Manufacturing Strategies

Case Study

The Boeing Company - 1998

TECHNICAL UNIVERSITY – SOFIA English Language Department of Engineering

1. Developing an External Factor Evaluation Matrix for the Boeing Company.

Opportunities Weight Rating Weighted Score

1. A robust U.S. economy is good for most airline carriers, which are Boeing’s primary customers.

0.08 4 0.32

2.Growth in passenger traffic averaged approximately 5.5% over the past 5 years, leading to substantially better financial performance for airlines.

0.08 3 0.24

3. Growth in passenger traffic is increasing at a greater rate.

0.08 3 0.24

4. In 1996, airline demand for new aircraft rose. 0.06 2 0.12

5. New noise and emission standards are available. 0.04 2 0.08

6. Chinese travel is expected to increase by 10% annually. 0.06 3 0.18

7. U.S. defense and space spending are expected to remain steady at $ 90 billion for the next 5 years.

0.06 2 0.12

8. There is a rising demand for some commercial aircraft and defense products.

0.08 4 0.32

9. The Internet and CD-ROMs became an easy access to information (parts and training programs).

0.04 3 0.12

Threads

1. The forging houses that process the titanium are booked until mid-1998. Delays in this forged material created a bottleneck for production and delays of aircraft deliveries.

0.08 3 0.24

2. The European Airbus consortium remains Boeing’s most formidable competitor in the commercial aircraft industry.

0.08 3 0.24

3. The European Union’s Commission helped Airbus Industry negotiate with Boeing on alternating Boeing’s exclusive sales agreements with U.S. major airlines.

0.06 2 0.12

4. Airbus has been successful in negotiating contracts in competition with Boeing (China Aviation Supplies contract in April 1996).

0.08 3 0.24

5. If Airbus merges with Lockheed Martin, Boeing could experience stronger competition in the commercial aircraft sector.

0.12 4 0.48

TOTALS 1.00 3.06

2. Developing a Competitive Profile Matrix for the Boeing Company.

The Boeing Company

Airbus Industry

Critical success factors Weight Rating WS Rating WS

Financial strength 0.12 3 0.36 2 0.24

Market share 0.12 4 0.48 2 0.24

Customer loyalty 0.10 4 0.40 2 0.20

R&D expertise 0.12 4 0.48 3 0.36

Marketing expertise 0.14 3 0.42 2 0.28

Product diversity 0.10 4 0.40 1 0.10

Company reputation 0.12 4 0.48 2 0.24

Social responsibility 0.10 4 0.40 3 0.30

Global economy 0.08 3 0.24 2 0.16

TOTALS 1.00 3.66 2.12

3. Developing an Internal Factor Evaluation Matrix for the Boeing Company.

Strength Weight Rating Weighted Score

1. Boeing is the world’s leading manufacturer of commercial aircraft with 60% of the market.

0.10 4 0.40

2. Boeing is one of the largest U.S. exporters with over $ 10 billion in sales to foreign countries.

0.08 4 0.32

3. Boeing 737 is the best-selling commercial aircraft of all time with 3 604 orders and 2 840 deliveries.

0.07 4 0.28

4. Boeing has been successful in teaming with other defense and space companies and its business in this area is widely diversified.

0.08 4 0.32

5.Boeing 777 is the most spacious, fuel-efficient airplane in its class.

0.06 4 0.24

6. In 1996 the number of orders of jet crafts is two times bigger than in 1995.

0.08 4 0.32

7. Boeing’s net income moved up 179% in 1996. 0.08 4 0.32

8. Defense and space business’s operating profit increased by about 269% in 1996.

0.08 4 0.32

9. Boeing is the world’s leading producer of military aircraft. 0.09 4 0.36

10. Mergers\ acquisitions have given Boeing a greater share of the military and space market.

0.08 4 0.32

Weaknesses

1. Long-term dept increased by 70% in 1996. 0.05 2 0.10

2. Backlog of unfilled orders at December 31, 1996 was $ 87 700 million.

0.07 1 0.07

3. Boeing’s civilian sales are driven by economic cycles- ‘’feast’’ or ’’famine’’.

0.04 1 0.04

4. Boeing’s military sales are driven by external threads and politics.

0.04 2 0.08

TOTALS 1.00 3.49

4. Performing a financial ratio analysis for the Boeing Company.

1997 1996 Conclusion

Liquidity ratios

Current ratio

Quick or acid-test ratio

Leverage ratios

Debt-to-total asset ratio

Debt-to-equity ratio

Long-term debt-to-equity 6 123 6 852 S

Times-interest-earned ratio

Activity ratios

Inventory-turnover ratio 8 967 9 151 W

Total-assets turnover

Fixed-assets turnover

Average collection period

Profitability ratios

Gross profit margin

Operating profit margin

Net profit margin

Return on total assets (ROA)

Return on stockholders’ equity

Earnings (loss) per share (0.36) 3.73 W

Growth ratios

Sales

Net income

Earning (loss) per share (0.36) 3.73 W

Dividends per share 0.56 0.55 S

5. Developing TOWS Matrix for the Boeing Company.

Note: The external and internal factors are the same as given in the 1 and 3. By that I mean the numbers given after each strategy below correspond to the internal and external factors listed earlier in 1 and 3.

