The Boeing 787

"Dreamliner" case
Can the problems faced by the Boeing 787
Dreamliner be explained by Boeing’s
innovative supply chain strategy?
Amine M. ABOUSSALAH
Tiphaine de POMMEREAU,
Raphaël LEYDER
Julien WAGON
Toussaint WATTINNE

Acknowledgments:
We would like to thank Professor Sihem Jouini from HEC Paris and the
anonymous reviewers for their constructive comments.

An innovative aircraft family destined to become a game- An ambitious program

changer in the 210-290 passenger capacity segment, the
787 Dreamliner aims at both improving the passenger ex-
perience and reducing airlines’ operational costs. By us-
ing composite material in its aircraft primary structure
at an unprecedented scale, Boeing not only wished to
increase passengers’ comfort by maintaining higher lev-
els of humidity and pressure within the aircraft cabin –
the US manufacturer also promised airlines faster cruis-
ing speed, a 20% fuel consumption reduction and lower
maintenance costs.
Planning such an innovative program in a limited time-
frame led Boeing to build an entirely new supply chain
strategy, based on co-development with large-scale sup-
pliers and risk-sharing partnerships meant to ensure that
all stakeholders would meet the same ambitious objec-
tives. Yet, the program’s success was severely put in peril
on many occasions, as delays started adding up and some
partners proved unreliable. This work aims at under-
standing the role played by the innovative supply chain
strategy put in place by Boeing in the numerous prob-
lems encountered by its 787 Dreamliner program. It will
first describe and explain the major changes that were in-
troduced in the aircraft’s supply chain – more specifically
the introduction of codevelopment and risk-sharing part-
nerships. It will then summarize the issues the program
faced, and analyze three main factors that are thought to
have mainly contributed to these failures – management
errors at Boeing, overpromising behaviours from Tier-1
partners and the introduction of too many radical inno-
vations in a unique program.
The 787 program was officially launched in April 2004.
Boeing’s schedule forecasted a first flight by the end of
August 2007 and a first delivery to All Nippon Airways
in May 2008. Just by looking at what had been done
before, one could realize how ambitious this plan was:
the typical development time of a large commercial air-
craft is around 6 years (instead of 4 years planned for
the 787), and the certification process, that is to say the
time between the maiden flight and the first delivery, gen-
erally runs for 18 months, versus only 9 months in Boe-
ing’s schedule. The production ramp-up was also planned
to be very aggressive. The advantages for Boeing to re-
duce the development and certification time so much and
to ramp-up aggressively are extremely clear in terms of
business plan. Firstly, they dramatically reduce the non-
recurring cost of development from $10 billion to $6 bil-
lion; secondly, they reduce the time-to-market of the 787,
which allows Boeing to gather as many orders as possible
with a relatively short waiting time for the airlines, hope-
fully enabling the company to speed its only competitor
on the market, Airbus, whose A350 is not expected to
fly before 2013. With 56 orders in 2004, 235 in 2005
and 157 in 2006, the first years of the 787 program were
highly promising and the Dreamliner seemed to be on its
way towards a great commercial success.
A new development and production model
A new supply chain model
The Boeing 787 was designed to be a highly innovative
aircraft, not only because of its superior technical spec-
ifications, but also because of the totally revised devel-

