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1998 Speeches

Harry C. Stonecipher

President & COO

The Boeing Company

"Part Flows and Dinosaur Toes: A New Approach to Supplier Relations"

1998 Boeing Supplier Conference Odyssey

The Maritime Discovery Center

Seattle, Washington

October 01, 1998

Good evening, ladies and gentlemen. This is truly "a room with a view," isn't it? It is a great view of one of the busiest ports in the world. And there's a story to this port which underscores one of my principal messages to you tonight.

A few decades ago, when San Francisco, New York and other ports were flourishing, the Port of Seattle was going nowhere. It was dying. Now the roles are reversed. Those ports are in decline, and the Port of Seattle is booming.

The difference is that the Port of Seattle was one of the first to recognize the possibility of achieving a quantum leap in productivity in the handling of cargo -- through the use of standardized containers. Seattle invested heavily in new technology and new procedures that have revolutionized the whole business of ocean-going shipping. And it is reaping the benefits today.

The lesson here -- and it applies to all of us -- is that you don't get very far by trying to do the same things better; if you want to improve anything in a big way, you have to do things differently.

We are doing a lot of things differently in The Boeing Company these days. And one of the areas where we are pushing for the most change . . . and the most improvement . . . is in our relationship with you, our key suppliers.

Boeing is a big company with a bright, bright future. We have a great business in military aircraft and missiles. We are confident of continued rapid growth in our space businesses. And our only problem in the commercial airplane business has been a failure to execute inside. While this is a cyclical business -- and while we have ourselves to blame for missing out on the opportunity to achieve outstanding earnings from the current upswing in the cycle -- this has been . . . and will continue to be . . . a long-term high-growth business for The Boeing Company. It is -- justly -- what we are most famous for. And we are going to get it right!

The Boeing Company will top $50 billion in sales this year. We are the nation's biggest exporter. But what we call The Boeing Company is really something of an optical illusion.

Sixty five percent or more of what we book as sales and 65 percent or more of what we count as exports represent the value added that is created by you, our suppliers.

In a real sense, therefore, you are most of The Boeing Company. You are just as big a part of it . . . and even bigger . . . than the 235,000 people who wear Boeing badges to work every day. It is our aim to be your best customer.

Let's talk about the relationship between us in terms of our vision of the future and what we see as our core competencies.

Our vision statement consists of just ten words. They are, "People Working Together as One Global Company for Aerospace Leadership."

We take the "working together" very seriously, and it refers not just to relationships inside the company, but, most certainly, to relationships with our customers and to relationships with our suppliers.

We have defined our core competencies as:

How does that relate to all of you?

There are "customers" and there are "customers" . . . up and down the supply chain that goes into a complex high-performance product . . . but clearly, the customer who counts the most, at the end of the day, is the end user.

That is to say, in our case, it is the world's airlines and the traveling public; it is the war-fighters in the U.S. Air Force, Navy and Armies, and their counterparts in other, allied countries; and it is NASA . . . and the communications companies and government agencies . . . that rely on our rocket engines, launch vehicles, satellites, shuttles and space-related services.

In the different parts of our business, we know all of those hugely important customers . . . extremely well. We can be your means of access, or your conduit to them, for decades to come. We will do everything we can to promote your work and to support the idea that we have the best damned suppliers in the business.

Among other reasons, that is something we want to do because . . . as a large-scale integrator of complex systems . . . we don't want to do everything ourselves. We would rather buy than build whenever and wherever that is the most economical and practical means of supporting the end user. In fact, that is one of the reasons we have not gone as far as our principal competitor in the defense market in terms of vertical integration. We don't want to limit our ability to get great products and great ideas from the outside.

As I have already mentioned, 65 percent of the final value of our products is the result of the work of our suppliers. For the remaining 35 percent or so, we aim to distinguish ourselves through lean design and production.

I'm going to be blunt with you. When it comes to lean design and production, the aerospace industry as a whole has some catching up . . . and catching on . . . to do. All of us have grown up with a cost-plus or a performance-at-any-price mentality. Instead of driving down costs relentlessly from one year to the next, we have been used to steady increases in the cost and price of just about everything. The real world -- whether military or commercial -- won't support it any more.

