In this Supply Chain Matters Editorial, Founder and Executive Editor Bob Ferrari focuses on Boeing’s ongoing corporate culture challenges. It involves and weights  operational excellence and process discipline and a corporate culture focused on producing each aircraft with the utmost quality and efficiency.  It should reward production and supply chain workers for their ingenuity and follow through and for contributing to achieving key operational milestones.

 

Background

In early January, an Alaska Airlines Boeing 737 MAX 9 aircraft flying at 16,000 feet experienced a main cabin decompression as a result of a rear exit fuselage door plug blowing out. Fortunately, the aircraft was able to return to its point of departure, Portland, Oregon for an emergency landing. There were no reported fatalities or major injuries, which was very fortunate. The aircraft itself was newly produced and delivered to the airline in November 2023.

This accident should not have happened, given this aircraft’s limited operational service. The accident provided yet another fresh example of a corporate culture that has strayed way too far from its original roots.

Since that time, the scrutiny and viewpoints focused on Boeing by government regulators, aircraft customers, mainstream business media and flyers themselves remains in the headlines. Regulators have now confirmed that the bolts required to seal the false fuselage were likely not reinstalled at a Boeing facility after an inspection of another door component that was suspect.

Consistent Themes

Common themes reflect aircraft quality deficiencies that now reportedly involve multiple other areas of produced 737 and other Boeing produced aircraft.

The Federal Aviation Administration (FAA) continues in efforts to audit Boeing and certain supplier production facilities to identify where quality monitoring and mitigation processes are insufficient or lacking.

The FAA has additionally placed a hold on any efforts from Boeing to increase the existing monthly production volume of the 737 MAX family until the agency is satisfied that the aircraft producer has instilled adequate controls.

As noted in our recent Supply Chain Matters update, FAA Administrator Mike Whittaker has indicated in industry media interviews that: “We’re (FAA) shifting from more than an audit approach to a direct inspection approach.”

A Systemic Corporate Culture Challenge

We have highlighted for our readers specific business media commentaries that identify the perceived roots of these continual quality and production deficiencies.

The theme is a corporate culture that was once reflective of an engineering and product quality driven leadership to that of a financial and investment community culture of driving up share price and investor returns regardless of process control, pandemic or building supply network challenges.

In a Bloomberg, The Big Take in Business column titled: Boeing’s Legacy Vanished Into Thin Air. Saving It Will Take Years. (Paid subscription), the following was noted:

Together, these point to a common problem: the company’s once-vaunted system for building its prized 737s has been badly damaged by worker turnover, supplier distress and the shortcomings lingering from the breakneck production last decade before the Max tragedies and the Covid freeze.

This Bloomberg editorial further observes:

At the same time that Boeing was reworking its supplier network, executives put greater focus on propping up the share price with the help of dividends and buybacks. Since 2011, the year the 737 Max was officially announced, Boeing has handed some $68 billion to shareholders in the form of dividends and stock buybacks, according to data compiled by Bloomberg, though it suspended the measures as its financial crisis deepened. Airbus, by comparison, has been much more conservative with its balance sheet, giving it greater resources to respond to the pandemic.

The Shadow Factory and Being Tone Deaf

Last week while reviewing our Boeing news feed, this Editor came across a report from COMAC News titled; Closing ‘Shadow Factories’ Could Be Boeing’s Quality Control Solution.

This report begins with the statement:

Within Boeing’s facilities, teams of engineers labor away, working not on building new aircraft but instead on fixing problems with already-built inventory. Boeing executives have begun referring to these activities with a common phrase – the ‘shadow factory.’”

Such entities exist for reportedly upwards of a 100 aircraft of both the 787 and 737 aircraft produced that require extensive added inspections and/or rework.

The report cites a statement from Boeing CEO David Calhoun that indicated: “Indeed,  aircraft often spend longer in the shadow factory then they do in on the main production line.” Some industry experts point to such facilities as “the hidden factories.”

This report further highlights that Boeing CFO Brian West indicated at an industry investor conference last week:

Not every one of those 50 (aircraft) will fly away by the end of the year … But the important point is that the rework will be complete; it allows us to shut down the shadow factory and move the labor from reworking airplanes to working on new production.”

One could surmise that the implication of such a statement is to assure investors that freeing up these resources allows the plane maker to get back to the goal of ramping up monthly 737 MAX production levels once the FAA provides its approval.

Stating The Obvious

However, this report cites industry author Mark Graban as observing:

Boeing must overhaul its quality control and production processes first, which would then facilitate the closure of the rework departments. Executives waxing lyrical about closing these facilities before the root cause of the problem is solved seems somewhat premature.”

For many of our Supply Chain Matters readership who have likely read, referenced or practiced the tenets involved in the Toyota Production System, the observation indeed resonates. They are tenets which have been incorporated not only in automotive industry but other discrete manufacturing settings.

TPS Principles

A core principle of TPS is a system and process that depicts audio and visual systems that indicate a production process has been stopped because of a worker observing and flagging a quality control issue whenever they occur. To quote a Toyota descriptor: “Operators are equipped with the means of stopping production flow whenever they note anything suspicious. Jidoka prevents waste that would result from producing a series of defective items.”

The notion of Genchi Genbutsu (Go and see for yourself) compels production managers to dispatch themselves to where the problem was flagged and to produce timely resolution. It implies not penalizing the worker for calling attention to the problem, or risking a production shortfall, but rather triggering a collective effort toward resolving the problem as quickly as possible. That includes whatever engineering and technical resources that may be required.

Kaizen, or continuous improvement ensures maximum quality and improvements in efficiency for every worksite. It includes constantly improving individual processes and worker assisted equipment.

Eliminating the overburden of equipment and workers is a further principle, in that production processes must be evenly distributed among assembly actions, and at a pace that can be supported by supplier material flows and of in-control process flows.

 

The Ongoing Crisis

The ongoing crisis has the company’s most senior management now compelling production workers to flag known production and quality problems and reportedly not being penalized in doing so. That is refreshing in itself, but statements and added supporting actions are obviously required.

What is missing are the systemic changes in control and reward systems to instantiate a production and quality control system that can support this plane maker’s production volume needs. It is a corporate culture focused on producing each aircraft with the utmost quality and efficiency, and that rewards production and supply chain workers for their ingenuity and follow through. Such a culture rewards operational workers for significant quality and operational milestone achievements.

From our lens, this will take time and extraordinary efforts. It likely includes an externally recruited Chief Operating Officer with demonstrated manufacturing, operations, and supply chain leadership, with a mandate to restore the plane maker to its roots of engineering and operations driven excellence.

As financial or profitability challenges continue, investors who are vested in the company’s long-term viability must come to understand that this plane maker’s cultural challenges are systemic and require internal investment vs. external reward.

The above is our admittedly biased operations and supply chain perspective, but then again, there is evidence and there is case study history that reinforces such linkages.

The question remains, what are the perspectives and willingness of Boeing’s senior and board level leadership? It would be tragic if the commercial aircraft industry, and the associated industry supply networks face a singular dominant global provider.

Industries require vibrant competitors, especially those with upwards of ten years in order backlogs for new aircraft.

Other viewpoints or perspectives are certainly encouraged.

 

Bob Ferrari

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