In a previous Supply Chain Matters commentary focusing on aerospace focused supply chains, we brought forward how the voice of commercial aircraft customers is growing ever larger. Influential customers and industry observers are increasingly indicating that both Airbus and Boeing should be focusing more on delivery commitments on existing new aircraft rather than indicating intentions to develop even newer technology-laden aircraft models. Among strategic plans for both of these aerospace global leaders are efforts towards added investments in supply chain capabilities including long-term strategic supply or added production capacity.
A recent published report by Reuters featured on Yahoo Business provides the perspective of Boeing’s chief of airplane production programs on efforts underway to ramp-up production specifically that related to Boeing’s cash cow, the iconic 737 aircraft family. This specific single-aisle aircraft is especially important since it is today’s workhorse of the termed lower-cost, budget airlines such as Ryanair or Southwest Airlines, that are growing faster than long established carriers.
In the article, Pat Shanahan, Boeing’s Senior Vice President for Airplane Programs indicates that his company is not only well positioned to scale-up 737 production rates, but learning from past mistakes. He further points to needs for an integrated plan that includes not only internal manufacturing but the broader supply chain. An important quote: “When I think about the mistakes we made back then (referring to 1997), we didn’t have an integrated plan that included the supply chain.”
In 2014, Boeing increased 737 model production to the rate of 42 aircraft per month, which was up from the 38 per month level experienced in 2013. Current plans call for production of this popular single-aisle aircraft to ramp to a rate of 52 per month by 2018, along with a transition to a the newer 737 MAX model version. Besides the 737 family, Boeing has additional plans to ramp-up monthly production volumes of the 787 family from the current level of 10 per month. The Charleston South Carolina facility now serves as a second production facility for the 787.
Boeing is not alone in these efforts.
Airbus who produces the rival A320 aircraft currently matches the 737 output of 42 aircraft per month has ramp output to 46 per month this year, and 50 per month by 2017.
Within the article, Mr. Shanahan outlines a risk-based approach for evaluating the readiness of the integrated supply chain. Unfortunately, there are not a lot of specifics related to people, process and information technology enablement specifics being addressed, but that seems to be par for the course when two high-profile, highly competitive aerospace companies attempt to outpace themselves in product development and operational execution capabilities. In some cases, both of these producers share common suppliers of components and technologies.
From our Supply Chain Matters lens observing both of these aerospace giants for the past eight years, it is clear that efforts towards major global supplier-based product development, outsourcing and supply chain risk mitigation have brought painful, but important learning on the importance of total supply chain wide visibility and fulfillment synchronization. We recall the vivid images of multiple fabricated 737 fuselages sitting on the banks of a river after a rail derailment.
Both now take a far broader view of operational capabilities that umbrella both internal manufacturing and the global, end-to-end supply chain.
A recent commentary appearing on the investor site, The Motley Fool, Are Boeing and Airbus Building Too Many Jets, calls to question the delicate balance for investing in too much production capacity if a bust in airline demand occurs sometime in the next few years. This commentary cites Boeing’s 2014 Current Market Outlook projecting existing demand for over 25 thousand single-aisle aircraft over the next 20 years. That is obviously a lot of airplanes and accordingly works out to and annual sales and production rate of over 1200 aircraft per year for all manufacturers. Noted in the commentary is that within a few years, Airbus and Boeing will likely be producing close to or exceeding this average volume. Hence, there is fear by investors of potential overcapacity.
As noted in our prior commentary, senior management at both of these major aerospace firms cannot rest on the laurels and enviable position of having 8-10 years of product demand backlog. A very delicate balance involving even more product development, investing in supply chain and production capability and satisfying today’s Wall Street’s more short-term focused investor expectations, has such executives, and their supply chain and manufacturing teams, constantly challenged.
Customers require new aircraft orders be delivered on-time to meet business growth, efficiency and productivity needs while investors require higher investment returns and profitability. We all know that in a ten or even twenty year horizon, many business and market assumptions can change, sometimes dramatically. Who would have believed five years ago that the price of crude oil would drop below $50 per barrel?
It is a delicate balance and aerospace supply chain ecosystems and internal supply chain and product development teams sit in the middle of this dynamic.