Héroux-Devtek became the public face – for better or worse – of Boeing’s controversial “partnership for success” programme last year.
With little warning, Boeing selected the Canada-based landing gear designer – known mostly for working on business jets, regional aircraft and one-off projects such as the Boeing X-45C – to replace Goodrich as the Tier 1 integrator for the current 777 after 2017 and the flagship 777X after 2020.
The news stunned the industry, prompting some analysts – including Teal Group vice-president of analysis Richard Aboulafia – to question if Boeing was accepting too much risk again so soon after the painful lessons of the 787 programme.
Inside Boeing, however, top executives seemed less concerned about perceived risk than showing suppliers that the goals of the partnership for success programme are real. In Boeing’s view, the terms of the supplier-OEM relationship needed to change.
Selecting Héroux-Devtek was “an important part of the partnership for success story”, says Bob Noble, Boeing’s vice-president of supplier management and the partnership for success programme.
“It allowed us to take a large, important component of an aircraft and make the kind of change we were reluctant to take for a number of years, and we were able to demonstrate to ourselves that we could be bolder than we were previously,” Noble says.
Goodrich and parent United Technologies Aerospace Systems (UTAS) refused to agree to Boeing’s price, and so lost the 777 landing gear contract. UTAS’s loss is unlikely to be the last for a major Boeing supplier. In March, Aboulafia said he had heard of “equally unusual 777X sourcing decisions” by Boeing.
The partnership for success programme is applicable across all commercial and defense areas, but selecting the supply chain for the 777X offered the first major opportunity to test Boeing’s resolve.
So far, Héroux-Devtek is the only surprise selection by Boeing for the 777X. Only two other major suppliers have been named, and both – General Electric and a consortium of Japanese aerospace companies – preserved the roles they perform today on the 777. Boeing also agreed to build the composite wing of the 777X in Everett, Washington, as part of a deal with the International Association of Machinists and Aerospace Workers.
These are the only links of the 777X supply chain that Boeing has revealed. As more suppliers are named, each will have emerged from the partnership for success programme, which Boeing believes is widely misunderstood.
Noble opened a recent presentation for journalists about the programme by ticking through a list of perceived falsehoods.
According to Noble, the misconceptions include the true meaning of the inflammatory “no-fly list”, which was introduced by Boeing chief executive James McNerney last year. This suggests that suppliers which do not agree to work with Boeing in the partnership for success programme are permanently banned. But the reality is not quite so simple, Noble says.
“It’s not called a ‘no-fly list’. It’s called a ‘new business withhold’ [list],” he says. “It is something that a few suppliers have found themselves on. The truth is it’s something that so far has been rather temporary, meaning we’re in a place where perhaps the discussions have gotten difficult.”
Another misunderstanding about the programme, says Noble, is that Boeing is demanding a 15% across-the-board price cut by all suppliers.
“That’s not true either,” Noble says. “We’ve got an overarching goal [but] every supplier’s circumstance is different. What we’re trying to do is work towards success. What we want is a team that can go into the marketplace with the most competitive products.
“It does not benefit us to have a supplier that’s got issues and have Boeing or another supplier without issues. We’re trying to get the whole team in to the same kind of place, working and rowing together.”
Boeing selected Heroux-Devtek to replace Goodrich as a first tier integrator for the current 777 after 2017, and the 777X after 2020
Heroux-Devtek
Boeing has also heard the criticism that the partnership for success programme is a supplier shakedown – a ploy to transfer operating profit margin to Boeing’s balance sheet.
Again, Noble insists the charge is invalid in the vast majority of cases. “This can’t be a margin play. This has to be a cost play. We’ve got to go figure out a way between us to drive these costs down and be more efficient together,” Noble says.
There are a “couple” of cases where the discussion with a supplier is about an excessive operating margin, and Boeing seeks a price reduction, Noble says.
This echoes comments made two years before by Boeing vice-president and general manager of supplier management Kent Fisher. Speaking to reporters before the Farnborough 2012 air show, Fisher complained that certain suppliers were exploiting a perceived sole-source status to charge Boeing monopolistic pricing.
“There are certainly suppliers who have taken advantage of a unique position in the supply chain and used it, I think, to earn unreasonable profits,” Fisher said in June 2012.
It would be another year before Boeing unveiled the partnership for success programme, but Fisher’s remarks captured the company’s internal thinking as it laid the groundwork for opening negotiations with suppliers.
“About half of the value that we’ve captured has been a result of competitive sourcing or dual sourcing or both,” Noble says. “We’ve gone back out to the marketplace to find out whether there were more people that could be more efficient and were willing to be more efficient.”
The attack on monopolistic pricing was led by a project within the partnership for success programme called “accelerated opportunity capture”. The goals of this initiative spanned a broad range of other cost-saving efforts.
The same team is also changing the way Boeing sources all parts, seeking to better leverage the company’s scale as a parts buyer. This year, Boeing will “cross-dock” – or take delivery – of more than 1 billion parts destined for commercial aircraft. The parts range from a single-piece composite fuselage barrel for the 787 to each one of 37,500 nutplates installed on the same aircraft.
The team discovered, for example, that Boeing specifications require the supplier to clean every nutplate with a cotton swab to wipe off extra sealant. Most nutplates, however, do not have any extra sealant on them, Noble says. So Boeing changed the specification to require the supplier to clean only the nutplates that need it.
Noble raises the nutplate issue because it shows the partnership for success programme is broader and more than complex than an attempt to win a unilateral, 15% discount from suppliers.
Noble also cites the example of the 747-8 oxygen bottle. The team is now scrutinising supply chains for each aircraft programme individually, and then across all of the company’s programmes. It was found that by consolidating Boeing’s supply of oxygen bottles with a single supplier, the company could receive a 25% discount, Noble says.
Another team under the accelerated opportunity effort is focused on changing how Boeing absorbs process improvements. Two years ago, it took an average of more than 600 days to usher a cost-saving improvement through Boeing’s supply chain.“Today we can do that in 90 days,” Noble says.
If sole-source pricing drove Boeing to seek new deals, the long-term market trend has made the company look for a variety of cost-saving approaches. According to Boeing’s projections, about 7,000 aircraft –one-third of the company’s 20-year forecast – will enter the order backlog within five years. In the same period, the current 777 is scheduled to compete against the Airbus A350-1000 for at least two years, before the 777X enters the market in 2020. That means the 777 could face pricing pressure if Boeing holds production rates steady at 100 aircraft per year through the bridge to the 777.
Last January, McNerney told analysts cost savings from the partnership for the success programme should peak around the same time the A350-1000 arrives, and that is no coincidence.
“For us to win those competitions we have to be in the marketplace with a competitive airplane – and cost matters,” Noble says. “We had to have this very honest conversation with our supplier. A lot of them say it’s way out in the future. It’s not in the future. It’s now.”
Source: FlightGlobal.com
