Managing New ProductDevelopment andSupply Chain Risks:The Boeing 787 CaseChristopher S.TangTostimulaterevenuegrowthandmarketresponse,Boeingdecidedtodeveloptheand JoshuaD.Zimmerman'787Dreamliner.The787Dreamlinerisnotonlyarevolutionaryaircraft,butitalsoUCLA Anderson Schoolctang@anderson.ucla.eduutilizes an unconventional supply chain intended to drastically reduce developmentjoshua.zimmerman.2009@anderson.ucla.educost and time.However,despite significant management efforts and capitalinvestment, Boeing is currently facing a series of delays in its schedule for the maidenCommented byflight and plane delivery to customers.This paper analyzes Boeing's rationale for theJamesI.NelsonM.S.787'sunconventionalsupplychain,describesBoeing'schallengesformanagingthisMBCP, CORPBusiness Continuity Servicessupply chain,and highlights somekey lessons for other manufacturers to considerwhendesigningtheir supply chains fornewproductdevelopment.Acknowledgments:We would like to thank WilliamSchmidt of theHaruard BusinessSchooland oneanonymousreviewer for their constructive comments on an earlier version of this paperthe passenger cabin, offering substantial improvementIntroductionto the flying experience. Also, the lightweight compositematerials enable the Dreamliner to take long-haul flights.Since the U.S. government deregulated air travel in 1977,Consequently, the Dreamliner allows airlines to offermore airlines have entered the market causing fiercedirect/nonstop flights between any pair of cities withoutprice competition.As airfarescontinued to decline,thelayovers, which is preferred by most internationaltotal number of U.S. passengers per year has risen fromtravelers (Hucko, 2007).Table 1 and Figure 1 (p.75)approximately240millionto640millionfrom1977tocompare the 787aircraft with other popular aircrafts1999.At the sametime,U.s.commercial aircraftmanufacturers have faced major competition fromSecond, Boeing's value-creation strategy for its keyEuropean companies.After losing market share toimmediate customers (the airlines) and its endAirbus (owned byEADS) in the late1990s, Boeing wascustomers (the passengers) was to improve flightundertodecidebetweentwobasicpressureoperational efficiency by providing big-jet ranges tocompetitive strategies: reduce the costs (and the sellingmidsize airplanes whileflying at approximatelythe sameprices) of existing types of aircraft or develop a newspeed (Mach 0.85).3This efficiency would allow airlinesaircraft to raise revenues through value creation.to offereconomicalnonstopflightstoandfrommoreand smaller cities. In addition, with a capacity betweenIn 2003, Boeing decided to focus on creating additional210 and 330 passengers and a range of up to 8,500value for its customers (airlines) and their passengersnautical miles, the 787 Dreamliner is designed to useby developing an innovative aircraft: the 787 Dreamliner.20% less fuel for comparablemissions than today's(Throughout this paper, we shall use the term"787similarly sized airplanes. The cost-per-seat mile isDreamliner,""787,"and"Dreamliner"interchangeably.)expected to be 10% lower than for any other aircraft.First,Boeing'svalue-creationstrategyfor.theAlso,unlikethetraditionalaluminumfuselagesthattendpassengers was to improve their travel experienceto rust and fatigue, the 787's fuselages are based onthrough redesigningthe aircraft and offering significantcompositematerials,whichreduceairlinesimprovements in comfort.For instance, relative tomaintenance and replacement costs (Murray,2007).other aircrafts, over 50% of the primary structure of theTable2provides a summary oftheDreamliner's benefits787 aircraft (including thefuselage and wing)would befor both the airlines and their passengers.madeof compositematerials (Hawk, 2005).Ascompared to the traditional material (aluminum) used inDueto theuniquevaluethatthe 787provides to theairplane manufacturing,the composite material allowsairlines and their passengers, the number of ordersfor increased humidity and pressure to be maintained inexceeded expectations. The Dreamliner is the fastest-I.This research is supportedby theUCLAEdward W.CarterEndowmentFund.国Supply Chain ForumAn International JoumalVol. 10 - N°2 -2009www.supplychain-forum.com
