Product Design and Development Management Customer Priorities

Customer Priorities

1. Introduction
The use of the British Airways selection process for the procurement of new aircraft as the
subject of this session of the module may be considered by some to be a little extreme. The
process is however considered to be relevant and adaptable to the majority of capital (and
revenue) equipment purchases. It is merely the depth and extent of the process which will
vary!

The importance of the product design as a major influence in the purchase/supplier selection
process will be demonstrated from a range of aspects.

Interpretation of the process to the situation within your individual companies is up to the
individual participant. A key word to consider is "adapt". Everyone involved should
consider:-
"How can I adapt this process to the purchase of products and services by the customers of
my company?"
and via that,
"How can I make use of the information to influence the management of my company's design
process?"

2. Selection Process
As with all procurement decisions, the first stage is to determine the needs of the business, to
work through a review of what is available in the market place open to the purchaser, to
develop a selection process to maximise the benefits of the forthcoming investment to the
parent company and to focus, through that process, on a decision or a recommendation to
those with the funding approval authority.

In the case of British Airways (BA) this is an eight stage process comprising:
• Identification of requirements
• Selection of candidate aircraft
• Review of serious candidate aircraft
• Discussions on offerings with manufacturers
• Obtaining of offers
• Identification of capital investment requirements
• Review of all information
• Making of recommendations

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2.1 Identify requirements

The BA equivalent of business planning continuously monitor the international market trends
and developments in terms of volume projections for customer travel needs, competitive
trends in services and facilities offered, seasonal movements etc. and through this develops a
calendarised demand schedule. A rolling 10 year forecast is maintained.

In parallel, aircraft stock and availability forecasts are developed from information on the
known fleet of planes, forward purchase/lease options, planned retirements ( including those
due to legislation changes, such as 'Chapter 3 noise' which will result in the retirement of the
Boeing 747-100 fleet at the end of the decade - requirements can not be met economically by
changes to existing aircraft ).

This information is compared with the forward operational route strategies to develop a
forecast demand of aircraft needs.

(In simple terms, the BA forecasting equivalent of an MRP II process perhaps!

What do we need? - What have we got? = What we have got to get?)

2.2 Select Candidate Aircraft

BA, as with most potential customers of high value goods, are in contact with manufacturers
almost on a daily basis. Specific BA needs are discussed with manufacturers to ensure that
needs are fully understood and opportunities can be identified to the airlines.

Positive links are being established with lead manufacturers who are recognising the benefits
to be gained from the SE practice of involving customers in the design phases of projects.
For example, during the design and development of the Boeing 777, BA had a team of people
working in the design project office in Seattle. (Press report around the time of launch
claimed that Boeing had also involved Delta, United, All Nippon, Quantas and Cathay
Pacific in product discussions from these early configuration stages of design.) Influence
ranged from cargo loading to flight deck layout.

The head of BA's engineering activities in Seattle has been quoted as saying that "the Boeing-
BA team has lead to more than 100 changes to the basic specification of the aircraft."
Changes had also been made to improve the maintainability of the aircraft and to ensure that
it is service-ready from the first day in service. 80 different items, traditionally offered as
optional features on other aircraft, are offered as standard on the 777. The complimentary
comments published as attributable to BA regarding the positive benefits from the
relationship go on!

Customer involvement in the design is clearly of importance to this customer!!

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2.3 Review Serious Candidate Aircraft

A wide ranging series of detailed reviews are undertaken to compare the alternative
specifications offered:
• Engineering (Technical) - review basic specification, performance and reliability
projections
• Engineering (Planning) - focus on costs of start up and long term operations
• Flight Operations will evaluate instrumentation, cockpit layout etc. to establish
training needs, stand-by crew needs etc.
• Operations will review size and capacity of luggage compartments, fuel tanks,
toilet and water tanks etc.
• Marketing will judge probable satisfaction of customer expectations, likelihood of
'Delighting the customer'.

2.3.1 Technical
Route studies will be undertaken in depth, to compare range and payload claimed capabilities
of the products offered. Specific extremes of operational needs will be considered such as
known 'difficult' airfield operational requirements. Studies will also consider the impact of
the key second tier purchased items - engines - and the best fit to the BA needs will be
established. From this flexibility on items such as seat layout etc. will be determined along
with the overall degree of flexibility of operation of each of the products offered.

Design studies will couple BA's own operational experiences with those of competitor
operators (where information is occasionally shared) to review safety, reliability, fuel
consumption, maintenance and general product support standards.

Feature benefits of the alternative product will be reviewed and a translation into bottom line
impact attempted! (Example:- Boeing 767 headroom and single centre [least favoured] seat
comparison with Airbus A300 standard LD3 luggage container capability and twin centre seat
layout)

The overall objective of this element of the study is to establish the fitness for purpose of the
products offered. Easier and more likely achievable where the customer has been involved
with the supplier during the design phases of the product!

2.3.2 Planning
Planning focus is on the elements of cost of ownership. Items such as maintenance costs per
operational hour, start-up costs, staffing, spares and consumable costs are all evaluated.

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Product rationalisation provides benefit potential in these areas. Clearly if the same flight
crews, common spares and standard tools and equipment can be used on a range of product,
the financial benefits are obvious.