Electronic copy available at: https://ssrn.com/abstract=3748159

 The Boeing 787 "Dreamliner" case
opment and production model the company’s top man-
agement chose to apply. Indeed, the challenge to reduce
the development time and costs in such a dramatic man-
ner (−40%) could only be achieved by restructuring air-
craft manufacturers’ classical work organization from top
to bottom.
Up to the 787 program, the traditional role of aircraft
manufacturers was to assemble different components and
subsystems that were built by thousands of different sup-
pliers worldwide. Boeing’s engineers did most of the de-
sign, and the work to be done was divided in hundreds of
"work packages" (WP). The production of these WPs was
then subcontracted to suppliers, with a "build-to-print"
contract: suppliers were given a "recipe" to produce the
parts they were in charge of – they were not responsi-
ble for designing these parts. The 787 program radically
changed this statement of fact. Boeing decided to split
the development of the aircraft among a reduced num-
ber of key suppliers – around 50 – called tier-1s. These
partners would be in charge of large work packages such
as a part of the fuselage, the wings, or the landing gear.
The major innovation in this model is that the tier-1s are
not only responsible for producing the aircraft, but are
also in charge of its detailed design and integration. This
way, tier-1s produce highly integrated parts that are then
shipped to Boeing’s final assembly line (FAL) in Everett,
Washington. While a Boeing 737 typically stays for 30
days in the FAL, a 787 would only need 3 days to be fully
assembled. This illustrates the fact that most of the inte-
gration work is done earlier in the process by the tier-1s
rather than by Boeing itself.
High opportunities for cost reduction
This innovative model brings several advantages. Firstly,
it enables a reduction of the development time, since dif-
ferent suppliers design and produce different parts simul-
taneously, whereas in the classical organization, Boeing
engineers would not have been enough to cope with the
magnitude of the task. Secondly, outsourcing means ex-
ploiting supplier’s expertise and possibly obtaining a bet-
ter product than what Boeing engineers could have de-
signed and produced on their own. The issue of find-
ing the right know-how has always been crucial in the
aerospace industry – aircraft manufacturers used to out-
source 35% to 50% of sub-systems that were out of their
core competencies (engines, cabin equipment. . . ). For
the 787, Boeing thought that some more work could be
done externally, thus increasing the outsourcing to 70%
of the aircraft. Thirdly, by reducing the number of criti-
cal partners to 50, Boeing would be able to focus on the
critical pre-integration tasks rather than to deal with raw
materials procurement and low-level integration. There-
fore, Boeing decided to deal with a limited number of
tier-1 partners and to let them manage their respective
supply chains, rather than to deal with thousands of sup-
pliers and integrate the sub-systems in-house. Finally,
the 787 development scheme reduces development costs,
not only by reducing the development time from 6 to 4
Electronic copy available at: https://ssrn.com/abstract=3748159
years, but also by spreading the non-recurring costs be-
tween Boeing and its tier-1s, thereby reducing to amount
of money each one needs to invest on the program.
An innovative contracting with tier-1s
As the roles of Boeing and the tier-1s were completely
novel in the 787 program, innovative contracts had to
be signed. A risk-sharing contract was chosen: suppli-
ers have to bear the development costs but in return they
may keep their intellectual property rights for subsequent
licensing. Tier-1s are responsible for the design and tech-
nical trade-offs of their WP, while Boeing only provides
a highlevel interface definition. No risk-sharing partner
would receive payment from Boeing before the delivery
of the first 787. This was a shift in the contractual agree-
ment – traditionally, "build-to-print" suppliers were paid
when they sent their parts to Boeing, regardless of the
aircraft general progress. The risk-sharing contracts give
an incentive to tier-1s to collaborate and coordinate their
efforts for the program’s success, since they will not get
money until the first delivery.
Different jobs, different risks
Although the 787 program promised great reductions in
development time and cost, it also required Boeing to an-
ticipate a number of risks. Firstly, the Dreamliner aims at
using technologies that are unproven at this scale (50%
composite, engine interchangeability, lithium-ion batter-
ies), which raises risks for the certification and the over-
all performance of the aircraft. Secondly, the efficiency
of the supply chain relies on the just-in-time delivery of
large, integrated parts from the tier-1s. Any delay by one
of them will delay the whole 787 schedule. The risk-
sharing contracts are supposed to induce coordination be-
tween the suppliers, but they might have an adverse ef-
