.
If Boeing ever managed a step change in current 787 production outlay it was from squishing the suppliers dry
denying them recouping their losses from back when …)
Boeing needs the supply chain now.
Squeezing them for their own short term profits, bonusses and buy backs maybe was just shortsighted. While they convinced many/ themselves it was the right, inevitable way of the future, they didn’t get away with it. A savvy, risk averse supply chain has become less enthousiast in investing in new products for Boeeing.
Chickens, home, roost.
Well I think we can all agree (well a few maybe not) that short sighted short term is Boeing’s DNA now.
I think this is much more likely to be well accepted than PfP ever was. It is the right way to Partner with whom you need to be mutually successful. Nice one, Boeing
Lets see:
We outsource everything including our wings.
We beat suppliers with a stick
We open up our APU (and other) business units that vertically to company. .
Nothing like being consistent, if you were skeptical y0u would think they did not know what the hell they were doing.
I think it comes from a realization that they drove a substantial consolidation in the industry. I believe Boeing thought they could set the rules and didn’t realize that they would instead set into motion consolidations so most tier 1s are now a division of Safran or Collins/UTC. If they went another round at PFS they would likely cause another wave until they sat across from only a handful of companies who then had more bargaining power than them.
Airbus seems to have created “problems” from pushing that rubber boat company to “consolidate” a bunch of seat ( and mounument?) producers.
Already happening. Spirit is gobbling up subs like mad and Boeing has no choice but to bend over backwards to Spirit’s every whim because they have no other options – Boeing’s entire raw materials supply chain is now dictated and subservient to Spirit’s complete lack of focus or control over their subs and scattered/last-minute approach to production planning.
Sounds like you hae some interesting insight into Spirit and also into Boeing teams sent to suppliers Aaron. Care to share any anecodtes etc.?
I agree, would like to have the story (or is it speculation)
Spirit is doing exactly what it should if its gouging Boeing.
I don’t think its good for either side but that is the way its done these days (well sans a new BS spin)
Oops, my comment was supposed to be a reply to Zoomzoom.
But if you guys want the whole story, you guys should take part suppliers out to lunch more often.
This, “Total Cost of Ownership” is just window dressing for PFS 4.0 (3.0 was RMAS https://leehamnews.com/2018/10/08/boeings-transition-in-supply-chain-management-aims-to-save-hundreds-of-millions-of-dollars/). Suppliers now have their production dictated to them instead of being able to plan it due to Boeing’s transition to SAP which controls the entire supply chain (which has been nothing but a train wreck for the part suppliers for the past year and a half) and in typical Boeing fashion, “There’s nothing wrong”.
Now Boeing doesn’t just want to tell their part suppliers what they can plan for and when, they want you to turn over your production and vendor data – it is believed so that Boeing can harvest the most profitable work.
Spirit hasn’t been taking this lying down and now Spirit’s acquisition of Asco Industries is just the beginning if rumors are to be believed: https://www.bizjournals.com/wichita/news/2019/06/19/spirit-aerosystems-acquisition-target-asco-hit-by.html
and is taking work from their subs to bring in to their COE:
https://www.spiritaero.com/blog/35/spirit-opens-5-axis-machining-center-of-excellence
It’s all about buying power. The bigger your SOW, especially if you are their sole source, the more leverage you can have to push back when Boeing comes for your profits. It won’t be long before the entirety of Boeing’s supply chain is 5 or 6 large companies that own all the machine shops as the smaller part suppliers sarve for material on the least profitable work and get churned through and burned the second they fall behind or get acquired when they become profitable.
Well that didn’t go down very well with readers did it? The language is extremely unconvincing, it sounds like they want to take over your business without paying for it whilst leaving you with all the responsibilities, a sort of enslavement. Any sane businessman will have immediately started running after reading this article.
Well the Boeing haters are jumping in over this innocuous supply chain item.
With incredible comments like ‘sounds like they want to take over your business without paying for it”
Its Boeings name on the plane, not Acme Wings and Widgets. If the suppliers think they can do better , let them try like other industrial concerns like Mitsubishi or Bomabardier…..oh thats right just screwing together other Tier one suppliers stuff isnt so easy.
