Supply chain management has become a concept without which companies could not face the increasingly complicated business environment existent nowadays, especially given the competition of companies that can operate at lower operational costs and thus increase their profit margins through cost competitive advantages.
In order to achieve lower costs, better distribution processes and better delivery times, companies have introduced supply chain management. Supply chain management can be defined as "the practice of coordinating the flow of goods, services, information and finances as they move from raw materials to parts supplier to manufacturer to wholesaler to retailer to consumer" and, as a process, includes "order generation, order taking, information feedback and the efficient and timely delivery of goods and services"
Boieng is an excellent example in this sense. Operating in an industry as complex as aeronautics, with tough competition from European firms such as Airbus, Boeing needs to ensure a high quality supply chain management process.
Perhaps the most important aspect of Boeing's supply chain policies is the collaboration with other companies, carefully selected in order to fit Boeing's exact requirements. The partners that Boeing selects have a series of distinct characteristics, most notably "online visibility and leading-edge application of technology"
There are several relevant examples in Boeing's supply chain strategies, with interenterprise links going from partnerships to alliances on the market. Perhaps the best example in this sense is Boeing's relation with GKN Aerospace North America. The respective company was established in 2001. At that time, Boeing decided to concentrate on assembly and sold its fabrication division to GKN
From this point forward, GKN worked to achieve "down to the hour and minute -- the needs and wants of its largest customer"
. This meant that a proper and fully functional needed to be set in place in order to best coordinate GKN's production with Boeing's consumption. The technological system conceived was truly marvelous: a system that "key indicators in Boeing's production systems via a Web-based portal and reports back to GKN's ERP system"
. As such, the coordination process is relevantly linked to any increase or decrease in Boeing's production cycle.
The relevancy of this example is given by one of Boeing's employees themselves. According to Cassandra Erdeac, general procurement supplier manager for Boeing Integrated Defense Systems, "the better GKN does business, the cheaper we can get our product from them. Through the supply chain, everybody is linked"
As such, Boeing chose to decentralize part of its production and include it in its supply chain. However, this process may have not been enough. In this sense, Boeing achieved real-time coordination with its supplier, managing this through excellent communication where the supply knew exactly when the parts would be needed and in what quantity.
Information, real-time data exchanges seems to be the key factor in Boeing's supply chain management process. It is mentioned as such in a presentation of Boeing's aerospace division, but can be surely extrapolated to any other industry where Boeing is present.
Boeing's supply chain management is based on "online, real-time, integrated information systems"
. These information systems are not one-way systems, as in the example presented previously, connecting Boeing to its suppliers. They also go to meet the customers' exact needs, in terms of delivery times, quantity, etc.
We can thus make a brief comment on another important characteristic in Boeing's supply chain management process: Boeing's relationship with its customers. The company's most important customers are obviously the airlines. The company's press releases abound in stories about how Boeing exchanges information with its customers.
For example, in November 2003, Boeing "updated 80 airline representatives and eight financial institutions about its super-efficient 7E7 Dreamliner passenger airplane, and gathered inputs that will support the program's work next year"
. Following this headline, we will be able to see that Boeing's supply chain management process is a two-way process. The company informs its clients on the progress of a project, but, at the same time, it gathers the necessary input in order to be able to fit the exact requests of the market, of its clients.
The customer-company-chain supply management relationship is thus intrinsic and the first are always one of the key factors impacting the last element, because, in the end, they are the final destination of the process. Through a quality information flow, Boeing can adapt its supply chain to fit their demands.
One of the important elements of Boeing's supply chain management process is the Integrated Materials Management (IMM), a program that currently includes four large airlines, with All Nippon Airways signing the agreement in November 2004
. According to the agreement, Boeing is responsible for "the purchasing, inventory management and logistics for a number of All Nippon Airways's expendable aircraft parts" and will own the aircraft parts, "stored at a location near the airline's operations until needed"
Providing that the informational channel works well here, Boeing will have a large inventory of spare parts in can use in other areas of its business, with a keen watch over any delivery time that All Nippon Airways may ask for (following the agreement, Boeing needs to be able to have spare parts available when they are requested by the partner).
This is not the only advantage of the Integrated Materials Management (IMM) program that Boeing has implemented and that also has Honeywell and Delta Airlines among its clients. Returning to the importance of information, Boeing benefits from "having more accurate and timely information; thus, reducing the cost of managing their supply chain"
In the end, an effective chain supply management will reflect in lower operational and procurement costs. The IMM programs works in achieving this desiderate.
Several articles suggest that an efficient supply chain management system works on integrating three main flows: the product flow, the information flow and the finances flow
. In my opinion, in Boeing's case, the first and third flows are well integrated and coordinated by the second flow, without which none can actually function. In other companies, the information flows may be in last place, but Boeing cannot afford to proceed as such. The explanation is rather simple: the deals that Boeing makes, selling aircrafts to airlines, are of a very high value. Not delivering on time is equivalent either with losing the contract or with exorbitant penalties, none of which Boeing can actually afford.
Following this presentation of some of the most important elements in Boeing's chain supply management process, the best recommendation that can be made refers to research and development and information technology spending. No informational system should be considered too expensive by Boeing's management, because information is the key element in Boeing's entire business.
Additionally, Boeing should be least sensitive to globalization and its implications. The aeronautics industry, with all its other branches, including the aerospace industry, is a highly sensitive one. Quality is the most important issue to be considered, because quality in this case also means safety and safety should be the first care in aeronautics.
This is not only an ethical issue, as it may appear from the previous paragraph. Any crashes or incidents have a direct impact on the company's image. News announcing that a Boeing airplane has crashed and killed a number of passengers is equivalent to a millions of dollars decrease in Boeing's sales.
Information and quality, not only of goods produced, but of the suppliers and the relationship with suppliers -- this is a key recommendation for Boeing's supply chain management.
1. Kay, Russell. December 2001. Supply Chain Management. Computerworld. On the Internet at http://www.computerworld.com/softwaretopics/erp/story/0,10801,66625,00.html
2. Poirier, Charles and Quinn, Francis. September 2003. A Survey of Supply Chain Progress. Supply Chain Management. Review. On the Internet at http://www.manufacturing.net/scm/article/CA323602.html?text=boeing
3. Mayor, Tracy. August 2004. The Supple Supply Chain. CIO. On the Internet at http://www.cio.com/archive/081504/supply.html