fect: as partners who deliver before the others would be
financially penalized by their investments with no reward
from Boeing, this could encourage them to work slower
rather than faster. Thirdly, there is a risk that the mar-
ket does not believe in Boeing’s capacity to achieve such
an ambitious program in time and budget, which may re-
sult in fewer 787 orders or even cancellations of previous
orders. Furthermore, any discount or financial compen-
sation to boost orders would dangerously decrease the
program’s profitability.
In conclusion, the 787’s ambitious program features a
reinvention of the jobs for Boeing and its suppliers, lead-
ing to a great potential for cost reduction, but also intro-
ducing new risks that need to be addressed.
Ongoing delays and difficulties
All these innovations and performance promises were to
make the 787 a gamechanger, and the aircraft of airlines’
and passengers’ dreams. Since January 2013 and the
grounding of all 787s entered into service (50 aircrafts), it
is mostly associated with a nightmare, believing the titles
 The Boeing 787 "Dreamliner" case
Figure 1
List of the main partners and their responsibilities in the 787 program
of the hundreds of press articles published. The Dream-
liner became famous for its long series of incidents rather
than its technologically advanced specifications. Its man-
ufacturing process was plagued by ongoing delays and
millions of dollars of cost overruns.
Multiple, costly delay announcements
The first commercial flight happened in October 2011,
and was more than three years late. The first delay was
announced in September 2007, caused by a shortage of
components and software issues. From then on, other
supply chain problems, as well as technical difficulties
and management issues, forced Boeing to announce more
delays in the four years that followed: in October 2007 (a
3-month delay due to more component shortages), Jan-
uary 2008 (3-month delay for the first flight), April 2008
(15-month delay for first deliveries), November 2008
(first flight test further delayed), December 2008, June
2009 etc. Airlines eventually claimed compensations, es-
pecially Air India, in 2012 (the amount of the compensa-
tion is not publicly known). In October 2011, Boeing had
821 firm orders for the 787, while Boeing estimated the
cost overrun at $9.7 bn; the CFO James Bell announced
that these would go up as production rates would in-
crease1 . The ongoing delays caused a number of cancel-
1 3
"Boeing says no problem on Dreamliner costs", The Street, October
26th, 2011; http://www.thestreet.com/story/11289776/1/b
Electronic copy available at: https://ssrn.com/abstract=3748159
lations by the customers. For example, in August 2012,
Qantas cancelled an order for 35 Dreamliners, which, at
the time, reduced Boeing’s backlog for its 787-9 version
by about 10%. The airline obtained a $300 million com-
pensation for the delays, as well as a refund of deposits
for the order that was cancelled2 . Such events have an
impact on the investors’ confidence, as showed the 3.4%
fall in stock price, on the day of the announcement. Nev-
ertheless, over the years, the evolution of Boeing’s stock
price reveals that the market remained quite confident in
Boeing’s strategy and in its full order book3 .
Operational incidents
More recently, the series of incidents concerning the
lithium-ion batteries made the issue of delays worse. On
January 7th 2013, a battery caught fire on board of an
empty aircraft in Boston. A few days later, an All Nippon
Airways Dreamliner was forced to make an emergency
landing in Japan after a similar incident. The FAA even-
tually decided to ground all Dreamliners in service (the
oeing-we-have-the-money-for-dreamliners-costs.html
2
"Boeing loses Qantas order for 35 Dreamliners after delays",
Bloomberg, August 24th , 2012; http://www.bloomberg.com/ne
ws/2012-08-22/qantas-airways-has-first-annual-loss
-as-fuel-costs-rise.html
http://investor.shareholder.com/ba/stock.cfm?ben
chmark1=&DisplayType=Area&Period=560
 The Boeing 787 "Dreamliner" case
first time it happened since 1979), in order to do a com-
prehensive review of all critical parts and find the reason
and solution to the battery problem. The new design was
approved at the beginning of April 2013; the planes had
to be retrofitted, and were finally allowed to fly again at
the end of April in Japan, end of May in the US. These in-
cidents caused further delays in deliveries; as the Indepen-
dent titled on February 9th 2013, "Delays with Dreamlin-
ers deepen nightmare for Boeing". This article followed the
announcement by Boeing that "we have informed our cus-
tomers expecting 787 deliveries in the near term that those
aircrafts either have been or are at risk of being delayed".
Though the exact numbers are not public, the compensa-
tion claims can be estimated at several tens of millions of
dollars, as the airlines are forced to rely on leasing deals
to replace the missing 787s in their fleets4 .
The 787’s numerous technical problems during produc-
tion and operations were much talked of, as they obvi-