If that's the bad news, the good news is that there is no end of opportunity for improvement when we stop trying to do the same things better and begin to focus on doing things differently.

Let me give you an example of what I mean. It is the same kind of story as the Port of Seattle -- only in miniature.

We have a plant in Portland, Oregon, that manufactures components and subassemblies for our commercial airplane group. Our people up here found that they could not get an intricate subassembly -- the flap supports for the Boeing Triple Seven -- at the cost they wanted, nor in the quantities that would be required with increasing production of that airplane. The plant's management therefore realized: Either they would have to come up with a plan for increasing production . . . and decreasing unit cost . . . or Boeing would have to out-source the work. Moreover, those two objectives would have to be met without new spending on capital equipment.

What to do?

A team of engineers and production workers at the plant re-examined the entire process by which the flap supports are machined out of large blocks of aluminum. And they got together with their suppliers to fashion a joint solution.

As part of an airplane, the flap supports may be likened to dinosaur toes seen in a museum. They are surprisingly large and highly complex assemblies . . . when isolated from the gigantic creature to which they belong.

One of the suppliers suggested that high-speed machining could be greatly facilitated, even revolutionized, through the provision of aluminum blocks made in a new way that reduces residual stress -- the theory being that blocks forged in the old way had greatly complicated the machining process. In effect, the machine operators were forced to whittle away at the sides of the block, rather than sculpting it as you might if you were carving something out of a block of butter. This -- the idea that you carve straight into the new kind of block -- was tested and confirmed.

It proved to be the key insight leading to a whole series of changes between our Portland plant and its suppliers.

For one thing, replacing a pattern of spot competitive purchases of aluminum of varying alloys, our plant has firmly committed to fixed purchases of precisely-defined aluminum blocks over a two-year period from two suppliers in the Los Angeles area.

The plant and its suppliers -- including a third supplier in the L.A. area which is responsible for heat treatment at an intermediate stage of the process -- have totally overhauled the transportation system linking them all together. They are now on a just-in-time system which has minimized wasted movement and excess inventory.

But the real bottom line is this: The people who are doing final assembly of the 777 in Everett are now getting all the flap supports they want . . . exactly when they want them . . . at a unit cost that is 30-to-35 percent lower than it was a year and a half ago. And both our Portland plant and its suppliers are locked into a growing piece of business.

I said before that we want to be your best customer. Over the past several years, we have been concentrating more and more work with fewer and fewer suppliers. That trend will continue even as Boeing becomes a bigger and bigger company. What I am saying is that you can expect to grow . . . and profit . . . as a result of being identified as best-in-the-class in whatever it is you are doing for us.

Many of you, I believe, are out in front of us in terms of what you have already done in finding new and innovative ways of reducing cost and improving quality. As the president of The Boeing Company, I am not too proud to say: Show us how to do things differently . . . and do them better. I trust that every manager of every program and every plant that we have around this company feels the same way. Let me know if you find one who doesn't.

Before closing, there are a few general observations I'd like to make on what I see as the identifying traits of a great relationship between customer and supplier.

The first is predictability. That means that each of us always does what he says he is going to do. It means sticking to plans . . . and enabling others to plan based upon having a high degree of confidence in your future actions and performance.

Next is a real sense of partnership. Each of us must have a genuine stake in the other's success.

Third is continual improvement -- and a constant willingness to embrace change in the development of new and better ways of doing things. Once again, we not only welcome your ideas and insights; we insist upon having them.

If an airplane may be defined as "millions of parts flying together in close formation," then, in my book, an aerospace company may be defined as one company and a few hundred of its best suppliers thinking and acting together in the closest harmony.

That's certainly the way I look at The Boeing Company . . . and all of you.

In closing, I'd like to thank everyone of you, in advance, for doing an outstanding job of helping us to reduce costs . . . and improve quality . . . this year, next year, and every year to come.

Thank you.