Didnt notice Bjorn say the audience was ashen faced after the Boeing VP spoke … instead with $55 bill to spend and needing 200k items per
dayhr they like all suppliers still want to hear what a demanding customer needs.Get your own factory guys and get away from the keyboard
“Get your own factory guys and get away from the keyboard”
Yeah? Well why don’t you get away from the keyboard and come back to reality?
That Socialist Experiment known as the “Boeing Company” has been subsidized by the US Taxpayer for over 75 years. So…we already paid for our own factory – we just let Boeing have the privilige of running it.
Boeing is no Apple, or Microsoft, or some Free-Market wonder: it is the product of American Government and American Tax Dollars. And because it is, Americans have the right (and the duty) to criticize it – especially when it becomes toxic.
Because we paid for it!
jimmy:
Boeing has not been subsidized for the last 75 years.
Boeing bid on and produced great products for both the Commercial sector and the Government.
Its the last 10 years they have joined the Corporate Chorus in gouging tax breaks out.
It does not excuse it but I prefer things are kept in the right perspective.
At one time Boeing as a great and contributing Corporation.
“Boeing has not been subsidized for the last 75 years.”
Dash80 was the product of tax evasion.
Either sink the money in that proof of concept or get a shave for excessive war profiteering.
Boeing has rarely done their own research.
Either war spoils or NASA gifts.
Regular tax waivers to top it off.
Apple isnt a free market wonder either- do you think that massive infrastructure investment in China for the factories, equipment , even the dormitories for the workers wasnt paid by local and regional governments and loan money provided by national government?
Dukeofurl,
You are absolutely right, China did provide a lot of money, land and buildings to Apple – and a compliant workforce, too. Additionally, China’s Banks provide a safe haven for Apple to shelter their profits tax free until US Corporations can lobby the US Congress to pass another “Corporate Tax Holiday” Bill – which happens about every 5 years, or so.
BUT…Apple’s deal with China requires Apple to fork over Intellectual Property and keep a minimum number of people employed. If Apple does not meet those requirements, then China takes Apple’s money, Apple’s Intellectual Property, Apple’s factories and will generally make life hard for Apple Execs in China (If ya’ know what I mean). In other words, China is a “Partner” to be respected and not a “Patsy”.
On the other hand, Boeing treats the US Taxpayer as a total “Patsy.” Boeing gets Tax Breaks and gets local governments to help fund factories and even have US Governments intercede for them when competition gets tough (See Bombardier and the C-Series!). Hey, the US Government even gave Boeing its own Aircraft Certification Administration – the FAA. That’s all worked out well, huh?
And for all this largess, all the Taxpayer gets is more empty promises and non-stop requests for MORE. Boeing always wants MORE!
Have you seen the free money given out for US Agriculture and the tariffs and quotas imposed on foreign imports- Just try to get products related to dairying and sheep meat in and you will hit the proverbial brick wall, and those arent even important parts of US agriculture. The US real estate industry gets plenty of tax breaks too. In a broad sense its nothing specific to aviation or Boeing that there is deals to done with government at all levels, and this will continue. Why beat up on Boeing as if its the only one with its hand in the taxpayer cookie jar.
In relation to a supply chain, Im wondering how a new Boeing NSA but coming out of Boeing Brasil and other international T1/T2 suppliers will go down with the US taxpayers, even if ‘some parts’ and of course the engines is US made. Will Boeing be like Airbus and set up a second additional FAL in a US city to keep up appearances?
@ Jimmy:
“And for all this largess, all the Taxpayer gets is more empty promises and non-stop requests for MORE. Boeing always wants MORE!”
There was this brilliant idea behind European RLI and the core reason why Boeing needed to destroy that instrument:
The hosting state offered an investment into a risk.
Repay and further income in the chute on success.
(actually a comparable idea stood behind “deficit spending”: infuse money in down times that later will be recouped by tax draw. Though to make it easy on recipients the recoup via taxes got out of focus.:-)
US style massive tax waivers that Boeing is dependent on are money lost independent of the profits the recipient reaps.
Apropos: do Boeing profits per chance match those tax gifts?
