January 14, 2013
Boeing is considering lessons from giant retailers, such as Walmart or Amazon, starting with a new approach to dealing with suppliers aimed at simplifying contract negotiations and lowering pricing for parts, according to company executives.
Under the “partnering for success” campaign, the Chicago based aerospace company hopes to consolidate its dealings with suppliers and save money by better managing these relationships. And, says Dave Koopersmith, VP of attack helicopters, this could translate to lower pricing for customers, improved return for investors or both.
In some cases, the company may have dozens of separate contracts with a single supplier, each of which is managed by a different contracts official. The goal, according to Koopersmith, is to have a single contracting official manage the relationship with that supplier across the Boeing company. The airframer wants to be “able to have a single view for each one of our key suppliers,” he said last week at a roundtable hosted by the company.
One Boeing executive noted that negotiations would be vastly simplified if there were a standard set of terms and conditions for each supplier. That would eliminate negotiating each detail for each new deal and increase the speed at which work can be put on contract, he said.
It is unclear how this approach could affect the suppliers that are not top-tier contractors. It could provide them with much-needed stability and predictability. Or, it could further pinch second- and third-tier suppliers, who already say they struggle to stay afloat as prime contractors funnel the hardships of declining defense budgets down the supply chain. Meanwhile, many analysts say they expect consolidation to take place in the mid-tiers of the supply chain.
Boeing has internal metrics for success that officials declined to share.
The initiative is part of a larger corporate effort led by CEO James McNerney to make the company leaner. Another focus is called “One Boeing,” which is intended to share lessons between the distinct Boeing Military Aircraft and Boeing Commercial Airplanes sectors.
The two have historically operated almost as separate companies. However, U.S. military programs like the Navy P-8 and Air Force KC-46A—both modified commercial platforms—have required greater partnership between the two sectors.
Company officials say these lessons are likely to be evident in improved production practices and, in some cases, sharing of design tools and testing procedures.