Boieng 

: The Fight for Fasteners

B787 introduction

- had been the fastest-selling aircraft in the history of commercial aviation (500 orders
approximately by the end of 2006, 817 orders in total in 2017)
- was developed in response to market analysis that would need an increase of the
frequencies in a point-to-point network (opposite to a hub system network)
- Midsize commercial airplane (210 to 330 passengers)
- Composites are lighter and stronger than aluminum + lower the maintenance cost
- Huge technology advancement

Delay in the tests = delay to deliver to customers

 Shortage of aerospace fasteners = 3% of the total cost of an aircraft

To meet future production goals of the 787:

- need to change the structure of the supply chain
- implementing a fastener procurement system

Boeing Paradigm shift

1. Role of Composites
“Single piece section” = less composed of many metals part = lower weight
50% of the primary structure (fuselage and wing) was made of composite materials

2. Supply Chain Design: The role of Partners

Assembly took place at Seattle
Move toward a system integration supply chain model = risk sharing with suppliers
EX: A Tier 1 production partner is now responsible for major subassemblies, development,
and production cost overruns (Alenia, Fuji, Kawasaki, Mitsubishi, Global Aeronautica etc)

What are Fasteners?

- Role of holding together the entire structure of an aircraft (bolts, nuts, rivets, washers)
- Largely composed of titanium
What were the causes of the fastener crisis in Boeing?
- Boeing and its suppliers consumed over 700 million fasteners annually
- Analysts estimated that fastener usage would grow by a 13% compound annual growth
rate (CAGR) between 2003 and 2010
- Many aerospace distributors, speculating on a huge increase in demand, began placing
large orders for fasteners with manufacturers
- Uncertainties about what capital and training investments were required + lack of
assurance on orders = manufacturers held off from adding capacity for Fasteners 
They wanted to wait until new contracts could be signed with aircraft manufacturers

How did the problem get ignored for so long?

- no long-term contracts with fastener manufacturer  Orders were individually placed
and often with a single manufacture (before 1995) but (after 1995) signed with some of
them for a 5-year term
- Boeing provided a forecast of the number of aircraft it expected to produce, but no
forecast of fasteners.
- Uncertain demand pattern (only has visibility on inventory consumed)
- Supply Chain was, indeed, infinitely more complex than they would have imagined
- the industry was highly convoluted and lacked transparency
- The data proved that there were fundamental ordering and scheduling problems in the
industry
- Boeing’s Tier-1 partners each used different ordering methodologies, making it hard for
manufacturers to develop accurate production forecasts to match demand = differing
pricing structure (some of Boeing’s partners paid a weighted average 178% markup on
fasteners compared to Boeing)

What effect did the 787 Dreamliner project have on fastener supply?
- Partners consumed 80% of the fasteners for the 787 program
- Because of the composite material, it required many new types of fasteners = need to
source a greater amount of titanium = conduct to a shortage = crisis
- Lead time is growing
- Shortage of aerospace fasteners  Delay in the 787 tests = delay to deliver to
customers

What are the key elements of the Fastener Procurement Model (FPM)?
- central warehouse to receive and distribute fasteners to the entire Boeing supply chain
- Negotiate contracts directly by Boeing with fastener manufacturers, ensuring favorable
pricing.
- Preferential pricing
- the FPM would require that each participant sign a contract entitled the Standards
Participation Agreement (roles and responsabilities)
- Tier-1 partners would be allowed to use BAC fasteners only on Boeing aircraft
Describe the material, information, and financial flows between Boeing, Fastener
Manufacturers and Tier-1 partners under FPM
- Boeing and partners adopted a Consumption Based Ordering (CBO) to upload daily
inventory levels on a web portal (BPN) = aggregate the demand = increased inventory
turns and stabilized prod
(Ex: If inventory is under a specific level = replenish) = clear picture of a true demand
- Forecasting algorithm (consider partners’ average monthly usage of fasteners, and
historic and future aircraft production rates)

- Fastener manufacturers would experience a decrease in demand distortions and

fluctuations, resulting in better production schedules.
- Tier-1 partners would benefit from greater fastener availability and lower prices.
- Boeing would experience timely delivery of fasteners and sub-assemblies.
= All parties involved would benefit from decreased costs.

Evaluate FPM from the perspective of Boeing, Fastener manufacturers, Tier-1 partners,
and other stakeholders.

Tier-1 Partners:
- the FPM team developed a specialized survey to evaluate the maturity of their inventory
management system (level 1 to 5, 5 the most matured)
- Only one of Boeing’s Tier-1 suppliers had reached a maturity higher than 2
- Boeing need to educate its partners on the FPM with the CBO and BPN

Fasteners Manufacturers:
- many of Boeing’s fastener manufacturers had successfully implemented Boeing’s CBO
program
- many fastener manufacturers urged its distributors to adopt the program

Critique the approach taken by Boeing in implementing FPM. What problems has Boeing
encountered in rolling out the FPM?
- having only one specific manufacturer make a certain type of fastener (low-cost
provider strategy)
- Partners create a list of preferred manufacturers for specific fasteners; however, it was
not guaranteed that the partners’ requests could be met when sourcing decisions by
Boeing were ultimately made.
- difficult situation arose in which fastener prices (driven by volume) — could not be
determined with certainty until the number of participating partners was known.
Partners, could not indicate their willingness to participate without knowing fastener
pricing
How should the value sharing piece be managed? How could Boeing construct a supply
chain and governance model that would consider the concerns of all of the parties involved
(Boeing, manufacturers, Tier-1s)?

Boeing has more than 500 Tier-2 partners in the commercial aircraft supply chain.
Assuming the FPM could be implemented with Tier-1 partners, how would you design a
similar program for Tier-2 partners?