Boeing – Lessons Learned from the Aerospace Fastener Shortage

Sarah Foster

Blog Post #3 – Connection to Week 4: Planning and Managing Inventories in a Supply Chain

Boeing – Lessons Learned from the Aerospace Fastener Shortage

I find it fascinating that even the most established, successful companies can manage to make a large-scale mistakes with significant consequences.  Boeing made one such mistake about eight years ago when its inventory of fasteners was depleted.  The following articles shed light on this event:

“Boeing: The Fight for Fasteners,” University of Michigan, Case 1-428-787, November 17, 2009, http://www.yoest.com/wp-content/uploads/2012/12/Boeing-Fastener-Case-Study.pdf.

Ravi Anupindi, “Case Study: Boeing’s Dreamliner,” Financial Times, October 10, 2011, http://www.ft.com/cms/s/0/a7d38332-ef70-11e0-941e-00144feab49a.html#axzz3D47SRRHU.

Boeing was scheduled to deliver its 787 Dreamliner to customers in 2008; however, due to an industry-wide shortage of aerospace fasteners, deliveries were delayed for two years, “a delay of this magnitude was unparalleled in the history of Boeing commercial airplane development.”[1]

Demand for aircrafts significantly dropped post September 11, 2001.  During this downturn, “the fastener industry quickly consolidated.” [2] The consolidated fastener manufacturers (manufacturers that provided the majority of Boeing’s fasteners) reduced capacity and their workforce, which resulted in closed plants.  Starting in 2004, however, the aircraft industry began to grow again; between 2004 and 2005, orders for Boeing airplanes increased over 200 percent.

Boeing did have an efficient inventory management system that implemented many of the best practices discussed in Managing Inventory. For example, the inventory model Boeing chose to utilize for 737 floor beam production was a consumption based ordering system call Min/Max; it provided daily information that consisted of “current inventory levels, average monthly usage, and the minimum/maximum inventory levels to be maintained for each 737 floor beam part within the Boeing factory.” The Min/Max’s daily information and updates reduced inventory by more than 300 million in one year.[3]  The inventory system was such a success that it was implemented for fasteners in the year 2000. “Administrative changes to fastener purchase orders were reduced from four times to once per year; this saved $900 million in administrative labor coast annually per part.”[4]

Boeing traditionally procured around 50 percent of all fasteners; however, the 787 supply chain would utilize partners to procure up to 80 percent of fasteners. Boeing did not predict the industry-wide fastener shortage; they didn’t realize it was going to be a huge issue until other aerospace companies began calling Boeing requesting fasteners. I personally was very surprised by this. One would think that a company that already had such effective inventory management practices would have anticipated a major supply shortage. Given this mistake happened after Boeing reduced its procurement of fasteners, a lesson learned from this case would be any time a company makes a change in its supply chain, lots of analysis should be done to address potential unintended consequences. 

After the shortage, an investigation of the problem provided data that “proved that there were fundamental ordering and scheduling problems in the industry.”[5] Also, Min/Max was only one of Boeing’s ordering methods, and the variation resulted in different pricing structures.[6]  Boeing worked to develop a new system, the Fastener Procurement Model (FPM), which “would use a central purchasing system to manage orders and inventory… it would also enable Boeing to negotiate a price directly with fastener makers to ensure more favorable pricing, both for itself and its partners.”[7]

One best practice that is continuously mentioned throughout this semester’s reading is having all stakeholders present at inventory and forecasting meetings.  It seems that there were some major miscommunications between Boeing and fastener suppliers.  According to a Financial Times article, “Boeing had overlooked how important distributors were to the supply chain; the aircraft maker realized it had to consider more partners with planning FPM [Fastener Procurement Model].”[8]  This issue came up in the Bayonne case; the sales force was not informed when orders would be late so they could not properly communicate with customers.  Also, daily production meetings at Bayonne did not include sales, which further contributed to the lack of information sharing.

Question to Consider:

•          The fastener shortage was industry-wide. Would Boeing benefit from holding inventory forecasting meetings with other companies in the industry to prevent future potential shortages?

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[1] “Boeing: The Fight for Fasteners,” University of Michigan, Case 1-428-787, November 17, 2009, http://www.yoest.com/wp-content/uploads/2012/12/Boeing-Fastener-Case-Study.pdf.

[2] Ibid.

[3] Ibid.

[4] Ibid.

[5] “Boeing: The Fight for Fasteners,” University of Michigan, Case 1-428-787, November 17, 2009, http://www.yoest.com/wp-content/uploads/2012/12/Boeing-Fastener-Case-Study.pdf.

[6] Ibid.

[7] Ravi Anupindi, “Case Study: Boeing’s Dreamliner,” Financial Times, October 10, 2011, http://www.ft.com/cms/s/0/a7d38332-ef70-11e0-941e-00144feab49a.html#axzz3D47SRRHU.

[8] Ibid.