By Kevin Meyer
One piece flow is a core concept of lean and thanks to its counterintuitive nature also one of the more difficult ones to embrace. We naturally want to group processes and activities together instead of completing one unit before starting another. There are some great videos showing how even common activities, such as addressing and mailing Christmas letters, go faster one at a time rather than addressing all envelopes then stamping all envelopes etc.
Perhaps Boeing should watch one of those videos. Now I don't pretend to suggest that building airplanes is the equivalent of mailing Christmas letters, and I also know that the ramp-up pre-approval phase of airliner production is incredibly complex, but there are still lessons to be learned. Especially when the 787 design and manufacturing outsourcing adventure seriously complicated matters.
That’s left the maker of the much-hyped, long-delayed aircraft with more than $16 billion in inventory tied up in planes under construction, forcing it to stash 35 nearly finished jets outside its plant in Everett, Wash., and at facilities as far away as Texas.
We've all been there during our early or non-lean days… inventory all over the place. Cash just waiting to be dropped to the bottom line. $16 billion or so in this case.
However, most of the 787s in the works will be sitting on the tarmac for months more as they complete construction, eating into the returns of a program that’s already unlikely to log a true profit before the tail end of this decade. “This is like dinner in the anaconda right now,” says Bill Batcheller, chief investment officer at Tower Wealth Management. “It’s a big bulge in the middle of the balance sheet, and it’s got to work its way through.”
That's one way of putting it. Perhaps even the birth of a new lean metaphor… the anaconda vs. the water moccasin? The financial cost is significant – more than a simple little number like $16 billion suggests.
Counting all those mothballed 787s, plus four aircraft in the factory and six test jets, Boeing has more planes on hold than Virgin Atlantic Airways has in service. That’s put a crimp in the aerospace giant’s finances: Working capital as a percentage of sales is approaching 50 percent, vs. less than 25 percent in 2009. Explains Wolfgang Demisch, a partner at Demisch Associates, an aerospace financial consultant: “It’s like they’re dragging a boat anchor equivalent to 25 percent of their sales, which is at the expense of the profitability of their enterprise.” Boeing’s stock has fallen 34 percent since the first 787 delay in October 2007.
Anyone who has started their own business, particularly one dealing with real physical products, knows the hidden danger of working capital. How many companies have literally sold themselves out of business – another counterintuitive concept of how rapid sales growth can strangle a company's finances to death? Not that Boeing is anywhere close to that pickle.
So that's the direct financial side. But consider how all that physicall stuff moving through the anaconda clogs up production systems – leading to indirect costs.
Struggles with new materials and manufacturing processes extended testing to 20 months instead of the eight originally planned. That meant about half the 787s in inventory were already built before Boeing pushed back deliveries again last year after a fire during a test flight. Each of the partially built planes is in a different state of readiness, since Boeing kept improving processes after the jets began rolling out in 2009. They’ve undergone waves of repairs based on testing tweaks; many jobs remain, including replacement of electrical panels redesigned after the test flight fire.
Production has been stalled at a rate of two planes a month for more than a year, and Boeing repeatedly has frozen the final assembly line in Everett for catch-up sessions, including a four-week pause last month. “Anytime you’re building an airplane out of sequence, the amount of work that’s required probably goes up by a factor of 10, because they have to unbuild all the things you built on top of whatever you have to change, and then build it all back,” says Demisch. “It’s cost that will be added to production and make the likelihood of a profit on this program over the next half-dozen years very, very low.”
Waves of repairs, "unbuilding", retesting. "… the amount of work that's required probably goes up by a factor of 10." Nope, we're not talking addressing envelopes anymore.
One piece flow. Boeing just helped you learn why it's so important.