ously impacted delays and costs. In May 2009, a report
stipulated that the early versions of the plane were over-
weight by 8%, causing a 10–15% range reduction com-
pared to what was promised. An impressive event took
place during ground testing and fostered more delays, as
well as bad publicity for the public: the blowout of a Trent
1000 engine. On the management side, Boeing’s assem-
bly line was paralyzed in September 2008, when 27,000
Boeing members of the IAM (International Association of
the Machinists) went on strike, after the failure of ne-
gotiations between their leaders and Boeing’s managers
about contractual issues (the subject being the employ-
ees’ job security – we will come back to that later). This
event was highly publicized, as it was the fourth strike in
Boeing’s history. Analysts estimated that the strike cost
Boeing almost $100 million a day in lost revenues.
These multiple difficulties, of different natures, made
us think that, despite the technological advance of the
Dreamliner, the program is an operational nightmare. Ex-
planations can be articulated around three axes: manage-
ment issues, Tier-1 suppliers’ issues and the fact that the
program was over-ambitious, right from the beginning.
Management issues
The innovative supply chain that was put in place for the
787 required to pay particular attention to management
issues, especially when it comes to suppliers. As out-
sourcing increased, and the size of work packages grew,
many risks appeared, and coordination and communica-
tion between the suppliers and with Boeing became criti-
cal. Moreover, managing such an innovative program re-
quired skills and know-how that Boeing’s managers had
not really tested before. Many problems described earlier
can be explained by management difficulties, both exter-
nal (relationship with suppliers) and internal (program
management inside Boeing).
4
"Delays with Dreamliners deepen nightmare for Boeing", The Inde-
pendent, February 9th, 2013; http://www.independent.co.uk/
news/business/news/delays-with-dreamliners-deepen-
nightmare-for-boeing-8488076.html
Electronic copy available at: https://ssrn.com/abstract=3748159
Supply chain management and control
Boeing had somewhat anticipated that the relationship
with suppliers was essential with this new supply chain
design, but underestimated the challenge. Increased out-
sourcing means increased risks, especially interface risks.
Therefore, they set in place a new tool to deal with these
issues: Exostar, a system that was to integrate the dif-
ferent players of the supply chain (suppliers and OEM)
to improve visibility, control and coordination. However,
the program management team failed to realize early
enough that some suppliers (mainly Tier-1 and Tier-2)
did not fill in the system accurately. For example, Vought,
a Tier-1 partner, did not inform Boeing that it had cho-
sen Advanced Integration Technology (AIT) as a subcon-
tractor; this company set up its own coordination means
without informing Boeing. The suppliers lacked incen-
tives to use Exostar. What is more, Boeing failed to take
into account cultural differences that impacted the way
suppliers filled in the Exostar system, which is a central
problem in such an international supply chain. When
problems arose, the management team was informed
very late. The strategy set up by Boeing to regain con-
trol of information in the supply chain was complex and
costly, as they decided to send their own staff across the
world, in important suppliers’ facilities. With Vought, the
solution they found was radical: they bought the com-
pany back in 2008 and 2009.
The leadership team
Beyond those communication problems lied a bigger is-
sue, which was the management quality of the leadership
team. Understanding the risks and the criticality of inter-
faces with suppliers requires having a certain expertise in
supply chain management. But it was not the case in the
original team, led by Mike Blair (who had a marketing
background). When Boeing announced a delay on Octo-
ber 10th, 2007, Patrick Shanahan – a supply chain expert
– took his place, and was named vice-president and gen-
eral manager of the program. The whole executive team
was re-organized. Boeing had finally realized that chang-
ing the supply chain that much changed the managing
team’s job as well. To restore confidence, along with top
management evolutions, Boeing launched a big commu-
nication campaign, to promote the Dreamliner.
Bad internal communication, impacting labour
relationships
The leadership team made internal mistakes as well.
When they decided to outsource 70% of the 787 program,
Boeing’s leaders did not realize that it would have im-
pacts on their workers’ job security and concerns. They
came back to reality when the big 2008 strike (that we de-
scribed earlier on) took place, which aimed at protesting
against the "open kimono policy" (Karl Sabbagh). Many
strategic parts of the aircraft, yesterday Boeing’s know-
how and expertise, are today transferred to Japanese
 The Boeing 787 "Dreamliner" case