Exactly,if Boeing wants to totally control a business, make the nessacary investments and keep all the profits, they should get their own factory.
Much more effective is it to have an independent entity sink significant amounts of “not Boeing” money to set up production and get over initial problems ( and maybe the hunger games of a FUBARed top level project to)
and then buying up the beggared but with working production setup company cheaply. “We had to save them”.
Bombardier has/had a few Problems with the C Series but it certainly didn’t help that Boeing and Airbus deliberately targeted them with “deep” Discounts on their single aisle products.
Maybe I am not near as cynical as I thought I was. I had actually thought that Boeing had decided on a “new” path with this new concept. I guess time will tell if it is just Partnering for “Boeing” Success Part 2 or not.
The logic of PFS was quite reasonable, you engage risk sharing in your tier 1 and sometime tier 2 suppliers. as always this sort of thing is difficult to achieve. The manner of the risk sharing seemed to be that initially you as the supplier had to do the development with a common share of risk and profit in the overall programme. Where have we seen that before but at the beginning of the airbus Gie days.
There is nothing wrong in the concept but Airbus hardly made it work efficiently. The problem really hit home when this was combined with the aggressive supplier cost cutting by Boeing after the event which has made the ‘getting well’ bit either hard or impossible to achieve. So as a supplier you take the risk but are denied reward.
And of course with such a perverse incentive the obvious play was to skimp on the process to maximize the return in your own entity. The overall risk was borne by Boeing whether they liked it or not so it becomes more of a risk multiplier in my view.
What is wrong with it is that if its a partnership, you get support not gouging from your partner.
Suppliers have wound up with a two at best and often single customer not due to what they did but what the industry did.
If you go under, Boeing will grab the piece to protect itself (like it did) but that does not deal with the loss of your business and the impact to and on your employees.
I can tell you that in the end, the gouging has a some standard results. People just quit trying and do the minimum because there is no gain and in working your butt off and getting nothign for it.
They quit.
They sabotage product (amazingly uncommon though I have seen it happen) .
“Where have we seen that before but at the beginning of the airbus Gie days.
There is nothing wrong in the concept but Airbus hardly made it work efficiently.”
I won’t argue with your conclusion, but, the fact that Airbus was able to use the GIE over the years to turn out some really nice aircraft is…Amazing!
Thanks for pointing this out a part of history I had forgotten.
@Jimmy
I fully agree with your sentiment but I fear at the time all of the entities were attempting to do the same ie carve out profit for themselves and the wider entity had books that were more opaque than an opaque thing. Did Airbus of that era ever make any money? Nobody will ever know but we can guess not
@ DofU
you are correct that it is difficult but Boeing it made a whole lot more difficult for themselves. They risked losing control over their whole process on the B787 and this came back and bit them. My view is that there are no short cuts in this game and the sort of things Boeing has done by relying far more on Tier 1/2 has made the process more difficult to manage.
Referring back to the recent post where something like $35bn charges have been taken suggests a regular understatement of costs in all programmes which has to be made good at a later date.
Relying on Tier/2 does work , with appropriate oversight and support.
Look at Embraer, very very little of their E jets is made by Embraer itself, its the T1/2 suppliers from all around the world , including at Everett, who do it all. This is why its now called Boeing Brasil as its cost $4 Bill or so to put the name on the roof, but they wont want to change too much how they go about it. Indeed its some new relationships with T1 suppliers that will be closely watched
I expect Boeing’s “influence” to destruct the Embraer setup in a reasonably short time frame.
Germanys Opel, GE owned, downs and ups were directly linked to GE forcing things or not while all the time looting the place for tangibles.
American style management does not go beyond working a scavenger society.
From my outside Boeing POV the titles seem like they should have been switched. Now Boeing appear to want to have ‘relationships’ and partner because they have no choice whereas previously it was “One Boeing to rule over them all and do it their way or else”.
Boeing did what they did to their supplier over the last 15 years.
They insourced, replaced, by passed, locked out & used OE position to grab AfterMarket revenues from their suppliers. While cashing, looking good on Wallstreet and in Washinton.