Introduction Since the U.S. government deregulated air travel in 1977, more airlines have entered the market causing fierce price competition. As airfares continued to decline, the total number of U.S. passengers per year has risen from approximately 240 million to 640 million from 1977 to 1999. At the same time, U.S. commercial aircraft manufacturers have faced major competition from European companies. After losing market share to Airbus (owned by EADS) in the late 1990s, Boeing was under pressure to decide between two basic competitive strategies: reduce the costs (and the selling prices) of existing types of aircraft or develop a new aircraft to raise revenues through value creation. In 2003, Boeing decided to focus on creating additional value for its customers (airlines) and their passengers by developing an innovative aircraft: the 787 Dreamliner. (Throughout this paper, we shall use the term “787 Dreamliner,” “787,” and “Dreamliner” interchangeably.) First, Boeing's value-creation strategy for the passengers was to improve their travel experience through redesigning the aircraft and offering significant improvements in comfort. For instance, relative to other aircrafts, over 50% of the primary structure of the 787 aircraft (including the fuselage and wing) would be made of composite materials (Hawk, 2005). As compared to the traditional material (aluminum) used in airplane manufacturing, the composite material allows for increased humidity and pressure to be maintained in the passenger cabin, offering substantial improvement to the flying experience. Also, the lightweight composite materials enable the Dreamliner to take long-haul flights. Consequently, the Dreamliner allows airlines to offer direct/nonstop flights between any pair of cities without layovers, which is preferred by most international travelers (Hucko, 2007). Table 1 and Figure 1 (p. 75) compare the 787 aircraft with other popular aircrafts. Second, Boeing's value-creation strategy for its key immediate customers (the airlines) and its end customers (the passengers) was to improve flight operational efficiency by providing big-jet ranges to midsize airplanes while flying at approximately the same speed (Mach 0.85).3 This efficiency would allow airlines to offer economical nonstop flights to and from more and smaller cities. In addition, with a capacity between 210 and 330 passengers and a range of up to 8,500 nautical miles, the 787 Dreamliner is designed to use 20% less fuel for comparable missions than today's similarly sized airplanes. The cost-per-seat mile is expected to be 10% lower than for any other aircraft. Also, unlike the traditional aluminum fuselages that tend to rust and fatigue, the 787's fuselages are based on composite materials, which reduce airlines' maintenance and replacement costs (Murray, 2007). Table 2 provides a summary of the Dreamliner's benefits for both the airlines and their passengers. Due to the unique value that the 787 provides to the airlines and their passengers, the number of orders exceeded expectations. The Dreamliner is the fastestTo stimulate revenue growth and market response, Boeing decided to develop the 787 Dreamliner. The 787 Dreamliner is not only a revolutionary aircraft, but it also utilizes an unconventional supply chain intended to drastically reduce development cost and time. However, despite significant management efforts and capital investment, Boeing is currently facing a series of delays in its schedule for the maiden flight and plane delivery to customers. This paper analyzes Boeing's rationale for the 787's unconventional supply chain, describes Boeing's challenges for managing this supply chain, and highlights some key lessons for other manufacturers to consider when designing their supply chains for new product development. Managing New Product Development and Supply Chain Risks: The Boeing 787 Case Supply Chain Forum An International Journal Vol. 10 - N°2 - 2009 74 www.supplychain-forum.com Christopher S. Tang and Joshua D. Zimmerman1 UCLA Anderson School ctang@anderson.ucla.edu joshua.zimmerman.2009@anderson.ucla.edu Commented by James I. Nelson M.S. MBCP, CORP Business Continuity Services Acknowledgments: We would like to thank William Schmidt of the Harvard Business School and one anonymous reviewer for their constructive comments on an earlier version of this paper. 1. This research is supported by the UCLA Edward W. Carter Endowment Fund