firms, such as the wings and the wing-box that were out-
sourced to Mitsubishi Heavy Industries5 . Indeed, Boe-
ing workers saw this as a direct threat to their jobs. The
suppliers are going down the learning curve on these ad-
vanced technologies, while there is a real risk that Boe-
ing loses these capabilities. Many see this as encouraging
the emergence of new competitors for Boeing. The team
failed to anticipate such protest, discussing the strategy
with unions, to maintain good labour relationships. Boe-
ing eventually consented wage increases and promises
to limit outsourcing. This obvious lack of interest for
labour relationships was disruptive to the program. Over-
all, management mistakes can explain in big proportions
the "program management nightmare". The management
team underestimated the interface risks and failed to con-
trol communication. This can be explained by poor sup-
ply chain management and inadequate internal program
management, as they underestimated the importance of
maintaining good labour relationships, through adequate
communication about the new supply chain.
Boeing and its partners
Tiers-1 philosophy at Boeing
Today we need to know that Boeing and Airbus have
two complementary approaches towards Tiers-1 suppli-
ers. Boeing, especially with the 787 case, considers its
suppliers as partners, in order to fully share risks and the
initial investment as we mentioned earlier. In this phi-
losophy, partner’s suppliers have the intellectual property
rights on the systems they provide. On the other side, Air-
bus prefers not to share knowledge about critical tasks
and systems, in order not to lose its supremacy, so that
intellectual property rights about critical systems are not
outsourced.
Table 1
Outsourcing Trends for Boeing Airframe
(Pritchard and MacPherson 2005)
But since the stock market responded favourably to the
launch of the "game-changing" 787 Dreamliner program,
Boeing though that the full externalization of systems and
critical processes would have a positive effect on the re-
curring costs. Despite the risk associated with unproven
technologies, they decided to launch the program. This
would have led to a successful program if no break in the
supply chain had occurred. The table below shows the
evolution of Boeing’s outsourcing strategy.
Problems from unknown technology
In an article published in 2005, Eamonn Fingleton said:
"in outsourcing the 787 wings, Boeing is crossing an eco-
nomic Rubicon. . . no Boeing plane has ever flown on for-
eign wings" (Fingleton 2005). He referred to Boeing de-
cision to outsource the wings – a critical system – to for-
eign enterprises in Japan. Boeing’s answer was: "when it
came time to build the 787 wings, Boeing did not have
the machines and tools to build the wing box out of the
carbon-fiber composites that will make the majority of the
wings" (Corliss 2005). The flaw in Boeing’s argument is
that in that period Japan did not have the machines and
tools either.
But the Japanese government was eager to invest $3 bil-
lion in the project, which was likely to be split 30% non-
repayable grants and 70% in repayable loans6 . Such a
scheme was attractive for the Prime Contractor (Boeing)
because it provides market and development risk mitiga-
tion for the 787, and for the Japanese government be-
cause it was a great opportunity to develop technical ex-
pertise in the development of aircrafts, a domain in which
Japan had almost no experience before this dealing with
Boeing. The table below summarizes the involvement of
the Japanese government in the 787 program:
Table 2
Japan’s 787 Investments (Pritchard and
MacPherson 2005)

