Wednesday, November 13, 2013

LIFO and FIFO Run On The Factory

No matter how you slice this time of year the "Bean Counters" get  their crack at making money at the big airline manufacturers. Whether its first in first out or last in first out, the production team  looks at the order book in a forever stretching big back up kind of way, and a lengthen line of parts from its work orders. Bean counters argue the merits of LIFO over FIFO, and the Boeing Tax accountants weigh-in with preservation of cash attitude for Boeing and making less available for the government(s), who is standing in for various taxation wind falls. Below is a production minded chart, where I would rather discuss production strategy with the marketing team hanging near the delivery center listening in.

                            2011 2012    2013 Net Incease for Production Backlog
Beg. Order Book   752 794       798
(Delivery)                3      46          52
New Orders           45     50        135
Total Backlog       794 798        881
Net Change Book   42      4          83 129

If I were a stock holder, I would be interested in the the growing production back log since the start of the 787 first delivery in 2011. Not whether the accountants use a FIFO or LIFO Inventory valuation system. The fact that over three years the deliveries have reached 101 787 placed in customers hands while increasing the standing backlog of undelivered aircraft by 129, as of November 12, 2013, demonstrates production must expand by a significant number in 2014. Take into account that after the Dubai airshow there remains a possibility of significant 787 orders added to the order book going directly  on top  of its 129 backlog increase since 2011. This would propel Boeing forward with a production increase greater than ten per month with a sooner mode rather than increasing productivity using the later option. Backlog saturation will hog tie the marketing effort as customers will lament if they had ordered several years ago, they might be only 700 units away from its own delivery.  Now the 787 steady growth backlog will be hard to impress perspective buyers to sign on with a minum wait of 8 years out from today, unless they jump into the 787-10 line hoping to by-pass the 787-9 crowd.

The Dubai airshow will make for interesting customer strategy and Boeing conversations with its customers will be an interesting  listened-in. I would imagine that Boeing will tell its customers about the new production rates, and how well they will push, pull and shove out 14 units a month by 2015. When they hit producing 150 787's a year, the backlog will be down enough to make everyone "Happy", right????. Next year at this time, the backlog should change depending on marketings effort in its attempt for holding off Airbus. Production will have a Christmas party and celebrate the new year. However they may have a backlog expanding past 150 since tallying  a first delivery benchmark in 2011 of a 752 backlog at the start, and inspite of delivering another 15-18 aircraft before the end of this year. Numbers will be crunched, sales stories will be told, and the backlog will grow like the turkey before Thanksgiving. Boeing  needs more square footage and trained personnel over the next five years, as a solution for selling more 787's, otherwise its a hollow sales victory selling one  more 787 unless production can deliver in a reasonable window of time.

If  that marketing arm captures everyones attention in Dubai with the 777X, then a whole new requests will be made tasking production, and it won't be "would you Like LIFO with that Order".