Leveling Demand at Boeing

I was intrigued by an article in The New York Times this week describing how Boeing is actually turning away orders, even from some of its best customers.

            Boeing is hot right now, partly because of troubles at Airbus. Orders for Boeing’s extremely popular 737 and the new 787 are pouring in.

            But current Boeing executives remember how the company was hot not quite a decade ago. At that time, the company accepted every order coming in the door. Production couldn’t keep up, and serious problems resulted. Many of today’s executives used to work for people who lost their jobs because of what happened.

            So today, Boeing is taking only the work it is sure it can handle. For example, Southwest Airlines, a very good customer, wanted to add two planes to an existing order for 737s, and Boeing said no (though it did make Southwest aware of two nearly-new planes that could be purchased elsewhere). Keep in mind that planes being ordered now won’t be delivered for several years.

            In effect, Boeing is seeking to level demand. And if I read the story correctly, it is trying to do so not in a high-handed or arbitrary way, but by communicating with customers so they will understand and accept what the company is doing.

            Leveling demand and building partnerships with customers are certainly elements of a lean strategy, and I’m inclined to commend Boeing for its approach.

            Now I’ve never heard of Toyota declining an order from a customer. But that doesn’t mean Boeing has done anything wrong. True, Toyota is probably better at predicting demand than Boeing. However, selling planes is very different from selling cars, with longer lead times, hugely expensive products (and correspondingly huge orders), and a global marketplace that can suddenly change in a radical way (as it did after 9/11).

            Perhaps Boeing has learned more about lean than the U.S. automakers. Ford’s hiring of Alan Mulally of Boeing to be Ford’s CEO increasingly looks like the right move.

            The Times article also noted that, in contrast to its practices years ago, Boeing now does little more than design and final assembly. Major assemblies, including parts of the fuselage and wings, are built by suppliers in a variety of countries and shipped (in 747s) to Everett, Washington. That may not be lean, but it certainly spreads risk on to suppliers.

            One last note: Early this year I went on a public tour of the Boeing facility in Everett (which, they boast, is the largest building in the world by volume, according to the Guinness book of records). It’s quite a sight; if you’re ever in that area, make it a point to go.



Ralph Bernstein said...

12/7/2006 1:36:11 PM
Re: Leveling Demand at Boeing
By: morrowjeff

Final assembly of the 737 went from 4 inventory turns in 1995 to 50 (!) by 2005, largely to the credit of Carolyn Corvi's leadership and Shingijutsu's consulting. Even more amazing, when Carolyn got promoted to owning all of Commercial continuing production (i.e., everything but the 787), she'd built an organization and culture that's since taken 737 FA to over 100 turns.

You don't get to 100 turns with badly leveled demand. McNerney grasps this. It's also possible that Ford might be better off with Carolyn instead of Alan.