Companies Components Investment

Airframe 727 767 777 787
Wing US US US Japan MHI Wing and Engines $900
Center Wing Box US Japan Japan Japan FHI Airframe $400
Front Fuselage US Japan Japan Japan/US KHI Airframe and Engines $650
Aft Fuselage US Japan Japan Italy
IHI Engines $3 50
Empennage US US Foreign Italy/US
ShinMaywa Airframe $150
Nose US US US US
Toray Composite material $250
Second Tier suppliers Equipment and systems $3 00
Tiers-1 issues Total Investment (millions) $3,000

Boeing consolidates a strong and a global strategy with

their Tiers-1 partners to develop and built entire sections
of the Dreamliner that are based on unproven technology.
5
"What went wrong at Boeing: My two cents", Eamonn Fingleton,
Forbes, January 21st 2013; http://www.forbes.com/sites/eam
onnfingleton/2013/01/21/what-went-wrong-at-boeing-
my-two-cents/
Thereby Boeing took a big risk by outsourcing a critical
part (Wings) in Japan. Moreover the WTO (World Trade
Organization) litigation between EU and US governments
6
Pritchard, D. and MacPherson, A. (2004A). Industrial subsidies and
politics of world trade: the case of the Boeing 7e7. Industrial Geogra-
pher, Spring 2004, EBSCO.

