The Boeing 767: From Concept to Production

Case Study: The Boeing 767: From Concept to Production

Group 4

1. Describe Boeing’s approach to project management? What are its strengths and weaknesses?

Boeing earlier relied on extensive vertical integration and manufactured the entire plane itself but also provided engines through its Pratt & Whitney subsidiary and bought and flew planes through United Air Lines subsidiary. But as the development cost increased the company became more focused started outsourcing major component of the production process. It selected its partners on risk sharing basis who then manufactured portions of each plane and developed and built parts and subassemblies that Boeing later assembled. Boeing strategy has been to sell families of planes which varied on several dimensions but use the same base airframe. The company had a teamwork oriented work culture as the program require close cooperation and often working under intense time pressures. A part of the culture is absolute dedication to commitments and thus all the schedule was carefully designed and monitored.

Strengths

Airframe manufacturing being a business with enormous risk as huge capital is employed with up-front development cost of $1.5-2 billion and lead times of up to 4 years until first delivery.

• Thus to mitigate the risks Boing strategy of outsourcing production process through a risk sharing partnership with contractors helps Boeing to reduce risk and up-front investment and accelerated the assembly time and time to market.
• Since subcontractor were chosen on expertise in manufacturing the respective portions this help in increasing productivity and decrease in development costs.
• Selling families of plane allows to use more efficient design and production process and since they were produced on common assembly line it enable Boeing to take advantage of learning curve effect as subsequent design are made.

Weakness        

• Boeing strategy requires them to work closely with all its subcontractors from initial planning to final delivery but subcontracting lets to a lack of quality control of multiple globally based contractors and increased complexity of supply chain management.
• Boeing has to incur high transportation costs for getting sub parts to one place for final assemblies.
• Sub parts coming from different geographies and transportation delays also makes it difficult to meet the deadlines.  

1. Evaluate Boeing’s parametric estimating technique.

Parametric estimating techniques estimated costs and established relationships between critical sections of a schedule, such as the time at which engineering drawings were released and the start-up of production, by using historical data drawn from earlier plane programs

It predicted the cost based on design characteristics such as weight, speed, and length & historical relationships such as number of parts per plane.  Managers found out labour hours by benchmarking data from profitable program e.g. 727, and noted for every section the number of labour hours per pound required to build the first unit. That number was then multiplied by the expected weight of the same section of the 767; this result, in turn, was multiplied by a factor that reflected Boeing's historical experience in improving the relationship between labour hours and weight. Totaling the results provided an estimate of the labour hours required to build the first 767. A learning curve was then applied to estimate the number of labour hours required to build subsequent planes.

Parametric estimates were, however, carefully fine-tuned to account for differences in plane programs. Adjustments could go in either direction. Improved equipment, management control systems, use of CAD/CAM suggested that the 767 would require fewer hours than predicted by parametric derived from the 727; increased product complexity and a larger variety of customers suggested that more hours would be required. These factors were combined to form a final, adjusted estimate of total assembly hours.

Parametric were used to link schedules of different groups to avoid delays. For example, comparisons of the 727 and 747 programs suggested that, fabrication should not begin until 25% of structural engineering drawings were complete, and that major assembly should not begin until 90% of engineering drawings were complete

      Pros of Boeing’s parametric estimation techniques:

• The technique not only used historical data for labour hour cost calculation but also uses a few advanced methods such as using learning curve for accurate estimation of what would be the actual amount of hours required to complete a task.
• This technique was also tweaked to account for differences in different plane programs which could affect the estimation positively or negatively thus ensuring a more accurate and reliable estimation.        
• It has also helped Boeing in carrying out tasks as soon as a certain % of its preceding activity is completed. This helps in cutting the project completion time which is utmost importance in the airframe manufacturing industry as even a delay of one day in plane delivery can cost a fortune to the manufacturers

Area of Improvement in parametric estimating technique:

Boeing should try to incorporate some changes in the technique so that it can help them do scenario planning such as the one that they face right now so that they are better equipped to face such challenges

1. How does Boeing manage risk (financial, market, technological and production)?

1. Financial Risk

• Launching a new plane requires a huge up-front investment and is a highly uncertain project thus Boeing entered in risk sharing partnership with thousands of sub-contractors who bore a portion of the costs.
• Pre-production commitments for purchase were made through various price negotiations agreement with domestic and foreign airlines.
• Regular audits were conducted by a team staffed by experience Boeing’s managers which were assigned to review every significant element of the project including finance, manufacturing and management.

1. Market Risk

• Market analysis was done by directly talking to airlines to get their estimates of future needs.
• Econometric models were used to generate three forecasts-optimistic, conservative and expected
• Complete forecast were run annually and readjusted quarterly to take into account any changes in airlines industry regulations, rising fuel prices etc.

1. Technology Risk

• Proven and tested technology was used against any unproven technology
• Learning curve dynamics were applied to improve efficiency

1. Production Risk

• Plans which mapped out the entire development cycle including critical milestone was carefully drafted at the beginning of any program and strict adherence to it is monitored
• Strong coordination & cooperation with various partners was ensured to prevent any delays
• Manager ensure that learning goals are met at the same time that they are accommodating unanticipated changes.
•  Critical calculation w.r.t assembly labor hours were made at the beginning itself and was constantly monitored and adjusted to incorporate any unanticipated changes

1. Which approach should Boeing take to convert the first 30 767s from three-person to two-person cockpits? Why?

Two alternatives available to change the first 30 767s from three- to two-person cockits are:

1. Building the thirty airplanes with three-person cockpits, and then converting them to two-person cockpits after they had left the production floor (but before delivery to customers), and
2. Modifying the production plans so that conversion would take place during production and no parts would be installed only to be removed later (which meant leaving some cockpits temporarily unfinished while drawings and parts for two-person cockpits were being developed).

Completion of production and subsequent modification

Benefits:

• Production would continue as planned, without delay.
• Neither learning curves nor schedules would be disrupted
• About 1mn additional labour hours were required as opposed to 2mn hours in the other case.
• Other airplane systems would be functionally tested during the final assembly process, as originally planned.
• Problems would be identified and corrected on the spot. Any problems identified could be isolated, with some assurance, to the cockpit area.
• Parts for three-person cockpit were already on hand and paid for, this option did not impose greater scrap costs than the other option.

Drawbacks:

• The risk of this approach was the potential "loss of configuration" (i.e. design integrity might be compromised).
• Parts required for three-person cockpits would be installed firmly in place, only to be removed and replaced later by modification experts.
• If the modification was not done carefully, many of the plane's operating systems might be disrupted.
• Space was also a problem. There was not enough room within the factory or outside to modify all thirty planes.
• The modification program would be managed as a separate, tightly-controlled activity, apart from the normal flow of production, and special teams of "modification experts," skilled at parts removal, modification, and repair, would be assigned to it.

Boeing experts, however, believed that the management controls used for modification would prevent operating system disruptions. To minimize the risk, additional functional testing would be required after modification.

A special parking plan can be developed, and the planes would have to be extremely close together. Special fire control plans and waivers can be used to tackle the problem. Several managers had reservations about this approach, for they objected to its underlying philosophy.