The aircraft manufacturing industry has seen massive success. The industry’s two largest players, Boeing and Airbus, saw orders and deliveries set new records in 2015.
But it’s no secret – this success comes at an environmental cost. The transportation industry accounts for ~14% of total greenhouse gas emissions, the third largest contributor behind energy production and industry. These emissions make the industry particularly vulnerable to government regulations, such as one issued by the State Department in March 2015, when President Obama’s administration submitted a commitment to the United Nations to “cut U.S. climate pollution by 26-28 percent from 2005 levels”.
Upon first glance, you might think an announcement like this would be quite scary for aircraft manufacturers like Boeing. The truth is quite to the contrary – Boeing chose to make a similarly bold commitment to efficiency ten years before the State Department. The project for the aircraft, now known as the 787-Dreamliner, was the most ambitious one in Boeing’s history and was riddled with failures. However, the company now finds itself well-positioned to compete and lead in a climate conscious world.
A Bumpy Journey to a New Operating Model
The project for the 787 Dreamliner started with an ambitious announcement in 2003. Boeing set out to change the way they did business by building an aircraft that would set the new standard for fuel efficiency (~20% improvement as compared to current levels). The aircraft would seat ~200-250 passengers and be made of advanced composite materials instead of aluminum, something that had never been attempted before. In addition to improving fuel efficiency, the new materials would enhance customer experience by increasing range / decreasing layovers and improving humidity levels within the aircraft.
In theory the concept was applauded, but the operational challenges proved to be immense for Boeing. Barclays conservatively estimated the program finished over budget by nine billion dollars. Most problems stemmed from a decision to “spread out” financial risks and investment by outsourcing critical components of design and manufacturing. Boeing thought that by moving to a more outsourced operating model, they could decrease risk while also benefiting from agility (e.g., by receiving largely finished goods from suppliers, the company estimated assembly would take only three days, as compared to the typical 13-17 days). However, Boeing drastically underestimated the added complexity associated with managing a network of advanced manufacturers.
For example, part of the aircraft’s innovative new design included power from lithium-ion batteries. The technology proved to be incredibly difficult for Boeing suppliers to manufacture, and Boeing would often have to send hundreds of engineers on site to assist with redesign. Even with these types of interventions, post-launch the technology experienced notorious failures, such as the grounding of all Japan Airlines 787’s in 2013.
Outlook – Positioned for Long-Term Success
Despite the obstacles Boeing encountered in developing the 787, the plane has seen commercial success. As of May 2016, Boeing sold over 1000 planes, making the 787 the fastest-selling wide body aircraft. Additionally, competitor Airbus has been forced to respond with more fuel-efficient vehicles of their own.
Recently, analysts have expressed skepticism as sales of the 787 have slowed – airlines are holding on to older, less-fuel-efficient vehicles as a result of cheap oil prices. Still, Boeing has reasons to be optimistic over the long-term. By using lightweight materials, they have pushed the boundaries of fuel efficiency in the airline travel industry. Furthermore, the company is well-positioned to continue to improve fuel efficiency and meet regulatory hurdles with a newly acquired expertise in composite materials. Finally, the challenges Boeing had to overcome to achieve this new design will continue to produce returns. By overcoming the complexity of designing, sourcing, and manufacturing the 787, the company has learned how to balance cost and agility across its supply chain. Over ten years after announcing the 787 project, I challenge Boeing to find an equally ambitious project that will leverage its new operating model.
What do you think? Can Boeing leverage its newly agile operating model to develop and manufacture the next 20% improvement in fuel efficiency?
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