Products make money for their operators when they are in use. They tend to consume money
when not! If the design of the product assists in reducing down time then this represents true
advantage to the purchaser. Thus if an aircraft can accommodate simultaneous removal &
restocking of galleys, luggage unloading/loading, refuelling and everything else required
between arrival and departure, such a product may be considered to have significant, and
usable, product advantage!

Cost of ownership from aircraft and cars to washing machines and showers is an increasingly
more important element of the purchase decision!

2.4 Discuss with Manufacturers and Evaluate

The relevant departments concerned - Planning, Engineering and Purchasing - collectively
discuss details of the product requirements and product offerings with the manufacturers of
the 'serious candidate aircraft' to ensure clear understanding before contractual discussions
commence.

Clear understanding of the process equivalent of the Design Brief!

2.5 Obtain Offers

In addition to defining the product feature and operational requirements and calling for
manufacturer proposals on specification, the tender documentation requires a range of
financial commitments from the competing manufacturers.

These will typically comprise

• Price
• Incentives
• Guarantees
• Warranties

2.5.1 Price
Prices of new aircraft are based on a reference currency/exchange rate. Thus the equation for
price:

PRICE = BASE PRICE + ESCALATIONS - CREDITS

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Where base price is the reference price in $US at a 1986 equivalent value, escalations inflate
that price to that ruling at the date of purchase and credits relate to any moneys which BA
consider the supplier to owe from previous contracts or arrangements!! (e.g. Unpaid
warranties)

2.5.2 Incentives
Introduction of a new product into a fleet will most probably bring with it the need for new
ground equipment, tools, spares, test and training simulators etc. The manufacturer will be
expected to contribute financially to these 'set-up' cost.

The incentive is for the manufacturer to rationalise the design so that existing airline tools and
equipment can be used!

2.5.3 Guarantees
As with any guarantee, this is a case of the manufacturer 'putting his money where his mouth
is'! If the product does not live up to the manufacturer's operational claims then this is about
how the manufacturer will compensate the operator! Particular areas of focus in this context
are:
• Availability of the product
• In flight reliability
• On ground turn-round and ease of maintenance
• Specific fuel consumption
• Costs of consumables and spares

(A relevant example was reported in the Sunday Times of the 25th September 1995. "BA is expected to demand
penalty payments from General Electric over claims that the GE90 engines for its new Boeing 777 aircraft have
not delivered the fuel consumption promised when ordered." The article went on to further state "At the same
time, problems with testing the GE90 engines have caused a delay in aircraft deliveries."........ "A BA spokesman
said the airline understood the fuel performance was being worked on, and hoped the target would be reached.
But engines that did not meet the standard would trigger penalty payments that could run into millions of
pounds.")

2.5.4 Warranties
As an extension to the guarantees, the manufacturer will be expected to give a warranty
against failure of the product to meet whole life related claims.

These are in the categories:

• First run - first use of an aircraft type by any company is usually supported by
healthy credits in return for the risk the airline might be taking.
• Parts - minimum component life guarantees

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• Ultimate life limitations - compensation for failure to meet claimed life

• Campaign changes - compensation for consequential costs

2.6 Identify capital investment requirements

Analysis of the various tender submissions are costed and the likely cost calendarised profiles
developed.

2.7 Review
Engineering, Flight Operations, Operations, Marketing, Finance and Purchase review all
available information and aim to reach a consensus on the final recommendation to made for
the Board.

2.8 Make Final Recommendation

The final phase of the process. The deliberations conclude and a recommendation is made to
the Board. Adjustments are possibly made by the Board to volume of product to be
purchased to align with Board level intelligence as to policy and direction the company is
taking at the time. The final product type recommendation is rarely if ever changed.

3. Conclusions
The process presented is logical and applicable in some form to the sourcing of almost any
product. The impact on the product design process can be summarised as follows:
Understand what the market requires.
Be aware of the long term market trends. Talk to customers.
Involve representative customers in the process from the first development of
the Design Brief for any new product. (Directly would be ideal, via Marketing
as an absolute minimum.)
Understand your customers' operations and intended use of the product
Be aware of competitor actions and plans
Focus product specifications on the customer requirements.
Provide features which provide your customer with a business benefit

Design for ease of use in both operational and supportability terms

Design for flexibility of customer use

Design for minimum whole life cost

Be prepared to back your claims with warranties and guarantees. (Make sure
your design and validation process supports your claims!)

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Keep your key customers involved as the product definition develops.

4. PS. ( Next generation large aircraft requirements)

Some time ago, at the October 1993 Royal Aeronautical Society, Captain Robin Acton of BA
provided a series of BA Engineering Targets for what was then described as 'The next
generation large aircraft'. (Aircraft with circa 500 passengers)

These were listed as follows:

105 minute turn-round time
No major maintenance for 10 years
No corrosion inspection for life
100% accurate fault diagnosis
30 minutes engine changes
Wheel changes without jacks
NO special 'To type' test equipment
Points which reinforce the influence of the design of the product in the selection process and
the customer driven demands for continuous improvements in reduced cost of operation.

5. Top 5 Selection Criteria Applied by British Airways

1. .........................................................................

2. .........................................................................

3. .........................................................................

4. .........................................................................

5. .........................................................................

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