ManagingNewProductDevelopmentandSupplyChainRisks:TheBoeing787CaseTableComparison of select Boeing and Airbus aircraftCruisingAirline FamilyMax,RangeMax.Empty WeightOperations(nautical(lbs)CapacitySpeed (mph)Strategymiles)(passengers)?Direct flights737-8003,00018991,000514to multiplecities467570747-88,000410,000Hub to hubDirect flights330561787-98,500254,000to multiplecities555561A380-8008,200610,000Hub to hublargest aerospace and defense contractor in the worldFigure1(behind Lockheed Martin),and the single-largestDreamlinerandA380sizecomparisonexporter in the United States. Sales in 2007 amounted to$66.4billionwithanetincomeof$4.1billionUp, Up and AwayWeighing in at 280 metric tons and with a wingspan as wide asaBesides sales,the stock market responded favorablyfootball field is long.theAirbusA380 is theworld'slargestpassenger jet,designedtocarryabout 850passengersbetweenwhenBoeinglaunchedits"game-changing"787hub airports.in contrast, Boeing says its smaller,fuelefficientDreamliner program in 2003.As shown in Figure 2,787Dreamlinerwillallowfordirectflightsbetweenmorecities even at great distances.between 2003 and 2007,Boeing's stock price increasedA380fromaround$30asharetoslightlyoversi00ashareAIRPUSANDHowever, Boeing announced a series of delays beginningin late 2007 and the market has reacted negativelyAirbusA380(Figure 2). The negative market response is somewhatexpected as publicity of Boeing's supply chain problemsBoeing 787havebecomeincreasinglyevident.AsshowninFigure2AirbussharedasimilarfateafterannouncingaseriesofDouble-decker busdelaysforthedeliveryofitsA380inearly2006(Raman—26-et al., 2008).Despite significant capital investment and182ftmanagement effort, Boeing is currently facing continual239#delays (for more than two years) in its schedule for theSource: Alibus, Boeingmaidenflight and planedeliverytocustomers as of thiswriting(Sanders,2009c).Afternumerousfailedsellingplane inaviationhistorywithcarriersattractedattempts to get its 787's composite rear fuselageto its new largely composite design and innovative next-supplier back on track, Boeing finally decided to acquiregeneration jet engines that will allow the wide-bodiedVought's South Carolina facility at a cost of sl billion on2009(Sanders,2009a).This occurrenceJuly8.planetoflyfurtheronlessfuel.TheDreamlinerprogrammotivated usto examine the underlying causes ofhasbeenconsideredamodelendeavorcombiningnoveltechnology and production strategies. As of NovemberBoeing's challenges in managing its 787's delivery16,2008,Boeing(Too earlyto talk about delayhere.)schedule.www.boeing.com)received orders from morethan 50895In this case study, we shall examine Boeing's rationaleairlinesfor.atotalofDreamliners.Thefor the 787's unconventional supply chain. The nextoverwhelming response from the airline industry aboutBoeing's 787 has forced Airbus to quickly redesign itssection presents our analysis of the underlying riskscompetitive wide-bodied jet, the A350, to make it evenassociated with its supply chain.Then we describewider, which was later re-released as theA350XWB as anBoeing's risk mitigation strategies to expedite itsdevelopment and production processes.We conclude"extrawidebody"(Wallace,2006).Boeing iscurrentlywith some key lessons for other manufacturers tothesecond-largestglobal aircraftmanufacturer(behindAirbus) in terms of revenue and deliveries (thoughconsider when designing their supply chains for newhaving received more orders than Airbus),the second-product development.2. Measured in terms of.typical seat configuration.For example, the total number of seats can be higher if more space is allocated to theeconomyclasscabinand less spaceto the first and business class cabins3.Other immediate customers include airfreight logistics service providers such as Federal Express orDHL andaircraft operators suchas Global Air[5]Supply Chain ForumAn International JoumalVolL. 10 -N°2-2009www.supplychain-forum.com
