Boeing 767 Case
...ment costs, and unforeseen problems with the engines. This time around Boeing devised a strategy that would use past data to limit design, cost, and manufacturing problems. “A successful new plane could lock up its chosen market segment for as long as twenty years, producing sales of $25-45 billion dollars and huge profits (Kerzner, 906).” Given that Airbus and McDonnell Douglas were presently taking over the 200-300 seat jet market, Boeing needed to immediately begin production on the B767, or else it would risk letting its competitors dominate the market. Marketing a new aircraft wasn’t based solely on performance, especially during this period of airline management. No longer could the airlines focus strictly on service; they now had to focus on seat-mile cost, capacity, and fuel. Fortunately for Boeing, this was their advantage. Both the Airbus A300 and the McDonnell Douglas DC-10 were produced during the regulated era of the airline industry and thus the issues of seat-mile cost, capacity, and fuel were not analyzed with as much detail. Executives at Boeing were keenly aware that they needed to manufacture an aircraft that would save the airlines money in the new economy. Development Strategy Soon after the delivery of the 747 in 1969 Boeing formed a New Airplane Program (NAP) study group, with the purpose of studying past mistakes made by the company during program implementation. Three years later, the group produced a report detailing thousands of “lessons learned” that would help the company significantly in manufacturing newer aircraft. One of the most important ideas presented by the NAP was the parametric estimating technique. Using data from the production of the B707, B727, B737, and B747, managers were now able to estimate the production cost of an aircraft based on its weight, speed, length, and number of parts. Given that all of these aircraft were built prior to 1970, engineers were able to reduce cost using CAD/CAM design software, as well as improved management and cost systems. On the other hand, due to increased product complexity and a substantially larger amount of customers, the production cost may have also risen. In addition to parametric estimates, Boeing also devised a Master Phasing Plan that would greatly reduce scheduling conflicts that arose during early programs. One key change was learned during the 727 and 747 programs. “Comparisons of the 727 and 747 programs suggested that, if problems were to be avoided, fabrication should not begin until 25 percent of the structural engineering drawings were complete, and that major assembly should not begin until 90 percent engineering drawings were complete (Kerzner, 914).” These new techniques and lessons would help Boeing’s executives design, manufacture, and market the B767 with minimal cost and delays. In all honesty, no project is developed or produced without conflict and the B767 program was no different. In late 1977, four years after the company began to devise a program for the B767, the initial Master Phasing Plan was completed. Five months later, the plan was sent to Boeing’s board of directors for final approval. For the previous four years, Boeing’s design team had worked on developing a plan that would serve as the bible for the B767’s production. It was now time for the directors to make the go/no-go decision on the program. Thankfully for the company the decision was simplified in the summer and fall of 1978 when United Airlines, American Airlines, and Delta Airlines all agreed to purchase the aircraft. United Airlines became the launch customer for the B767s when it paid $1 billion for thirty 767s in July 1978. Soon after the orders by American and Delta, the directors approved the plan and program was underway. The Critical Decision Prior to the late 1970’s, Boeing Aircraft company completely fabricated each aircraft it sold. However, it can be argued that due to their development of the long-haul widebody jet, Boeing was now able to use subcontractors to build various sections of their aircraft. The B767 consisted of 3.1 million parts, many of which were supplied by 1,300 vendors (Kerzner, 917).” Thus any changes made of the design of the aircraft would exponentially affect the vendors. During the B767 program more than 12,000 changes were requested for the first aircraft. Given the amount of changes and reconfigurations, it would take almost four years before the first aircraft would ever be flown. Unfortunately, no decision would have greater impact on the production of the B767, than the decision mentioned earlier regarding the shift from three-person cockpits to dual cockpits. Boeing received stiff opposition in the beginning from the Air Line Pilots Association, regarding the shift to dual cockpits. The group argued that the shift would reduce pilot jobs and decrease safety. Given the large membership of the group and mass media publicity that would receive, a presidential task force was formed to study the affects of the change. Each group, both the pilot group and the Boeing, agreed to accept the findings of the task force. In July 1981, the task force reported that due to the improvements in technology and pilot performance, there were no “unusual safety problems,” thus giving Boeing and all aircraft manufacturers the go-ahead to begin designing transcontinental aircraft with dual cockpits. The aviation industry, primarily the airlines, was ecstatic with the results of the task force. Airlines could now offer longer routes with fewer pilots; thereby reducing their operating costs. Unfortunately for Boeing, it had thirty aircraft currently on the production line that were designed for a three-person cockpit. The company now had to decided how to reconfigure the aircraft with a dual-cockpit for their customers. There was never an option to ship these thirty aircraft with three-person cockpits, the option was not economically feasible for the airlines. In August 1981, Dean Thorton formed a committee within his B767 program to devise a plan to reconfigure the thirty aircraft. As mentioned earlier there were two alternatives for the company to consider; 1) continue the production of these thirty aircraft and then after production send the aircraft to an alternative site whereby the aircraft would be retrofitted for a two-person cockpit, or 2) halt the production line and redesign the thirty aircraft currently on the line before production ends. There were several advantages and disadvantages of each alternative. First of all, the second alternative was expected to increase production times by more than two million labor hours, while the first alternative would only increase production times by one million labor hours. Secondly, while the second alternative “was the traditional method of making engineering and design changes” on aircraft it also would cause tremendous problems on the production line. The first B767 was scheduled for delivery in August 1981 to United Airlines. At Boeing on-time delivery dates were scared at Boeing and thus program directors were responsible for upholding the dignity of the company. By implementing the second alternative, the aircraft would be delayed on the production line while designers reconfigured the drawings. Unlike the first alternative, all functional testing could not be done until the aircraft was redesigned and reconfigured, thereby increasing lead times, production costs, and pushing back the delivery date. Lastly, one significant disadvantage of the first alternative was that there was little additional space to move the aircraft after production so that they could be retrofitted for the dual-cockpit. After analysis, this proved to be a minor problem in comparison to the second design alternative. Surprisingly, the first B767 was delivered to United Airlines on-time in August 1981. Thorton had chosen to build the thirty three-person cockpit aircraft and then retrofit them with dual cockpits. “Only a few deliveries were delayed by as much as a month (Kerzner, 925).” By 1987, over 250 B767s had been ordered, and of those, 181 aircraft had been delivered. The entire airline industry had changed tremendously during the planning and implementation of the B767. Some airlines grew and merged, while other faltered in the new deregulated era. Domestic and international carriers reconfigured their market segments by flying aircraft such as the B767, B757, and A300 on medium range routes, instead of utilizing aircraft such as the DC-10 and B747, which used more fuel and required more crew members. Case Study Question The authors of this case study posed an interesting question at the end of the text; “should the 7J7 program also be managed differently than its predecessor, the 767, (Kerzner, 926)?” In the late 1980s Airbus delivered the A320 to major airlines throughout the world and the impact was tremendo...