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What difficulties has Boeing experienced in integrating the purchases of McDonnell Douglas and Rockwell?

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Boeing Company: Talent Builds a Better Plane

Boeing, based in Seattle, Washington, has remained the world's # 1 commercial aircraft manufacturer for more than 30 years, with more than 60 percent of the world market share. A major exporter, its aircraft, which range from the popular 737 to the Jumbo 747, are flown by every major airline in the world. However, even in the face of success, Boeing is under intense pressure to reinvent the way it develops and manufactures aircraft.

A Proud History

William Boeing built his first airplane in 1916 with navy officer Conrad Westervelt. His Seattle factory, originally named Pacific Aero Products, changed its name to Boeing Airplane Company the following year. The company produced training planes for the U.S. Navy in World War I. After the war, Boeing began the first international airmail service between Seattle and Victoria, British Columbia, with its B-1 flying boat.

Between the wars, Boeing created the United Aircraft and Transport Corporation to facilitate its manufacturing and transportation concerns. The company introduced the first all-metal airliner in 1933. The following year, due to changes in airmail rules, the firm was forced to sell its airline operations (the predecessor of today's United Air-lines) and concentrate on aircraft manufacturing.

Boeing has always been a leader in aircraft innovations, introducing the Model 314 Clipper (flying boats) used by Pan Am, the Model 307 Stratoliner (the first aircraft with a pressurized cabin), and the B-17 bomber during World War II. However, it was the introduction in 1954 of the Boeing 707 that redefined the aircraft industry as we know it today. For over the following 40 years, Boeing has added to its line of aircraft, including the Jumbo 747, its popular 737, and the more recent 777 to meet the increasing needs of airline travel both in the United States and around the world.

After recent mergers with McDonnell Douglas in 1997 and the space and defense divisions of Rockwell International in 1996, Boeing is suffering from the problems associated with such mergers. With orders for new aircraft at an all-time high, the firm faces problems keeping up with production demands. The situation got so bad that the company actually closed down its 737 and 747 production lines for a month in 1997 in order to gain control of its needs, problems that caused it to write off a $1.6 billion charge in the third quarter and face over $300 million in penalties from customers for late deliveries. As a result, Boeing has announced a radical new development strategy in early 1998.

The Need for Change

Boeing is an example of what can happen to a company that is overwhelmed by good fortune. Record orders required that Boeing ramp up its production from 18 jets a month in 1995 to 43 by early 1998. In an attempt to hire and train 41,000 new workers, the company often raided its own suppliers, aggravating an already strained supply chain. In May of 1997, the FAA warned Boeing about improper paperwork on its 737s, and as a result it stepped up its inspections of Boeing assembly lines.

Meanwhile, Boeing faces stiff rivalry from Airbus Industrie, a European consortium that builds the A300 aircraft family. In early 1998, the four countries of France, Germany, Britain, and Spain agreed to a merger for the consortium to eliminate inefficient assembly methods and make the company more competitive with Boeing. The European jet maker's market share edged up to 30 percent, as it booked record orders. Boeing's production delays and costly overhead structure makes it increasingly difficult to compete in a market dominated by a concern for cost. As Byron Callan, aerospace analyst for Merrill Lynch, emphasizes, "... the name of the game is cost."

As a result of these and other problems, Boeing CEO Philip Condit formed a project team called the Aircraft Creation Process Strategy (ACPS), nicknamed by suppliers as "faster-better-cheaper." The goal is to curb the production time of aircraft from 60 months to 12 and cut the costs from around $6.5 billion to $1 billion. Headed by Walter Gillette, the program is conducted in close association with Boeing's suppliers and airlines. Since 1960, the price per seat of transport aircraft has increased more than 140 percent, while yield per passenger mile has dropped by about half. Time-to-market for new aircraft during the same period increased from 3 to almost 4.5 years from the "first order."

With no new airplanes on its drawing boards, Boeing has only one place to look for a competitive advantagethe factory floor. The new scheme is intended to supplant a system of engineering, manufacturing, and parts procurement that dates back to the production of B-17 and B-29 bombers in the 1940s. Over the years, the system has grown more and more complex; it does not necessarily produce more airplanes, but definitely produces more paperwork.

An additional problem is the extraordinary choice Boeing offers its customers on aircraft configurations. On the 747 alone, there are four bulkhead options that can result in the repositioning of 2,500 parts and the modification of 9 0 0 pages of drawings. Computers help track some of these problems, but every factory has its own computer system, and parts lists are maintained on over 400 different databases. Robert Hammer, VP of production process reform, observes that "You know the Baldrige prize for the best manufacturing processes? Well, if there was a prize for the opposite, this system would win it hands down." So, can the system be fixed? No way, says Hammer. "We're going to kill it."

ACPS envisions a number of improvements to the present system. Key strategies include reuse of existing components and reducing parts counts with integrated, monolithic structures. Common, modular, and integrated systems also would be employed. Aircraft catalog options will be reduced with financial incentives to limit aircraft customization. Production changes range from building multiple models of aircraft on a single production line, with the aircraft flyable almost immediately, to "last-stage customization" centers for interiors and paint application.

Emphasis is also being placed on how workers actually do their jobs on the assembly line, a process Boeing calls "lean manufacturing." To this end, the firm retained the consulting firm Shinijutsu, run by Yoshiki Iwata, a former Toyota engineer who speaks no English. Iwata's first step was to identify piles of unnecessary inventory. Boeing's factories turn their stocks only 2 to 3 times per year, while an efficient manufacturing operation might turn stock 12 times a year. Boeing holds about $18 billion in gross inventories, equivalent to about 35 percent of total revenues. If it can trim that figure to 25 percent, the average for American industry, it can free up $6 billion in free cash flow annually.

Another minor but symbolic innovation involved ladders. Airline fuselages are curved, but to gain access to them on the factory floor a worker used a straight ladder. The closer the worker got to the top of the ladder, the farther he/she had to stretch to reach the fuselage. Iwata's conclusion was to use a ladder that's shaped like an upside-down J. Indeed, Boeing is introducing many reforms American automobile manufacturers were forced to make 10 years ago because of competition from Japan. Employees contribute by huddling in five-day "accelerated improvement workshops" where they brainstorm on how to do their jobs more efficiently.

Boeing's challenge is one it should be prepared for: for decades it has succeeded at designing, building, marketing, and servicing very big and very complex machines on a global scale. As Condit notes, "Large-scale systems integration is what we do. Airplanes, space stations, launch vehicles. Things with lots of parts." What could be a more challenging test of Boeing than the integration of itself?

However, doubts persist as to whether Boeing can accomplish all it intends with this new program. Gordon Bethune, chairman and CEO of Continental Airlines and a former Boeing executive, states that "This company is trying to do so much at the same timeincrease production, make its manufacturing lean, and deal with mergers. It's like a guy who's juggling eggs, and then somebody tosses him an orange. It's easy to drop something."

Continued Competition Boeing faces an increased challenge from Airbus Industrie's announcement of its 650-seat Superjet, the A380. While Boeing has expressed skepticism that a market exists for a jetliner of this size, Airbus has been able to collect orders for 50 of the commercial jets. In addition, Air-bus has been successful in gathering orders from UPS, FedEx, and Northwest Airlines. Airbus has actually overtaken Boeing in worldwide market share based on total orders.

In reaction to this competitive threat, Boeing has announced that it is moving its headquarters from its longtime home town of Seattle and instituting a broad plan to shift away from aircraft manufacturing into faster-growing services. These services include Internet for air travelers, aircraft servicing, and space communications.