selling plane in aviation history with carriers attracted to its new largely composite design and innovative nextgeneration jet engines that will allow the wide-bodied plane to fly further on less fuel. The Dreamliner program has been considered a model endeavor combining novel technology and production strategies. As of November 16, 2008, Boeing (Too early to talk about delay here.) www.boeing.com) received orders from more than 50 airlines for a total of 895 Dreamliners. The overwhelming response from the airline industry about Boeing's 787 has forced Airbus to quickly redesign its competitive wide-bodied jet, the A350, to make it even wider, which was later re-released as the A350XWB as an “extra wide body” (Wallace, 2006). Boeing is currently the second-largest global aircraft manufacturer (behind Airbus) in terms of revenue and deliveries (though having received more orders than Airbus), the secondlargest aerospace and defense contractor in the world (behind Lockheed Martin), and the single-largest exporter in the United States. Sales in 2007 amounted to $66.4 billion with a net income of $4.1 billion. Besides sales, the stock market responded favorably when Boeing launched its “game-changing” 787 Dreamliner program in 2003. As shown in Figure 2, between 2003 and 2007, Boeing's stock price increased from around $30 a share to slightly over $100 a share. However, Boeing announced a series of delays beginning in late 2007 and the market has reacted negatively (Figure 2). The negative market response is somewhat expected as publicity of Boeing's supply chain problems have become increasingly evident. As shown in Figure 2, Airbus shared a similar fate after announcing a series of delays for the delivery of its A380 in early 2006 (Raman et al., 2008). Despite significant capital investment and management effort, Boeing is currently facing continual delays (for more than two years) in its schedule for the maiden flight and plane delivery to customers as of this writing (Sanders, 2009c). After numerous failed attempts to get its 787's composite rear fuselage supplier back on track, Boeing finally decided to acquire Vought's South Carolina facility at a cost of $1 billion on July 8, 2009 (Sanders, 2009a). This occurrence motivated us to examine the underlying causes of Boeing's challenges in managing its 787's delivery schedule. In this case study, we shall examine Boeing's rationale for the 787's unconventional supply chain. The next section presents our analysis of the underlying risks associated with its supply chain. Then we describe Boeing's risk mitigation strategies to expedite its development and production processes. We conclude with some key lessons for other manufacturers to consider when designing their supply chains for new product development. Supply Chain Forum An International Journal Vol. 10 - N°2 - 2009 75 www.supplychain-forum.com Managing New Product Development and Supply Chain Risks: The Boeing 787 Case Table 1 Comparison of select Boeing and Airbus aircraft Figure 1 Dreamliner and A380 size comparison 2. Measured in terms of typical seat configuration. For example, the total number of seats can be higher if more space is allocated to the economy-class cabin and less space to the first and business class cabins. 3. Other immediate customers include air freight logistics service providers such as Federal Express or DHL and aircraft operators such as Global Air
ManagingNewProductDevelopmentandSupplyChainRisks:TheBoeing787CaseTableDreamlinerfeatures with benefits forairlines and passengersValues to AirlinesValue to PassengersFeature(ImmediateCustomers)(End Customers)Composite material. Faster cruising speed, which? Faster cruising speed, whichenables city-pairnonstopflightsenables city-pair nonstop flights Fuel efficiency (lighter material·Higher humidity in the cabin air islowers operating cost)allowed.which increases comfortlevelCorrosionresistance(lowermaintenance cost)·Stronger components that requirefewerfasteners(lowermanufacturing cost)Modular design that allows· Cost savings with cheaper and:Flexibility to respond to futurefor two types of enginescircumstances (market demand) atfaster engine changeover may be(General Electric GEnx andareduced costpassed on to passengersRolls-Royce Trent 1000): Simplicity in design allows forrapid engine changeoverLarge and light sensitive·Lower operating costs due to less."Smartglass"windowpanelswindowsneed for interior lightingwork like transition lens-controlling the amount of lightautomatically—decreasing glareand increasing comfort andconvenienceRedesigned chevron engine.Reduction in community noise.Reduction in interior cabin decibelnozzle (serrated edges)levelslevelEasy preventive maintenanceBoeingprovides service so planesFewerdelaysduetomechanicalare in operationfor longer periodsproblemsoftimeFigure2Historicalstockpricesof BoeingandAirbus comparedtotheS&P500HistoricalStockPricesEAD.F-SP500-BA12020001001500806010004050020001/1/19959/27/199712/14/20059/9/20086/23/20003/20/2003Date[76]Supply Chain ForumAn International JournalVol. 10 -N°2 -2009www.supplychain-forum.com