Look at Boeing, without listening what they say about it. The tide has turned. They need support, to build leverage talking with Raytheon Collins, Safran, GE..
Yep, logical end result of Ponzi scheme (legal but no different).
Eventually the fecal reaches the top.
Its been noted that Boeing does not run a Ponzi scheme.
Readers need to be reminded of who sets the laws. Pure logic says its no different than a Ponzi scheme.
But Boeing and the like are the ones that have the laws written (forward acouti9ng) so they can make it legal.
What is missed is Legal is not logical, its not justice and its not fair.
Legal is what you can do to bend, twist and contort the law to your own ends. You can’t argue that he who has the money controls the law. They have the best lawyers money can buy and they have the resources to beat you into the ground even if they missed a tiny part and you are right.
Will be Boeing renamed Embraer? things are already spilling over badly in the street.
Things don’t seem to work out as expected:
https://www.seattletimes.com/business/boeing-aerospace/boeing-abandons-its-failed-fuselage-robots-on-the-777x-handing-the-job-back-to-machinists
stepping away from robotic fuselage “Automated Upright Build”.
this a case of not learning from history causes a repeat lesson?
VW tried and abandoned fully robotic assembly in the 80ties.
Well, perspective is needed.
Some suppliers try to stick it to Boeing, such as Smiths Aerospace’s Yakima/Cheltenham combination on the 787 program. A strange mentality – poor work and program delays would hurt themselves not just Boing and other suppliers. (Smiths Aerospace was purchased by GE, perhaps at Boeing’s recommendation, I don’t know how that worked out.)
Companies do change, as management and ownership changes. For example, Sundstrand Data Control had problems in the 1990s, some managers didn’t get the message from a high profile firing of people who misled a customer – one sleazy manager asked an engineer to mislead a customer. (That operation was independent then became part of Sundstrand which later became part of Allied Signal then Honeywell.)
A company has to have good fundamental characteristics. I recommend searching http://www.bbandt.com for ‘culture’ to read its document for employees. A successful bank for hundreds of years, it avoided the mortgage meltdown of 2008, in part because it would not offer junk financial instruments – they weren’t good for customers thus weren’t good for the bank was its approach to life. OTOH, as Scott may be aware from where he lives, Washington Mutual bank was out of control so shareholders lost. (Not to be confused with Washington Federal who were a small well-run S&L in Seattle.)
Partnerships are difficult, there has to be shared values. Hank’s joking remark about ‘soaking’ Dagny for superior rails in the famous novel Atlas Shrugged is about that – trustworthy peple who will make sure they are profitable, people who expect the other to perform as well as themselves.
One thing to keep in mind is the push popular in recent decades to deal with fewer suppliers, for efficiency. Boeing pushed some together to achieve that. Perhaps less overhead, they think. Also might reduce assembly work at Boeing. And note both Airbus and Boeing install parts into pieces of fuselage before shipping to the final assembly location, I believe Spirit does that for Boeing and Airbus may in chunks built in places like Germany. (Of course good coordination is necessary, recall Airbus’ wiring fiasco.)
Suppliers do need to produce quality. In the late 60s Boeing performed incoming functional test for all flight deck instruments, it was amazing how many failed test. (Aside from correlation of air data prssure measurements – Boeing had a big effort to get better correlation worldwide, transfer of measurement baseline from the international standard was awkward in those days.)
BTW, some people in this thread must be imbibing things that are legal in WA state now.
Boeing has long outsourced – for example, the electronic accessory modules on the 737 sometime in the last few decades, IIRC Boeing is taking them back in house. And cockpit accessories loooong ago (Hal Korry left Boeing to supply them, he founded the Korry company that was almost the standard for flight deck annunciators in the 60s and 70s). Today unions are mis-representing the situation at Boeing.
One thing to keep in mind is secondary/hidden reasons for oursourcing, such as a troubled internal department, need for space, shortage of workers, need for the sale proceeds to finance more fundamental work.
OTOH, insourcing [my term published years ago] provides control over own destiny. Southwest Airlines ran its own fuel trucks for that reason – it controlled priority, so could quickly shift to the flight that most needed to make up time (especially important with multi-segment flights).