Electronic copy available at: https://ssrn.com/abstract=3748159

 The Boeing 787 "Dreamliner" case
concerning subventions will probably result in some sanc-
tions applied to the Japanese system and therefore will
affect Boeing7 .
Tiers-1’s lack of management expertise and
financial issues
Boeing realized – although a bit late – that Vought Air-
craft Industries (responsible for the fuselage develop-
ment) was the weakest link in the 787’s supply chain. For
that, Boeing decided to acquire Vought’s South Carolina
facility at a cost of $1 billion on July 8, 20098 . This ac-
quisition gave Boeing direct control over Vought’s units
and their tier-2 suppliers for the fuselage development.
Furthermore Boeing encountered another problem linked
with its tier-1 strategic partner Spirit Aerosystems. Boe-
ing was obliged to pay $125 million in 2008 to ensure
that this partner continued its vital operations.
After all, we believe Boeing should have spent more
effort on evaluating each supplier’s technical capability
and supply chain management expertise, in order to se-
lect more capable tier-1 strategic suppliers and therefore
probably avoid or reduce delays caused by inexperienced
tier-1 suppliers.
Too many industry’s firsts at once
Looking at the number and variety of issues that were
faced by the 787 program, it appears that Boeing’s re-
sponsibility goes beyond poor management and insuffi-
cient control over its Tier-1 suppliers – the company’s
leaders are responsible for having planned to implement
too many innovations at once.
It was a tough context that pushed Boeing to come up
with such an innovative aircraft. First, serious competi-
tion from Airbus had led the US manufacturer to lose mar-
ket shares over the last few decades – it was now selling
less than half of new long-distance aircrafts worldwide.
Second, airlines’ needs had started narrowing down sig-
nificantly to the reduction of their operational costs as
they suffered from increasing fuel price and extremely
aggressive competition. As a consequence of both tough
competition with Airbus and the incredible need for air-
lines to be offered a cost-effective aircraft, Boeing de-
cided to bet on innovation and create a game-changing
product. By making the radical decision to include an ex-
tremely varied set of innovations into their program, Boe-
ing’s leaders proved overambitious and created the con-
ditions for the many issues that were to come. Theoret-
ically, each innovation taken individually was a realistic
challenge to tackle in order to provide a state-of-the-art
aircraft. Yet, Boeing’s plans proved unrealistic because
these numerous innovations were simply too difficult to
implement altogether for the first time on a single pro-
gram.
7 sold9 .
David Pritchard and Alan MacPherson, (2005). Canada-United
States Trade Center, paper n.30
8 9
Sanders, 2009
Electronic copy available at: https://ssrn.com/abstract=3748159
More specifically, Boeing introduced major innovations
at three different levels: technology and material, busi-
ness model and supply chain management, and IT co-
ordination. Innovations in each of these domains could
most certainly be managed efficiently, given that suffi-
cient time, effort and attention is dedicated to them.
However, introducing several major innovations in each
of these domains creates new risks and means that some
of them will not receive the amount of buffer and atten-
tion they require – as all innovations do.
A good example of what should have been a successful in-
novation and ended up being unproductive due to the ex-
cessive mix of innovations in the program was the intro-
duction of risk-sharing partnerships. Taken individually,
the idea of using RSP as a standard contract type between
Boeing and its suppliers could have proved efficient to in-
centivise all Tiers-1 to feel concerned about the project’s
success. However, because this scheme was mixed with
the use of new, untested technology and a new coopera-
tion tool between all suppliers, it quickly became a de-
terrent for suppliers to deliver on time. Because most
Tier-1 partners were responsible for large work packages
that they sometimes hardly had the ability to manage, it
soon appeared that some suppliers would not meet their
targets. As soon as doubts started spreading within the
supply chain, all partners understood they could be pe-
nalized by only one of them not delivering on time, thus
making it unrewarding to achieve one’s own targets. Part-
ners were therefore reluctant to dedicate their resources
on a program for which they would not get paid until the
least effective supplier would deliver its parts.
Conclusion
The Boeing Dreamliner program shifted radically from
the traditional approach to a highly innovative supply
chain strategy, highlighting the benefit of significant re-
ductions in both development time and costs. By imple-
menting these changes without a proper program man-
agement team in place, Boeing underestimated the risks
and therefore did not build a strong strategy to miti-
gate them. The aircraft maker entered into "a conspir-
acy of hope" and allocated entire parts of the aircraft to
unskilled risk-sharing partners. By doing so Boeing re-
tained only the highly dependent job of final assembler
and offered to its tier-1 partners – without realizing it –
a great opportunity to increase their know-how, with free
technical assistance if they ran into problems, and at low
risk, since they would simply be bought out by Boeing if
they ran into really insolvable problems. It is still unsure
whether Boeing will eventually make money out of the
Dreamliner, but there is no doubt that the profitability
will be very low as a number of financial analysts have
already forecasted a breakeven point at 1,100 aircrafts
Investir, June 8th 2013
 The Boeing 787 "Dreamliner" case
Learning from its competitor
It took more than 2 years for Airbus to respond to the
Dreamliner: on December 1st 2006, Airbus’ board of di-
rectors approved the industrial launch of the A350XWB
family to compete with both Boeing 787 and 777. Like its
competitor and in spite of the huge delays of the Dream-
liner program, the European aircraft manufacturer chose
to implement the same innovative business model for the
supply chain of its new commercial aircraft. Although be-
ing first on a market brings normally a great competitive
advantage, following Boeing revealed to be a great op-
portunity for Airbus to learn from the Dreamliner’s mis-
takes. Firstly, the size of the work packages was increased
and Airbus went from 200 suppliers for the A380 to 90
tier-1s risk sharing partners on the A350XWB program10 .
Although the purpose of a tiered supply chain is to out-
source as much as possible to theoretically spread invest-
ment risks and non-recurring costs, Airbus decided to mit-
igate the supply chain risk by adopting a smaller 50:50
split between made and bought products11 and retained
the production of critical components in-house. Indeed,
the development of the wings and the centre wing box
was kept within Airbus business units. Airbus had to of-
fer an aircraft at least as efficient as the 787 and therefore
increased the use of composite materials to 53% of the
airframe. However to avoid the delays Boeing had by im-
plementing technologies they did not completely master,
Airbus also made more conservatives design choices and,
for instance, dropped the lithium-ions batteries. In addi-
tion, dedicated buffers were implemented into the pro-
gram schedule to validate structural calculations of parts
made of carbon-fiber and to build reduced scale proto-
types.
A new approach
Airbus applied then several radical changes in its program
management structure by implementing the concept of
"Extended Enterprise"12 . Firstly, unlike the previous pro-
gram where the supply chain managers were spread
through the different production sites, supply chain man-
agement was centralized in one place and full authority
was given to the head of the program. This enabled stan-
dardization in the use of software tools and most of the
companies involved in the project were required to work
using Airbus standard procedures. Then to avoid difficul-
ties and delays that could arise because of different cul-
tures or locations as well as to make sure Airbus way of
working would be implemented across the supply chain,
all the engineers were gathered on the same plateau dur-
10
"Le nouveau modèle industriel d’Airbus", Usine nouvelle, July 12th,
2010; http://www.usinenouvelle.com/article/le-nouveau
-modele-industriel-d-airbus.N135134
11
Airbus A350XWB Programme, The Final Frontier, September 2010
12
The "Extended Enterprise" introduces an optimised way of working
with Airbus and its supply chain, Airbus website, November 18th, 2009;
http://www.airbus.com/presscentre/pressreleases/pre
ss-release-detail/detail/the-quotextended-enterpri
sequot-introduces-an-optimised-way-of-working-with
-airbus-and-its-suppl/
Electronic copy available at: https://ssrn.com/abstract=3748159
ing the first 2 years of the program. Finally special im-
provement teams are dedicated not only to tier-1s, but
also to tier-2s to ensure the on-time delivery of the differ-
ent parts and to spot as early as possible a supplier in dif-
ficulty. It is still too early to say if all those organizational
changes will be sufficient for Airbus to benefit from the
tiered supply chain model. However, the program seems
to be on the right track with a schedule shifted of just a
few months and an upcoming maiden flight.
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