Monday, September 22, 2014

Production Is A Derivative of Sales

Math modeling takes place before news quotes. How many 737's will Boeing make a month? No less than 47 and no more than 52 is the Boeing answer. It all depends on order stability and customer urgency, put that in your math model for optimal production at minimal cost and supply chain ability. Boeing is now at 42 737 a month. When it jumps to a duo line of NG's and Max's simultaneously, then the transition numbers are clouded. Boeing still is preparing for 47 units a month in the near future.

Customer thirsting for single aisle units skew the product math model as Boeing will attempt to juggle the line-up within the 47-737 units a month and keep customers satisfied. The production window is further complicated by absorbing a production trend over quarterly numbers. The forty-seven a month number becomes frozen against trend lines that suggest upping or decrease production goals during a broader period of time. Boeing is hesitant to move in synchronization against seasonal trend lines where it would rather fix against a constant unit number each month and maximize production efficiency.

The back log becomes that monster that sickens its customers and production together in an endless duet of despair. Increase production and backlog shrinks, Sales are told to close more deals. When Randy Tinseth speaks about production goals, its more of an exhale, than a inside forecast. He only sees increased productivity only if he can sustain new orders for that type of move. He hopes sustained sales are coming, and he hopes Boeing needs 52 Max units a month in a couple of years. So he is laying down some serious air miles "to get er done". Randy and his cohorts are doing just that in the interim production levels from 42 to 47 units a month. The contemporary final period has set a goal for 52, and only if marketing comes through with another 1000 737 Max during the next two years. That's what the math model suggest for a further ramp-up to 52 737's a month.

Orders are sticking out there at five years down the road, for the 777,787 and Max divisions. Boeing's move to 600 737's delivered a year would require 100 more MAX sold each year above current pace, before it needs to up its production number. Boeing can afford three years of increased sustained sales above production numbers before adjusting its production capacity. However, it has seriously laid out plans to mitigate a swamped backlog for single aisle during the next five years, as it builds true and sustainable production capacity. Asking the sales and marketing chief question is a good strategy, if they want to speculate on Boeing's intentions through production analysis.