This is another Supply Chain Matters update on our ongoing coverage of the latest crisis involving Boeing’s 787 DreBoeing 787 test Feb_2013amliner program, that being the grounding of all 50 operational aircraft, and the impact to the backlog of over 800 customer orders. Readers can reference our most recent previous commentaries here and here.

Before we begin this week’s update commentary, we need to complement the coverage of this incident exhibited by The Wall Street Journal.  Since the 787 grounding began, the WSJ has featured near daily coverage of all aspects of ongoing investigations as well as developments within Boeing.  They have certainly provided extraordinary coverage and should be complimented for doing so.

Today, Boeing is expected to meet with U.S. regulators to outline a series of proposed fixes related to the suspected issues concerning the aircraft’s lithium ion batteries and standby electrical system.  The timing is good since reports surrounding ongoing investigations from various government agencies seem to be without any conclusive root cause indicators as to why thermal runaway conditions occurred in the two previous incidents that participated the grounding decision. The WSJ reports that several airline officials are predicting 787’s could be flying as soon as April.  However, United Airlines announced this week that it has suspended all schedules involving use of their new 787’s until early June. While today’s meeting is being positioned to not result in any decisions, it may represent a changed perspective in finding some middle ground among all parties involved as to the direction and outcome of the ongoing investigations, and on Boeing’s efforts to assure investigators that it has a workable resolution.

Reports indicate that Boeing is calling for a redesign of the battery to increase separation between cells as well as to measure individual voltage and temperature. Plans call for the battery housing to be more ruggedized and fire-proofed, with the ability to vent any heat or vapors externally. Battery supplier GS Yuasa will be required to extend the testing cycle of newly produced batteries from the current days to a number of weeks. Flight crews would be ordered to conduct repeated in-flight checks on the status of the onboard batteries and land immediately if a significant problem is indicated. Thus, it is becoming clear that Boeing, unlike Airbus, will stick with its original design plans calling for lithium ion battery power.

We call Supply Chain Matters reader attention to a front page Wall Street Journal article featuring a candid interview with Boeing CEO Jim McNerney. (paid subscription or free metered view). It includes some revealing aspects of the ongoing crisis.

Regarding the overall stakes for Boeing, CEO McNerney is quoted: “This airplane is our near- and medium-term future and ultimately speaks to our reputation and our brand.” That statement speaks volumes.  Reporter Monica Langley probes deeply as to why McNerney has not been more openly visible during the ongoing crisis. The implication drawn is that the CEO has an inward style and prefers to be behind the scenes actively managing a sense of action and resolution. The lead director of Boeing’s board of directors is quoted as indicating that the CEO is out front with the constituencies that matter.  But, there is no mention of the general flying public as a constituency partner. In our view, the lack of active CEO visibility may indeed be something that will continue to be written about.

Other revelations in the WSJ interview include CEO McNerney’s personal reach out reach to the CEO’s of General Electric and General Motors seeking loan of their best battery experts to assist internal teams in their ongoing investigations. That is in addition to the government battery experts that the NTSB and the FAA invited as part of their ongoing investigations. However, in all of the current reporting, we have not noticed any mention of participation of experts from battery supplier GS Yuasa.  Perhaps that was oversight, but it certainly requires clarification.

The WSJ interview describes a candid conversation between CEO McNerney and the chief technology officer of the 787 program who was apparently convinced that nothing happened to pose a risk to the aircraft or the passengers. McNerney corrected the staff member that the real issue to address was the perception of the safety and confidence of the aircraft and of the brand, and it cannot happen again. Well stated as well since many readers can relate to conversations held with engineers and developers that can often dwell too much on justifying the merits of the technology vs. the implications to tbusiness plans.

Two separate war rooms which are called “Root Cause/Corrective Action” and “Return to Flight” are identified in the article.  These war rooms are described as featuring lots of visual decision trees and graphs.  We trust Boeing is making good use of integrating its product lifecycle management (PLM), manufacturing shop floor, and service management information for effective analysis.

Finally, McNerney speaks to the supply chain ramifications of the ongoing crisis. Boeing has rightfully elected to continue with its operational production schedule of 5 787 Dreamliners per month, even though the company will not be paid for these aircraft until the grounding is lifted and delivery is made. Thus, lots of expensive finished goods inventory is being queued. The WSJ reporter describes this week’s visit by CEO McNerney to the Everett Washington final assembly facility where he told senior executives: “we’ll have a lot of 787’s stacking up around here if we don’t get this done sooner or later”.  That is a statement to extract executive motivation but the reality is that Boeing’s 787 suppliers have lots of concerns regarding not being paid for all of this building unpaid inventory.

This may or may not be a key turning point week in the ongoing 787 grounding crisis. One thing is certain though.  There will be fresh learning on the ability to more quickly assimilate and analyze lots of information from numerous structured and unstructured information sources.  In this hyper environment of around the clock news and social media enhanced news cycles, providing a visible executive persona in managing a brand critical crisis is sure to come up in the post crisis discussions. Finally, the importance of the extraordinary efforts of people, suppliers and external investigators in coming together to resolve this crisis and move forward with what remains to be done, will be the ultimate determinant of whether this crisis is just a temporary blimp, or another setback in a previously troubled innovative aircraft program.

Bob Ferrari