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Reinventing Boeing


The Corporation

REINVENTING BOEING

Fade in: a cavernous and eerily empty airplane factory. Workers file out, heads down as they surrender their ID cards to a security guard. Cut to: a row of houses with 'For Sale' signs. Intones the newscaster: "It's the end of an era today, as the aerospace company shut its last plant..."

Boeing Co. itself filmed this fake newscast in 1990 as an apocalyptic warning to its employees of what the future would hold unless the company found the courage to change. To ward off that fate, Boeing is moving with atypical urgency to remake itself. It's hammering into every employee the need to become more agile, cost-conscious, and responsive. At stake, executives feel, is Boeing's very survival. "We want to make sure we're in the phone book 10 years from now," says Boeing's new president, Philip M. Condit.

These days, Boeing doesn't need a phony newscast to motivate its employees--the real news is bad enough. After announcing in January plans to cut production by 35%, Boeing will reduce its work force by 28,000 by June, 1994. About 10,000 jobs were eliminated in 1992. Boeing's stock price, around 34, is at a three-year low. Its customers, the world's airlines, have just turned in another horrendous year. Losses for the past three years total $9 billion in the U.S. alone. Strapped for cash, those airlines have already deferred more than $15 billion in spending on jets.

Now, Boeing's biggest customer, United Airlines Inc., is preparing further cuts, including the possible cancellation of nearly 50 planes. That will further erode Boeing's backlog, which slid $10 billion last year, to $82.6 billion. And the bulk of the cuts will be where it hurts most: for deliveries in 1993, '94, and '95. From a high of 39.5 airplanes a month last summer, Boeing will slash production to just 21 by mid-1994 (chart).

COZY QUARTERS. Surviving the worst airline slump ever will be difficult enough. But what really worries Boeing is that the commercial-airplane industry is in the midst of vast, secular changes that could endanger Boeing's prospects 10 and 20 years into the future. Dominant U.S. companies in such industries as shipbuilding, machine tools, and textiles have watched their market share slip away. Jet aircraft could be next, they worry. And it's not just existing competitors they fear either. In 1991, Boeing executives visiting Japan heard Eiji Toyoda, CEO of Toyota Motor Corp. say: "We're in the transportation business. It's our destiny to be in the airplane business." That scary promise is still ringing in the hallways of Seattle. Says Boeing Commercial Airplane Group President Dean D. Thornton: "We are dedicated to not doing what IBM, Sears Roebuck, and General Motors have done--which is get to the top, be the best, and then get fat and lazy."

So Boeing is in the process of radically reinventing itself. Every aspect of designing and building an airplane is changing. After years of keeping its design processes top secret, the manufacturer now provides office space in its 777 building for key representatives of United and Japan Airlines Co., among others. By working side by side, Boeing executives believe they can better anticipate their customers' needs and avoid expensive redesigns later.

THE KREMLIN. Boeing is also striving to make its manufacturing faster, cheaper, and more efficient by moving toward just-in-time inventory. And every possible production step is being streamlined. For the 737, for instance, Boeing aims to cut its production cycle to six from 13 months. Overall, the goal is to lower costs 25% to 30% by 2000.

Wholesale reform is needed, most employees agree. But Boeing has resisted such well-meaning efforts before. This time, though, the airline crisis is driving the changes. Having the best planes is no longer enough. From now on, with airlines in financial distress, Boeing and its government-subsidized archrival, Airbus Industrie, will do battle mainly on pricing and financing. "Our ability to produce a high-quality, reliable product at a price that is attractive has become much more important," says Condit.

Such a willingness to reexamine every tenet of its business is not typical of Boeing. Its management style, born in the era of World War II military production, has been hierarchical, rigid, secretive. "We used to refer to them as the Kremlin," laughs UAL Corp. President John C. Pope. "Now, they have a much more open attitude."

Frank A. Shrontz, a quiet Idahoan and former Pentagon official who became Boeing's chairman in 1988, is the instigator of the revolution. He initiated a series of study missions to Japan in 1990 and '91. These weren't the usual junkets for middle managers. Shrontz insisted that 100 top executives go. Before leaving, each had to digest 18 fat books on Japanese quality. Each of the eight teams spent two weeks visiting "world-class" companies, including Toyota, NEC, Nippon Steel, and Komatsu.

Once-skeptical managers returned in awe. The trick was to pass on to the rest of Boeing's employees what the delegations to Japan learned. So Boeing executives designed a course to train the next tier of managers. Called "Managing for World-Class Competitiveness," the four-day course is designed to encourage innovation and efficiency in every area--from accounts-receivable to metal-bending. Each manager teaches his immediate subordinates, in what's known as a "cascade training" approach. Boeing has already taught the course to some 15,000 managers, and this year it plans to teach it to every remaining employee, including the 43,000 on its factory floors.

'BIG TIME.' Those lessons have already made their way to one of Boeing's most important projects, its new 777 jetliner. Alan Mullally, who succeeded Condit as head of the 777 program, is a big promoter of "customer focus." A boyish executive prone to exclamations such as, "This is big time!" Mullally loves to relate the outrageous demands of airline customers: They wanted a plane in which the galleys and lavatories, pipes and all, could be relocated almost anywhere in the plane's cabin, within hours. When customers first expressed the wish for such flexibility, Mullally responded: "You want to do what?" But in May, 1995, when the first 777 rolls off the production line, its owners will be able to rearrange a plane within hours, configuring it with one, two, or three classes to fit the market at the time.

