Supply Chain Matters kicks off our 2014 commentaries with an update on Boeing’s newly announced 777x aircraft sourcing plans. When we last updated readers before the Christmas holiday, Boeing was in the midst of wide scale RFP efforts among prospective U.S. states to secure the most lucrative incentives to locate 777x production facilities in those states. Meanwhile the company had lobbied hard for both the State of Washington and the International Association of Machinists labor union to grant concessions to continue production of the new 777x family in the greater Seattle area.
Just after the New Year, an election was held among Seattle based union membership and by the narrowest of margins, 600 votes out of nearly 24,000 cast amounting to a 51 percent to 49 percent margin, the proposed eight year labor pact extension was ratified by the union. In its reporting, the Wall Street Journal characterized the ratification as a reflection of a deep divide within the machinists union when all the concessions are tallied. Boeing also secured close to $9 billion in tax incentives from the State of Washington, literally a 16 year extension of incentives first granted in 2003 to source aircraft production in the state. The incentives package itself was described as the largest of its kind in U.S. history and assures that new generation 777 production will remain in the Seattle area.
The WSJ further reported that Boeing pressured potential 777x suppliers for cost savings as well under the umbrella of its Partnership for Success program which was an offshoot of the troubled 787 program. Canada based Heroux-Devtek Inc. was reported to have won a contract to supply landing gears over United Technologies which had been at odds with Boeing’s quest for cost savings. The company had been the previous sole source supplier for the current 777 landing gear. There are probably similar supplier developments occurring or about to occur in the coming months.
There is little doubt that Boeing has and is taking a hard negotiation stance in its efforts to deploy the new generation 777 supply chain. The objectives would seem to be cost and margin led.
The learning of the troubled 787 Dreamliner program that included overly aggressive global sourcing and too much value-chain dependence on suppliers has led to a strategy of more in-house sourcing by extracting considerable cost, labor and productivity concessions. Strategic sourcing and procurement executives would recognize this as hardball negotiations similar to what occurred in automotive supply chains in the not too distant past. The result in the automotive sector was a near collapse of the supplier ecosystem as suppliers suffered the burdens of the cost and technology development savings of OEM’s.
In the wake of this strategy remains a deeply divided labor union, a collection of U.S. states who had to scramble to put together and pass concessions that now are passing memory, and a more troubled group of strategic suppliers who once again can sense a my way or the highway collaboration model.
The new generation 777 promises even more technological breakthroughs and aircraft innovation yet the supply chain strategy thus far has been labor, overhead and cost component led. The question of how successful these tactics ultimately will be is certainly the topic of many future conversations formal and informal.
This is collaboration of the Boeing style and many months will unfold before we as a B2B and supply chain community can ascertain whether it leads to ultimate 777x program success for the company. Suffice that the Boeing 777x value-chain tactics initiated in early 2014 will be the guidepost in the many months to come.