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Production Cuts

APICS CEO

Friday January 29, 2016


APICS-Supply-Chain-Management-NowThis year, Boeing will produce fewer 747s—nicknamed the “Queen of the Skies”—than it has since the plane’s introduction in the mid-1960s. The company will cut production to six jets a year, according to The Wall Street Journal. Two factors are prompting these reductions: the continued decline of the jumbo jet and decreased demand for global air freight.

“The four-engine 747 has long since fallen out of favor among the buyers of new jets for passenger travel, which prefer smaller, more fuel-efficient, two-engine aircraft,” Jon Ostrower writes. “That has left Boeing heavily reliant on the air-cargo market, which has struggled to escape a slump in recent years in part because of the sluggish growth in international trade.”

When it started 747 production, Boeing made two of the planes a month. By September 2015, that rate had fallen to 1.3 a month. Starting in March, the aerospace manufacturer will produce just half a plane each month. 

Although air freight currently is lower than it was in 2009 during the recession, passenger travel is rising. The current model, the 747-8, which was introduced in 2011, is available in passenger or freighter versions. At the end of 2015, Boeing had just 20 orders for the plane. According to The Wall Street Journal, Russian airline Transaero had four 747s on order, but it ceased operations in 2015, leaving Boeing with four unpainted planes in long-term storage.

Even though the iconic 747 isn’t in demand like it once was, Boeing reported earlier this week record revenue in 2015, with $96.1 billion in commercial deliveries. It also reported that it plans to increase overall production throughout the next several years.

“During the [last quarter of 2015], Commercial Airplanes won orders for 203 MAX airplanes,” Boeing reported in a press release. “The 737 program has captured nearly 3,100 orders for the 737 MAX since launch. Also during the quarter, the company completed detailed design for the 787-10 Dreamliner, final systems definition on the 777X, and rolled out the first 737 MAX airplane."

Flying high—or not

For supply chain and operations management professionals outside of the aerospace industry, it might be hard to imagine the unique inventory and production needs of airplanes. How many of you felt a surge of panic when you read that Boeing staff had to find space for four jumbo jets? I certainly did. Putting aside production size and scope, however, leaves us with some fundamental principles and best practices from the APICS body of knowledge that are applicable in a variety of industries—from aerospace to consumer packaged goods.

Consider, for example, the definition of life cycle planning from the APICS Operations Management Body of Knowledge Framework: “Life cycle planning is the concept and practice in firms providing goods and services to plan strategically for the phases of a product’s or service’s life. After several research and development–related stages, including product conceptualization and technical demonstration, operations is concerned with these stages: introduction, growth, maturity, and decline.”

For Boeing, the 747 is in decline, but the company has planes in the other product life cycle stages too. Chances are your organization does too. Your job is to manage the strategic alignment of your firm’s resources to support the marketing and delivery of your products or services. APICS offers education and resources that can help you do that and much more. Visit apics.org to discover what APICS can do for you.
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