Graham Warwick/WASHINGTON DC
Boeing plans to cut its supplier base from over 31,000 companies to just 18,000 as part of a "managing for value" programme to improve the company's financial performance.
The supplier base size is a key measurement in a "value scorecard" Boeing will use to track its progress. Other metrics include inventory turns, facility consolidation and overhead reduction. Internally, the company will also measure factors such as engineering and manufacturing cycle times and costs.
Chief financial officer Debby Hopkins says Boeing's objective is to achieve shareholder returns "in the top quartile of S&P 500 companies". Managing for value will introduce a company-wide common process for improving financial performance, she says, with the value scorecard providing a common means of measuring results. "This will create a company-wide culture to improve performance," Hopkins says.
The scorecard sets targets for 1999 and 2000 and "stretch goals" that Boeing aims to achieve within three to five years:
• inventory turns, a measure of production efficiency, are to be increased from 2.5 in 1998 to 2.9 this year and three in 2000, with a stretch goal of four turns a year;
• facility floor area, currently 11.5 million m2 (124 million ft2), is to be reduced to 11.3 million m2 this year and 10.1 million m2 in 2000, with a stretch goal of 8.8 million m2;
• overhead costs are to be reduced by $600 million this year and $1.6 billion next year, with a stretch goal of $2.1 billion;
• supplier base is to be reduced from 31,500 companies at the end of 1998 to 31,000 this year and 25,000 in 2000, with a stretch goal of 18,000.
Chairman and chief executive Phil Condit says the supplier base will be reduced without changing the ratio of work subcontracted out compared with that performed inside Boeing. "We will be doing longer term deals with fewer suppliers and building a preferred supplier base," he says.
Hopkins has set improved financial performance goals for Boeing, increasing operating margin targets, from the current 4-5%, to 5-5.5% this year and 5-6% in 2000, with a stretch goal of over 10%. Target margins in Boeing's recovering commercial aircraft sector have been increased, from the current 2-3%, to 3.5-4.5% for this year and 4.5-5.5% for 2000.
Improved performance is being demanded even though Boeing still expects revenues to fall by $10 billion next year, to $48 billion, as the effect of the Asian economic downturn hits its production lines.
Boeing's second-quarter figures show the company is recovering from its financial problems. Compared to the same period last year, net earnings almost doubled to $520 million excluding a one-time tax gain. Commercial Airplanes group's operating earnings improved to $435 million, compared with a loss last year.
Boeing's Military Aircraft and Missiles group increased earnings by 23% over last year, to $368 million, despite writing off $45 million following the loss of the Greek fighter competition.
Source: Flight International