Supply Chain Forum An International Journal Vol. 10 - N°2 - 2009 76 www.supplychain-forum.com Managing New Product Development and Supply Chain Risks: The Boeing 787 Case Figure 2 Historical stock prices of Boeing and Airbus compared to the S&P500 Table 2 Dreamliner features with benefits for airlines and passengers
ManagingNewProductDevelopmentandSupplyChainRisks:TheBoeing787CaseThe787Dreamliner'sunconventionalFigureA traditional supply chain for airplanesupply chainmanufacturingTo reduce the 787's development time from six to fouryears and development costfrom $10 to $6 billion,BoeingdecidedtodevelopandproducetheDreamlinerby using an unconventional supply chain new to theSupplieraircraft manufacturing industry.The 787's supply chainwas envisioned to keep manufacturing and assemblycosts low, while spreading the financial risks ofSupplierdevelopment to Boeing's suppliers. Unlike the 737'ssupply chain,which requires Boeing to play theBoeingSuppliertraditional roleof akeymanufacturer who assemblesCustomersFinadifferentpartsandsubsystemsproducedbythousandsAssemblof suppliers (Figure 3),the787's supply chain isbasedSupplieronatieredstructurethatwouldallowBoeingto fosterpartnerships with approximately 50 tier-l strategicThese strategicpartnersserve asSupplierpartners."integrators"who assemble different parts andsubsystemsproducedbytier-2suppliers(Figure4).TheSupplier787supply chain depicted in Figure4 resemblesToyota's supply chain, which has enabled Toyota todevelop new carswith shorter development cycletimesFigureRedesigned supply chain for the Dreamliner programTier3:SupplieTier3SupplieTier2SystenpartneTierTier3:SupplierPreintegrationBoeing:Tier3:SupplierFinalAssemblyner2Tier3:SupplierStructurabartneCUSTOMERSTier3:SupplierTable3Comparison of Boeing's strategyfor its 737and 787programsComponent737Program787ProgramSourcing strategyOutsource35-50%Outsourced70%Supplier relationshipTraditional supplier relationshipStrategic partners with tier-1(purely contract based)suppliersSupplier responsibilitiesDeveloped and produced parts forDeveloped and produced sectionsBoeingfor BoeingNumber of suppliersThousandsApproximately 50 tier-1 strategicpartnersSupply contractsFixed-price contracts with delayRisk-sharingcontractspenalty30 days for Boeing to perform finalAssembly operations3-day assembly of completeassemblysections回VoL. 10 -N°2 -2009Supply Chain ForumAn International Joumalwww.supplychain-forum.com
The 787 Dreamliner's unconventional supply chain To reduce the 787's development time from six to four years and development cost from $10 to $6 billion, Boeing decided to develop and produce the Dreamliner by using an unconventional supply chain new to the aircraft manufacturing industry. The 787's supply chain was envisioned to keep manufacturing and assembly costs low, while spreading the financial risks of development to Boeing's suppliers. Unlike the 737's supply chain, which requires Boeing to play the traditional role of a key manufacturer who assembles different parts and subsystems produced by thousands of suppliers (Figure 3), the 787's supply chain is based on a tiered structure that would allow Boeing to foster partnerships with approximately 50 tier-1 strategic partners. These strategic partners serve as “integrators” who assemble different parts and subsystems produced by tier-2 suppliers (Figure 4). The 787 supply chain depicted in Figure 4 resembles Toyota's supply chain, which has enabled Toyota to develop new cars with shorter development cycle times Supply Chain Forum An International Journal Vol. 10 - N°2 - 2009 77 www.supplychain-forum.com Managing New Product Development and Supply Chain Risks: The Boeing 787 Case Figure 3 A traditional supply chain for airplane manufacturing Figure 4 Redesigned supply chain for the Dreamliner program Table 3 Comparison of Boeing's strategy for its 737 and 787 programs
