Kevin Meyer

Life and leadership at the nexus of lean and zen.

The Dreamliner Follies Continue

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Today’s NYTimes unknowingly threw into stark relief the consequences of the different paths taken by Boeing and Brazil’s Embraer. Boeing, of course, claims that the outsourcing of the 787 Dreamliner is the epitome of lean manufacturing, even when its many problems point clearly to the folly of  off creating a complex, globe-girdling supply chain. (This blog has covered the 787 fiasco many times.  Read all about it here.)

The latest news, in what has become a grimly comical production saga, is the possibility of further delays due to fuselage damage:

Boeing, already facing a delay of at least 14 months on its new 787 Dreamliner aircraft, has not yet determined if damage to the fourth of six test planes will have an effect on the full program.

The midbody fuselage section built by Global Aeronautica, a Boeing venture with Alenia North America, a unit of Finmeccanica, was damaged in Charleston, S.C., “by an Alenia employee not following proper work procedures,” a Boeing spokeswoman, Yvonne Leach, said Monday night.

You can’t blame Boeing for all problems, of course.  They’re inevitable, especially when building something as complicated as a plane with an entirely new structure. But it’s significant that this particular error occurred with a part that had been outsourced to another company, not at Boeing itself. And although the NYTimes doesn’t use lean terminology, "proper work procedures" sure sounds a lot like standard work to me.

Ironically, Boeing can’t even determine the ramifications of the damage, because the part hadn’t yet been shipped to Everett, where final assembly occurs. So in addition to the waste of rework, there’s the waste of waiting, as they twiddle their thumbs before they can determine what course of action to take next.

The newspaper also ran an article on Brazil’s challenge in finding enough skilled, educated workers — particularly engineers. Embraer, which builds private and commercial jets that seat from six to 122 people, is one of the companies that has created its own specialized engineering program:

In 2001, company directors realized that with only
three Brazilian universities offering courses in aeronautical
engineering there would not be enough graduates available to help them
design, build and sell planes in a rapidly growing market. So
the company created a program that selects the country’s best
engineering graduates and puts them through an 18-month specialization
course.

They already have a base in disciplines like electronics, mechanics
or design. In Embraer’s classrooms, overlooking a shop floor scattered
with fuselages, they learn the skills that will help them become
aeronautical engineers.

Júlio Franco, executive vice president
for organizational development and personnel, said the company spends
$45,000 training each student.

The results? Embraer has doubled in size since the start of the decade and
currently has orders in excess of $20 billion. It expects to deliver
nearly 200 aircraft to clients this year.

Okay, $20 billion is small potatoes compared to Boeing. But maybe some of the workers that Boeing laid off in years past, and who couldn’t find work when Boeing farmed out the Dreamliner, could find some work with Embraer.

Boeing’s Credibility is Being Tested

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Highlighting Boeing’s problems with the 787 outsourcing these days feels a bit like commenting on Britney Spears’ parenting skills, but yesterday’s Aviation Week article brings some of those difficulties into stark relief:

Boeing’s third announced delay in the 787 program puts first flight at least nine months behind schedule and means first delivery is as much as a year off the original mark. The company cannot predict when it will start work on the first delivery aircraft or when final assembly will begin on the five remaining airplanes needed to achieve FAA certification.

This blog has pilloried Boeing in the past for outsourcing so much of the critical manufacturing to secondary suppliers (who, unbeknownst to Boeing, outsourced much of their work to tertiary suppliers).  Outsourcing has led to brutally long supply chains that make much of the manufacturing process invisible:

While fastener and small parts shortages remain an issue, the larger hurdle seems to be a disconnect between a rosy, computer-screen view of how the airplane is supposed to flow together and the reality of what happens on factory floors around the world.

Not to put too fine a point on it, but it’s pretty hard to make things visible when the factory is 8000 miles away.  And it’s pretty clear that a "computer-screen view" of the process just isn’t the same as genchi genbutsu.

This lack of visibility has also led to a spike in what Boeing calls "travel work" (translation: "waste").

That’s when Boeing’s own assemblers must complete jobs left undone by suppliers. The efficiency of Boeing’s global supply network is premised on major supplier-partners delivering fully prepared, or nearly fully prepared, large assemblies to the final assembly line. This lean-manufacturing approach is supposed to drive out wasted steps in the manufacturing process. So far it hasn’t worked and, in fact, is doing the opposite.

Boeing has been lauded as a leader in lean manufacturing, particularly with regards to the 787. But as Mark over at the LeanBlog has pointed out, flying components around the world isn’t lean at all, even if everything went perfectly. I’m not sure if the growing 787 fiasco an example of LAME (lean as misguidedly executed), or whether this journalist (and others) don’t really understand lean. Because if you just judge by the results, the 787 is beginning to look an awful lot like garden-variety outsourcing, complete with all of its attendant problems.

Either way, as production snafus continue to mount, Boeing Commercial Airplanes President and CEO Scott Carson acknowledges that they have to find solutions before events spin out of control: “Our credibility is being tested.”

