Each of the companies hold details of the agreements close to the vest, but based on interviews with executives and publicly made comments, a clearer picture of the supply chain’s new life is beginning to emerge. That new life includes working closer with Boeing—perhaps closer than outside suppliers ever have before—and securing long-term commercial revenue streams. But it also entails cutting production flow by 10%, and meeting an imperative to perform and keep cost-cutting to ensure a place on any New Midmarket Airplane (NMA) that Boeing could pursue. The master agreements expire before the NMA would be produced.
“It is a baseline requirement to be considered,” says Brian Baird, vice president for supply chain operations at Boeing Commercial Airplanes. “We’ve been very clear about that; yes, I think they understand that.”
Boeing is really exercising its leverage here.
If you even want to be considered for NMA (and, implicitly, whatever that follows it) you better meet price and performance targets on 737, 787, etc.
And yet, since NMA is not a done deal, none of the recently done contracts have explicit NMA work share in them.
I guess it's "business as usual", but it reminds me of "that's a cute kid you have there, wouldn't want anything bad to happen to it"...
On the other hand, the authors chose to describe this as "the supply chain’s new life"...
The most intriguing part is this to me.
“I’d say in our history we’ve had limited ability to see really what’s going on from a performance standpoint with each of the suppliers,” Baird says. “Over the course of time in working with them—demonstrating that we’re doing the same things inside our factories and our offices and then building the trust—it has enabled us to get insight into how each of our suppliers are actually performing,” he continues. “Making the data of performance more transparent and available to us has given us really good insight and allowed the teams to focus in the right areas,” he says.”
In short it becomes a somewhat easier demand when you show the vendors you are hacking away as well. I think this is the new normal for this business. The full product line duopoly is still a relatively new thing. Think about it.
Historically Boeing has some planes, Douglas had some planes and Airbus had some planes along with others. But I would argue there was probably less competition across product lines then than there is now. The 747 was long on its own. There was competition among smaller planes, sort of. But even back then many aircraft almost seem to have started as bespoke designs for certain customers and the 727, DC-9 and 737 were all somewhat different.
Then we saw a bunch of ideas on what should come below the 777 and over some years got a lot of solutions in that market. The losers quit the business. And the winners had the 767/777 and the A330/A340. I would argue Boeing got to what we would recognize a a complete product lineup first with the 737-757-767-777-747 lineup. Airbus got there when it added the A380 and certainly the addition of the 787 and A350 made things even more crowded.
The 787 seems to me the first time other than maybe the A320 where builders were forced to launch a product directly into a competing modern product in the jet airliner industry. Even then with the A320 you still had multiple builders out there in that space and the 727 was still out there in numbers. The A350 followed down that path as well. There don’t appear to be great efficiencies to be gained beyond the two engine tube and wings structure that anyone is willing to try yet.
Basically in an environment where you have competitive jets of similar layout from the smallest passenger jets up to the biggest the only thing you can really do is compete on cost to build. When you had a 777 or A330 up against an MD-11 you wiped the floor with it and cost just wasn’t as much of an issue. Now it’s about the only way to compete.
The industry is going to commoditize until someone breaks the mold of aircraft design. This drive on suppliers and OEM’s will be the new normal.