The revolution is also under way in Boeing's Renton Division, where the 737 and 757 narrowbodies are made. That division's general manager, Ronald B. Woodard, boasts that he came back from Japan "a cycle time junkie." It was he who first insisted that Boeing could build a plane in only six months. Officially, the target is 1998. Woodard thinks he'll get there in 1996. By streamlining procedures he has already cut five days out of the assembly time for the 737 and nine days for the 757. Airbus is watching. "Six months is a tall order. If Boeing can do that while maintaining quality standards, it would be a breakthrough," says an Airbus official in France.

JUST-IN-TIME. Among Woodard's ideas for improving efficiency is the notion that "inventory is evil." Traditionally, Boeing overstocked to prevent shortages. And since inventory was carried on the books of the parent company, division managers never knew the cost of carrying parts. But Woodard used to manage Boeing's De Havilland commuter-aircraft division in Canada, which had to borrow money to finance inventory. So when he took over at Renton in 1991, he made managers accountable for inventory. Woodard aimed to cut it by $85 million in 1992; he cut $100 million. "Cost is No.1 on the hit parade," he observes.

The ultimate cost control will come with just-in-time inventory, a goal of gargantuan ambition at a company whose largest product has six million parts. At Boeing's Everett (Wash.) factory, the largest in the world, huge fuselage sections and green-tinted metal parts sit idle, waiting for workers to clamp and rivet them together. It's here, in the final stages of assembly, that inventory is most costly. Everett General Manager James T. Johnson aims to change that. He has already cut five days out of the 45-day assembly cycle for the 747. And he has started a pilot just-in-time program with his six largest suppliers: Northrop, Vought, Boeing's Wichita plant, and all three engine manufacturers, General Electric, Pratt & Whitney, and Rolls Royce. "We'd like to have the parts roll in and go right to where they're going to be installed on the airplane," says Johnson.

The changes are most obvious in new factories. Boeing was building a $450 million factory for wing structures in Frederickson, Wash., when the study teams to Japan started. Drawing ideas from Japan and their own workers, fabrication-division executives laid out the new factory in a straight line for efficiency. Flow times fell from 100 days to 15. Raw-material inventories have been cut from six months to six weeks. Average lot size fell from 16 to only two. "The parts needed in Everett next week, we're building today," says Neal Falk, who oversees the Frederickson plant.

In a separate building about a mile from Boeing's Everett factory is the company's most promising laboratory for the new philosophy. It's the 350-person group developing Boeing's newest derivative, a freighter version of the 767. To persuade United Parcel Service Inc. to choose it over existing products by Airbus or McDonnell Douglas Corp., Boeing went out on a limb. In January, it promised to design and build UPS' new plane in an astonishing 28 months, well below the 38 it would normally take. And the plane maker priced the jets so low that it will lose money unless it can cut costs substantially. Now, working below a sign that says "26 weeks to rollout," project manager Grace M. Robertson, a 40-year-old engineer-turned-manager, is scrambling to keep up the pace. "This is a pilot program," she says. "We are hoping to develop processes we can apply to other derivatives."

LEERY. Not surprisingly, for every manager pushing the program, there are dozens of employees harboring doubts. Many recognize that Boeing needs to change. But some roll their eyes at the slogans and endless meetings and training sessions. Blue-collar workers and union members are especially leery. Boeing aims to "empower" them to suggest ways to do their jobs more efficiently. Yet the more efficiently they make things run, the more likely they are to render their own jobs unnecessary. And the company has turned off many of its engineers with its hard-nosed attitude toward their moderate union.

Problem is, with severe debt burdening their balance sheets and traditional lending sources dried up, airlines may not be able to pay for Boeing's planes no matter how cheap they get. "Throughout the '90s, the industry will be driven by a shortage of capital," says Ken Holden, chief strategist at GPA Group PLC, the Irish leasing company. Boeing is urging the U.S. government to help airlines out with tax breaks or other incentives to ease their financial strains.

The aircraft-manufacturing industry could have an entirely new shape by 2010. Aircraft could be designed by teams of engineers on three continents, with parts made in as many as eight countries. Boeing hopes to maintain its leadership by teaching its new generation to embrace change and look ahead. "Here, the focus is 15 to 20 years," says Condit. Still, that may not be enough. Toyota, for one, has a 100-year plan.BOEING's ACTION PLAN

Unprecedented losses by airlines have taken a heavy toll on new airplane

orders. Now, the Seattle aircraft maker is working to:

-- Slash costs by 25% to 30% by the year 2000

-- Speed up manufacturing time for the 737 from 13 months to 6 months

-- Cut inventory, moving toward a just-in-time system

-- Train entire workforce in "competitiveness;" 15,000 managers have already

completed four-day course

-- Bring customers and suppliers into once-secret process of designing new

planes

DATA: BUSINESS WEEK

Dori Jones Yang and Andrea Rothman in Seattle, with bureau reports


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