Managing New Product Development and Supply Chain Risks:TheBoeing787CaseFiouresubassemblyplan(Source:,www.Boeing.comDreamlinePARTSNOT SHOWNTail finBoeing (Frederickon,Wash.)Landing gearWingtipsMessier-DowtyKAL-ASDHorizontal stabilizerV(England)(Korea)Alenia (Italy)Wing/bodyfairingForwardBoeing (Canada)Center fuselagefuselageLanding gear doorsAlenia (taly)KawasakiBoeing (Canada)(lapan)AftfuselageCargo access doorsVoughtForward fuselageSaab (Sweden)(Charleston, S.C.)Spirit (Wichita,Kan.)Passenger entryMain landing gear wheel welldoorsKawasaki (Japan)Latecoere (France)Fixed trailing edgeEnginesKawasaki (lapan)MovableGE (Evendale, Ohio)trailing edgeEnginesBoeing(Australia)Roll-Royce (England)WingEngine nacellesCenterwing boxMitsubishiFixedandmovableleading edgeGoodrichFuj (lapan)(Chula Vista, Calit)(lapan)Spirit (Tuisa,Okla.)and lower development costs (Tang,1999).Table3subassembly. However, unless the supplier relationshiphighlights the key differences between the 737's supplyis managed correctly, reducing the supply base canchain and the unconventional 787 supply chain.Forincrease supply risks because of the reduced bargaininginstance, under the 787's supply chain structure, thesepower of the manufacturer (Tang, 1999).The rationaletier-l strategic partners are responsible for deliveringbehind this shift is to empower its strategic suppliers tocomplete sections of the aircraft to Boeing,which woulddevelop and produce different sections in parallel so asallow Boeing to assemble these complete sectionstoreducethedevelopmenttime.Also,byshiftingmorewithin three days at its plant in Everett, Washingtonassembly operations to its strategic partners located in(Figure 5). We now explain the relationale behind thedifferent countries, there is a potential savings in787's supply chain as highlighted is table 3.development cost as well (Figure 6).OutsourcemoreReduce financial risksBy outsourcing 70% of the development and productionUnder the 787 program, Boeing instituted a new risk-activities under the 787 program, Boeing can shortensharing contract under which no strategic suppliers willthe development time by leveraging suppliers'ability toreceive payment for the development cost until Boeingdevelop different parts at the same time. Also, Boeingdelivers its first 787to its customers (slated to be ANAmay be able to reduce the development cost of the 787airlines). This contract payment term was intended tobyexploitingsuppliers'expertise.AsBoeingprovide incentives for strategic partners to collaborateoutsourced more, communication and coordinationand coordinate their development efforts.Although thisbetween Boeing and its suppliers became critical forcontract imposes certain financial risks for Boeing'smanaging the progress of the 787 development program.strategic suppliers if delivery deadlines are missed, theyTo facilitate the coordination and collaboration amongare incentivized by being allowed to own theirsuppliers and Boeing, Boeing implemented a web-basedintellectual property, which can then be licensed totool called Exostar that is intended to gain supply chainother companies in the future.Another incentive for thevisibility, improve control and integration of criticalstrategic partners to accept this payment term is that itbusiness processes, and reduce development time andallows them to increase their revenues (and potentialcost Manufacturing BusinessTechnology,2007).profits)by taking up the development and production ofthe entire section of the plane instead of a small part ofReduce direct supply base, delegate more,the plane.and focus moreIncrease production capacity without incurringTo reduce development time and cost for theadditional costsDreamliner, Boeing fostered strategic partnerships withDecentralizing the manufacturing process would allowapproximately 50 tier-l suppliers who will design andbuild entire sections of the plane and ship them toBoeing to outsource noncritical processes. TheBoeing. By reducing its direct supply base, Boeing couldintentionistoreducethecapitalinvestmentforthe787focus more of its attention and resources on workingdevelopmentprogram.Also,underthe787supplywith tier-l suppliers (pre-integration stages)rather thanchain, Boeing needs only three days to assemblewith raw material procurement and early componentcomplete sections of the Dreamliner at its plant.Relative[78Supply Chain ForumAn International JournalVol. 10 - N°2 -2009www.supplychain-forum.com
