Supply Chain Management:

APSCM-06
Peeyush  Mehta  
pmehta@iimcal.ac.in  
 
 “Route to the top” of CEOs of S&P 500 companies  
■  42% had Operations experience at
some point in their career  

■  31% were in Operations

immediately before
becoming CEO  

Source: Spencer Stuart “Route to the top” Survey, 2008

Mieghem 2008  
 What  do  SCM  leaders  do?  
 
Manufacturing  leaders  handle  much  more  than  manufacturing:  more  than  40  percent  oversee  customer  service  and  R&D.  
Clearly,  for  services  and  non-­‐manufacturing  operaBons,  these  numbers  only  increase.  

Product  R&D   44%  

Process  R&D   47%  

Sourcing   67%  

Supply  Chain  Planning   72%  

LogisBcs  &  DistribuBon   58%  

Sales  &  MarkeBng   21%  

Customer  Service   49%  

Other   61%  

0%   10%   20%   30%   40%   50%   60%   70%   80%  

ource:  Booz  Allen  Hamilton/IPSOS-­‐MORI  survey  of  manufacturing  leaders  

Top  25  global  firms  based  on  
OperaBons  and  Supply  chain  
parameters:  2016-­‐2014  
Source:  Gartner  
2015  
Levels  of  Strategy-­‐Making  
What  can  SCM  Do?  
Responsiveness

High
Current frontier
In the industry

Competitor A

Eliminate
inefficiencies
Competitor C

Low
Competitor B

High Low Cost

Cachon  2008  
What  would  smarter  firms  do?  
Responsiveness

High

Redesign
process

New frontier
Current frontier
In the industry
Low

High Low Cost

Cachon  2008  
Can  SCM  contribute  to  Sustainability  
of  Successful  Strategy?  
SCM  strategy  of  Boeing  787  
Dreamliner  
 CompeBBve  Strategy  
•  Reduce  cost?  
•  Innovate  and  develop  a  new  product?  
–  Value  creaBon  for  customers  and  consumers  
 Partners  Across  The  Globe  Are  Bringing  The  787  Together  

COPYRIGHT  ©  2008  THE  BOEING  COMPANY  

Comparison  with  737  

Source:  Tang  and  Nelson,  2009.  Supply  chain  forum:  

UnconvenBonal  Supply  chain  

Source:  Tang  and  Nelson,  2009.  Supply  chain  forum:  

 Sourcing  issues  
•  2007  started  experiencing  delays  due  to  supply  
chain  problems  
•  “..A%er  numerous  failed  a2empts  to  get  its  787's  
composite  rear  fuselage  supplier  back  on  track,  
Boeing  finally  decided  to  acquire  Vought's  South  
Carolina  facility  at  a  cost  of  $1  billion  on  July  8,  
2009  (Sanders,  2009a)”  
h2p://online.wsj.com/news/arRcles/
SB100014241278873234428045782319405815837
44  
 
 UnconvenBonal  Supply  chain  
•  The  787's  supply  chain  was  envisioned  to  keep  
manufacturing  and  assembly  costs  low,  while  
spreading  the  financial  risks  of  development  to  
Boeing's  suppliers.  

•  By  outsourcing  70%  of  the  development  and  

producBon  acBviBes  under  the  787  program,  Boeing  
can  shorten  the  development  Bme  by  leveraging  
suppliers'  ability  to  develop  different  parts  at  the  same  
Bme.  Also,  Boeing  may  be  able  to  reduce  the  
development  cost  of  the  787  by  exploiBng  suppliers'  
experBse.  
 Risk  sharing  contract  
•  Payments  to  suppliers  only  afer  delivery  of  
aircraf  to  the  customer  
•  IncenBves  to  supplier  
–  IP  rights  to  the  technology  
–  Reducing  lead  Bmes  
–  Increased  margins  to  suppliers  against  just  the  
component  supply  
 Risks  in  787  
•  Technology  
•  Control  over  Tier  -­‐2  onwards?  Quality?  Too  much  
reliance  on  Tier  –  1  
•  Leadership  team  not  experienced  for  this  big-­‐
bang  approach  
•  DissaBsfied  labor  for  too  much  outsource    
•  Costs  of  coordinaBon  
•  Strategic  behavior  of  suppliers  due  to  risk-­‐sharing  
contract-­‐  why  should  I  supply  early  if  bojleneck  
is  somewhere  else?  
 CorrecBve  acBons  
•  In  a  major  retreat,  it  has  since  bought  up  suppliers,  brought  work  
back  in-­‐house  and  integrated  more  closely  with  its  remaining  
contractors.    ”We  gave  away  a  lot  of  elements  of  work  that  we’d  
always  done  in  the  past,  and  then  didn’t  provide  the  kind  of  
oversight  necessary  for  some  of  the  people  that  were  doing  work  
that  they’d  never  done  before,”  said  Boeing  ExecuBve  Vice  
President  Jim  Albaugh,  who  ran  its  airplane  division  unBl  June,  at  an  
investor  conference  last  fall.  To  retrench,  Boeing  mobilized  
hundreds  of  engineers  specialized  in  manufacturing  and  industrial  
issues,  who  have  pored  over  every  element  of  the  program,  
including  at  suppliers.  At  its  factory  near  Seajle,  Boeing  built  a  
control  room  with  video  links  to  overseas  suppliers,  allowing  its  
engineers  to  examine  parts  live  on  shop  floors  in  Japan  or  Italy.  For  
a  second,  larger  version  of  the  Dreamliner,  Boeing  opted  to  design  
many  outsourced  components  itself,  such  as  the  plane’s  rear  
secBon  and  tail  wings.  
 CorrecBve  acBons  
•  We’ve  got  to  know  more  about  the  airplane  than  our  suppliers  do,  
so  if  they  get  in  trouble  we  can  help,”  Mr.  Albaugh  said  recently  

•  Airbus  is  pushing  a  similar  approach  even  further  on  its  new  A350,  
which  competes  with  Boeing’s  Dreamliner  and  is  slated  to  start  
carrying  passengers  in  2014.  Airbus,  a  unit  of  
European  AeronauBc  Defense  &  Space  Co.,  for  the  first  Bme  
designed  the  plane  alongside  its  key  suppliers  and  links  to  them  
constantly  through  digital  blueprints.  Airbus  has  sent  armies  of  
engineers  to  help  its  contractors  handle  their  porBons  of  the  
project,  told  them  what  equipment  to  buy  and  trained  them  in  
managing  subcontractors.  “  To  help  suppliers  shif  from  designing  
parts  to  manufacturing  them  quickly,  A350  project  manager  Didier  
Evrard  has  issued  a  100-­‐page  handbook,  Btled  “The  A350  Making-­‐
Of,”  to  guide  the  ramp-­‐up.  “My  focus  has  been  on  how  we  build,  as  
much  as  what  we  build,”  Mr.  Evrard  said.