Strengthening the Human Supply Chain

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The other day Mathew May mentions an article found in Strategy and Development (free registration). This article was titled Win-Win Sourcing by Jackson and Pfitsmann. It mentions how companies like Honda and Toyota “collaborate openly on lowering costs and raising overall performance, with the expectation that this mutuality will continue over many years, benefiting both companies.”

This contrasts with the alternative method they mention:

“…this approach pits the interests of the supplier against those of the manufacturer. Each side reveals as little information as possible, for fear of giving the opposing side an edge. Components, parts, raw materials, and finished goods are purchased through competitive bidding, with specific volumes and deadlines spelled out in advance…The primary cost-cutting option available to manufacturers is to squeeze every possible cent out of procurement contracts. Purchasing managers focus exclusively on attaining cost savings greater than those of the previous year; their compensation hinges on it. Suppliers, in turn, focus on calculating bids that will win them the jobs.”

If your organization is guilty of this practice Jackson and Pfitsmann recommend a four step approach to supplier relations:

“1. Establish suppliers as strategic long-term partners.
2. Set up an ongoing system to eliminate waste through collaboration across the supply chain.
3. Get it right the first time.
4. Respect and develop human capabilities.”

It is the 4th bullet that most interests me. For the last ten years in one way or another I’ve been in the business of developing human capabilities. I find it interesting that companies spend millions of dollars annually to improve their supply chain which primarily provides durable goods that are depreciating the second they leave their facility. Contrast that with the amounts spent by companies on preparing their human supply chain which primarily provides a product that appreciates over time so long as you provide it learning opportunities.

This is like being on the wrong side of compound interest. I can either give 10%+ per year to a credit card company or I can earn 10%+ per year in a wise investment. Over time one is likely to destroy my family and ruin my life and the other is likely to bring me peace of mind and increase my ability benefit society.

There was an article this morning that I read that described Toyota’s efforts with Scott County, Ky., School District to invest in their human supply chain. The article states:

“The Toyota experts introduced Scott County educators to the Japanese Quality Circles method of problem solving in which a group of employees who perform similar duties meet at periodic intervals, often with management, to discuss work-related issues and to offer suggestions and ideas for improvements, as in production methods or quality control. Then Toyota executives showed educators how to adapt the concept into teaching methods.

The program is called QUEST.”

Dallas Blankenship, the Schools Superintendent describes the purpose of the QUEST program:

"The mission of the program is to provide students the opportunity to develop and apply their behavioral skills in a problem-solving team environment."

According to the article even the Toyota Executives were happy with the results:

"The ultimate goal of education should be to prepare individuals to be productive, contributing members of their communities," said Masamoto "Matt" Amezawa, president and CEO of Toyota Motor Manufacturing Kentucky, at the time the program began.”

Would you say your company spends more time developing the physical supply chain or the human supply chain? My guess is that most of us could use some work on both.

Value is not Price

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The automotive parts industry has not exactly had an easy time over the last decade or so.  Many of those companies chased the alluring volume from what was previously known as "the Big Three" (which we now call "the Detroit Three), and suffered as Ford, GM, and Chrysler lost market share.  But they also suffered as a result of the supplier management tactics of those companies.  It’s no coincidence that poor supplier management… or a lack of partnership… aligns with companies losing market share.

As Daniel Hertz Jr. of Seals Eastern said in an interview with Rubber & Plastics News,

"The idiocy out of Detroit just gets to you after awhile," he said.  "They want to buy by the pound.  The only think price, not quality.  They’re overloaded with lard."

William Krames, CEO of Santa Fe Rubber Products Inc. has a similar perspective,

"We handled a lot of automotive business until two years ago," he said.  "We had one job from a second tier supplier, the sole supplier to a Big Three automaker.  We got the job, and a year later, the company spread the job to seven suppliers.  The Big Three will let a supplier sink into bankruptcy if you let them.  They don’t care."

So what did both of those guys do?  They had the guts to take their companies in a different direction.  Take Hertz’s Seals Eastern.

The seals, gaskets, and O-ring manufacturer dumped its automotive segment and along with it about $2 million in regular business.  That’s not easy to do for a firm that has $12 million in annual revenues.  By focusing on new technology "we had an up-tick in the oil and gas and heavy-duty equipment industries."  So the company go that lost revenue back from industries it we more comfortable serving.

And Santa Fe Rubber Products,

When Santa Fe de-emphasized automotive, it put more focus on its liquid silicone business, where it’s been very successful.  He [Krames] is considering becomign an automotive supplier again – focusing on the firm’s patented radiator seals – for Japanese car companies.  "We’re interested because of their mentality," he said.  "As long as you perform, you’ll do well with them."

By bashing their suppliers into submission, the Detroit Three put price before quality, innovation, and leveraging the experience of their suppliers.  That tactic was one reason they rapidly lost market share, and is a double whammy as some of those same suppliers are now helping the competition, making it even harder to catch up.

Once again: value is not just price. 