and lower development costs (Tang, 1999). Table 3 highlights the key differences between the 737's supply chain and the unconventional 787 supply chain. For instance, under the 787's supply chain structure, these tier-1 strategic partners are responsible for delivering complete sections of the aircraft to Boeing, which would allow Boeing to assemble these complete sections within three days at its plant in Everett, Washington (Figure 5). We now explain the relationale behind the 787’s supply chain as highlighted is table 3. Outsource more By outsourcing 70% of the development and production activities under the 787 program, Boeing can shorten the development time by leveraging suppliers' ability to develop different parts at the same time. Also, Boeing may be able to reduce the development cost of the 787 by exploiting suppliers' expertise. As Boeing outsourced more, communication and coordination between Boeing and its suppliers became critical for managing the progress of the 787 development program. To facilitate the coordination and collaboration among suppliers and Boeing, Boeing implemented a web-based tool called Exostar that is intended to gain supply chain visibility, improve control and integration of critical business processes, and reduce development time and cost Manufacturing Business Technology, 2007). Reduce direct supply base, delegate more, and focus more To reduce development time and cost for the Dreamliner, Boeing fostered strategic partnerships with approximately 50 tier-1 suppliers who will design and build entire sections of the plane and ship them to Boeing. By reducing its direct supply base, Boeing could focus more of its attention and resources on working with tier-1 suppliers (pre-integration stages) rather than with raw material procurement and early component subassembly. However, unless the supplier relationship is managed correctly, reducing the supply base can increase supply risks because of the reduced bargaining power of the manufacturer (Tang, 1999). The rationale behind this shift is to empower its strategic suppliers to develop and produce different sections in parallel so as to reduce the development time. Also, by shifting more assembly operations to its strategic partners located in different countries, there is a potential savings in development cost as well (Figure 6). Reduce financial risks Under the 787 program, Boeing instituted a new risksharing contract under which no strategic suppliers will receive payment for the development cost until Boeing delivers its first 787 to its customers (slated to be ANA airlines). This contract payment term was intended to provide incentives for strategic partners to collaborate and coordinate their development efforts. Although this contract imposes certain financial risks for Boeing's strategic suppliers if delivery deadlines are missed, they are incentivized by being allowed to own their intellectual property, which can then be licensed to other companies in the future. Another incentive for the strategic partners to accept this payment term is that it allows them to increase their revenues (and potential profits) by taking up the development and production of the entire section of the plane instead of a small part of the plane. Increase production capacity without incurring additional costs Decentralizing the manufacturing process would allow Boeing to outsource noncritical processes. The intention is to reduce the capital investment for the 787 development program. Also, under the 787 supply chain, Boeing needs only three days to assemble complete sections of the Dreamliner at its plant. Relative Supply Chain Forum An International Journal Vol. 10 - N°2 - 2009 78 www.supplychain-forum.com Managing New Product Development and Supply Chain Risks: The Boeing 787 Case Figure 5 Dreamliner subassembly plan (Source:,www.Boeing.com)