Thursday, March 16, 2017

Boeing's Five Year Look and Plans Expectation

The five year planning and production controls are important factors for determining the long term outlook. Even using a basic build-up model will help determine a direction Boeing will take in its productivity scheduling. For the sake of simplicity the below chart is just a segue into the fine details as to how Boeing may plan its production or how Boeing will perform in the near term of each year’s production goals based on past data.

A build-up becomes complex when using just-in-time strategy for controlling resources for making something big. Boeing only needs parts at a specific time and does not want storage of parts in over abundance. It just wants parts for the next thirty days for this example. Storing too much supplies for building airplanes cost production dollars. The ideal lean production model would seek a just in time parts bin. A build-up planner only uses parts in predetermined optimal availability for building an airplane over the next 30 days.

The ideas in this example looks at 30 days and how many airplanes it may build during this period of time. If it tends to build 42 single aisle in a 30 day period then a build-up chart may call for a two week supply of parts in storage allowing time for parts delivery delays without shortages to the production floor. In this case two weeks represents 21 sets of 737 parts on hand in storage. Everyday a computer tracks the supply inventory and makes an order based on how many 737 sets are on hand. If only 18 sets are on hand it auto orders 3 more sets. Each day this occurs its suppliers can respond in a two week period supplying those complete sets for building aircraft. This is an over simplification example. It gets more complex than this in a hurry.

Below is a chart using five years of past data for formulating how much production resources are needed going forward. Each model is represented whether it’s a prior generation unit or next generation unit. A 737 is a 737. If it’s a NG or Max its counted as a 737 and so forth for all other models. The element identified are as follows:

·      The past five years of orders combined by model
·      Dividing total orders by five years
·      Total of deliveries for five years by model 
·      An average of deliveries made over the same five years.



 Fig. 1

The above Fig. 1 chart is historical data from Boeing's website. Using the 737 column for simplification of its production flows. The five year period is important standard since it is a relevant business time period range. It is very difficult to project a forecast with any degree of accuracy beyond five years. Most customers update its outlook through its annual reporting which would include the next five years of planning. A moving statistical base uses prior years for formulating future years  trends statistically. 

·      A total of 5,349 737's were ordered since January 2011 through December 2016. This is the five year basis for which averages are taken. During this time Boeing Averaged 1,070 single aisle orders a year it is also delivering 539 a year of its 737 during this same period.

·      The orders to delivery ratio for this period is 1.98 or better stated for every two 737's ordered one 737 was delivered. The ideal orders-to-delivery is a 1 to 1 one relationship, thus maintaining a static backlog. The .98 factor suggests increasing production by some calculated build-up amount. The .98 factor is the amount above the one to one ratio goal.

·      In the 747 column the ratio has dipped below one by a negative .52 factor. This suggest Boeing needs to reduce its production output significantly.

Going across the table a picture quickly emerges for Boeing. Increase 737 production and implement leveling the 787 production capacity until additional sales are added. The marketing team has its gauntlet thrown down across the board. It must increase orders during the next five years for all models. Where it is likely the 747 will retire. This year in 2017, a slow order period will strain the backlog and production build-up.

This basic view demonstrates Boeing has its work cut out in the near term within its several market segments. Production decisions rely on pre-set production build-up requirements, otherwise adjustments may occur during the year. Boeing has reduced the 747 to only one frame a month and it may go lower to .5 frames a month.

The 787 program may curb its production capacity from 145 units over the next two years and then could reduce productivity to only about ten 787's a month until sales pick up. The world's largest producer of aircraft will run out of productivity backlog before Airbus does at this time. Boeing is making inroads with Airbus in the single aisle segment. It leads airbus in the wide body segment but an end is in sight for some of its bigger models such as the 747.