Mass Production 1, Lean 0

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Boeing’s ballyhooed (in some quarters) lean production of the 787 Dreamliner just ran into the ugly reality of mass production in its supply chain.  A serious shortage of titanium fasteners threatens to delay the July 8 unveiling of the plane.  The Wall Street Journal notes,

Boeing is working closely with its primary fastener supplier, Alcoa Inc., to get enough high-quality titanium bolts to put the plane together in a logical fashion.  Nevertheless, major components, such as the wings, arrived from Japan and other locations such as Italy and South Carolina held together by thousands of temporary fasteners.

This blog briefly commented on the problem yesterday.  Alcoa has been slow to add production capacity for fear of being stuck with it during the next industry downturn.  And the Seattle Post-Intelligencer reports that Boeing contributed to the problem by setting requirements for the fasteners near the end of the engineering design process. As a result, fastener makers like Alcoa got a
late start in tooling up.

For sure, these are significant issues that have contributed to the shortage.  But the WSJ article indirectly sheds light what might be the root cause of the problem: the clash between a mass production supplier and a lean production process. 

Alcoa (at least when it comes to the manufacture of these fasteners) is firmly entrenched in mass production mode:

Each bolt must be individually made on a lathe — a process that can’t be hurried.  Because it takes time to set up the lathe, Alcoa would prefer to make thousands of one type of fastener before breaking the machine down and resetting it.

So, no SMED for Alcoa.  Set up the machines, let ’em run, and build up inventory to reduce the average cost of the  parts.  But that doesn’t help Boeing right now.  As Mike Bair, the Boeing VP of in charge of the Dreamliner, says,

"Problem is, we don’t need thousands of bolts right now.  We might need 10 of one kind."

Presumably, Boeing and Alcoa will find some way of getting those fasteners in time for the July 8 deadline.  Boeing will have a shiny new Dreamliner to show off to the media, and a great story to tell about their new lean production system. 

But they won’t talk about the conflict between mass production and lean production.  They won’t talk about the difficulty of getting a small quantity of parts from a supplier that’s committed to batch and queue manufacturing.  And you can bet they won’t talk about the larger ramifications of this issue. 

How lean can you really be when your suppliers are in batch mode?

Differing Perspectives On Suppliers

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Every now and then one page can say it all.  Take page 12 in the May 14th print issue of Rubber News (yes, really, for those of you not in the industry).  A total of two stories, the first being on GM looking for suppliers and the second on how Honda and Toyota want to work with suppliers.  The headlines are a little innocuous, but the body of the stories describe a situation we know all-too-well.

The GM story begins with,

General Motors’ global expansion will require better suppliers, according to Bo Andersson, the auto maker’s purchasing chief.  The Indian, Chinese, Russian and other markets opening up to GM, he said, will pay off for suppliers who achieve better collaboration with the auto maker.

Note the tone and perspective of the very last statement, "… who achieve better collaboration with the automaker."  Sounds a littler one-sided, which is basically the antithesis of "collaboration."  How about "… succumb to our pricing demands" instead?  To reinforce this attitude, here are some further quotes.

Andersson said the global auto industry is a $1.5 trillion business – and a profitable business – if you are a good player.

Supplier goals should be "to strengthen their customers’ capabilities all around the world.  Make the customer stronger."

Yep, a little one-sided.  Strengthen the customer, but what about the strength of the supplier?  Contrast this to what Michelle Kumbier of Harley-Davidson said at the Kellogg Onshoring panel discussion last week:

Consequently they [Harley-Davidson] develop long-term partnerships with suppliers and spend considerable time working to support and nurture those suppliers to ensure they remain competitive.

Which brings us to the second article, titled Honda, Toyota Want Suppliers On Board From Start.  This article begins a bit differently from the GM article:

Honda of America Manufacturing and Toyota Motor Manufacturing North America have invited suppliers into the fold.  [Honda CEO Akio Hamada said] "We work to strengthen our local supply network to make sure it can be globally competitive."

Now that sounds more like a partnership.  A collaboration to strengthen the entire supply chain and benefit all parties, not strengthen just the customer’s capabilities.  The article goes on to describe several specific collaborative activities, such as sending supplier and customer representatives to each others’ plants to work on improvement activities, developing new technology and capability together, and even impoved communication methods.

Toyota also understands the need to develop closer supplier relationships.  They now routinely meet in what Toyota calls Obeya, which means "big room."  Toyota wants to communicate the old-fashioned way: face to face in a big room, said Gary Convis, executive vice president.  "The beauty of this is its simplicity," Convis said.  The Obeya concept brings together design engineers, design stylists, production engineers and representatives from purchasing, assembly, and suppliers, he said.  "Now we speak with one voice," Convis said.  "Obeya allows more integrated communications with our suppliers.  Suppliers see and feel their ability to work with us."

You can bash your suppliers into submission, losing more than a few of them along the way, or you can develop true long-term partnerships that benefit everyone in the supply chain.  I had heard that Ford and GM were working to improve how they work with suppliers, but these two articles make me think they have a long ways to go. 

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