SO Strategies

1. Increase international aircraft exports 10% annually. (O2, O3, O6, S1, S2)

2. Increase sales by improving and modifying present products or services and adding new related products. (O1, O3, O4, O5, O8, S3, S4, S5)

3. Introduce present products or services into new geographic areas by opening facilities in different countries and add new related products or services. (O3, O8, S1, S2, S4)

4. Create a merger with another defense and space company for a successful cooperation in the field of military and defense. (O7, O8, S9, S10)

WO Strategies

1. Increase sales by improving and modifying present products or services in order to reduce long-term depth. (W1, O3, O4, O8)

2. Restructure to have three divisions- commercial aircraft; space and defense systems; customer and commercial financing. (W2, O4)

3. Implement military aircrafts in everyday life (rescue operations, fires). (W4, O8)

ST Strategies

1. Introduce present products or services into new geographic areas (S1, S2, S9, T3, T4)

2. Seek to increase market share for present products or services by improving the quality and adding new related products. (S1, S2, S4, S9, T2)

3. Create a partnership with another company for a successful cooperation. (S4, S10, T5)

WT Strategies

1. Introduce aggressively present products or services into new geographic areas. (W1, W3, T2)

2. Modify structure to move international operations to other divisions and split the orders. In this way delays will be reduced. (W2, T1)

6. Developing a Space Matrix for the Boeing Company.

Financial Strength (FS)

Return on investment 5

Leverage 2

Liquidity 4

Working capital 5

Cash flow 5

Total 21/5 = 4.20

Competitive Advantage (CA)

Market share -1

Product quality -1

Product life cycle -1

Customer loyalty -2

Competition ’s capacity utilization -2

Technological know-how -2

Control over supplies and distributors -3

Total -12/7 = -1.71

Environmental Stability (ES)

Technological changes -1

Rate of inflation -2

Demand variability -2

Price range of competing product -2

Barriers to entry into market -4

Competitive pressure -3

Price elasticity of demand -2

Total -16/7 = -2.28

Industry Strength (IS)

Growth potential 6

Profit potential 5

Financial stability 4

Technological know-how 4

Resource utilization 4

Capital intensity 4

Ease of entry into market 5

Productivity, capacity utilization 4

Total 36\8 = 4.50

Conclusion:

FS + ES = 4.20 + (-2.28) = 1.92 on y-axis

CA + IS = -1.71 + 4.50 = 2.79 on x-axis

Thus, the best strategy is the aggressive strategies For the Boeing Company it could include increasing international aircraft export and introducing present products and services into new geographic areas.

7. Developing Internal/ External Matrix for the Boeing Company.

IFE total weighted score

4.0 high 3.0 medium 2.0 low 1.0

I The Boeing Company II III

IV V VI

VII VII IX

On the left: EFE total weighted score

Since IFE total weighted score is equal to 3.49 and EFE total weighted score is equal to 3.06 it follows that the Boeing Company belongs to the first quadrant (build and grow strategy).

8. Developing Grand Strategy Matrix for the Boeing Company.

Rapid Market Growth

Slow Market Growth

Since the Boeing Company strategy is connected with market development, product development, concentric diversification and horizontal integration (both merger and acquisition), it belongs to the first quadrant. It means that the company is describes by rapid market growth and strong competitive position and this is the best possible situation.

9. Developing Quantitative Strategic Planning Matrix for the Boeing Company.

Strategy 1:

Add new related products or services.

Strategy 2:

Introduce present products or services into new geographic areas.

Strategy 1 Strategy 2

Opportunities Weight AS TAS AS TAS

1. A robust U.S. economy is good for most airline carriers, which are Boeing’s primary customers.

0.08 4 0.32 3 0.24

2.Growth in passenger traffic averaged approximately 5.5% over the past 5 years, leading to substantially better financial performance for airlines.

0.08 2 0.16 3 0.24

3. Growth in passenger traffic is increasing at a greater rate.

0.08 3 0.24 4 0.32

4. In 1996, airline demand for new aircraft rose. 0.06 4 0.24 3 0.18

5. New noise and emission standards are available. 0.04 4 0.16 - -

6. Chinese travel is expected to increase by 10% annually.

0.06 2 0.12 4 0.24

7. U.S. defense and space spending are expected to remain steady at $ 90 billion for the next 5 years.

0.06 2 0.12 1 0.06

8. There is a rising demand for some commercial aircraft and defense products.

0.08 4 0.32 2 0.16

9. The Internet and CD-ROMs became an easy access to information (parts and training programs).

0.04 - - - -

Threads

1. The forging houses that process the titanium are booked until mid-1998. Delays in this forged material created a bottleneck for production and delays of aircraft deliveries.

0.08 3 0.24 2 0.16

2. The European Airbus consortium remains Boeing’s most formidable competitor in the commercial aircraft industry.

0.08 1 0.08 4 0.24

3. The European Union’s Commission helped Airbus Industry negotiate with Boeing on alternating Boeing’s exclusive sales agreements with U.S. major airlines.

0.06 1 0.06 3 0.18

4. Airbus has been successful in negotiating contracts in competition with Boeing (China Aviation Supplies contract in April 1996).

0.08 1 0.08 4 0.32

5. If Airbus merges with Lockheed Martin, Boeing could experience stronger competition in the commercial aircraft sector.

0.12 3 0.36 2 0.24

Subtotals 1.00 2.50 2.58

Strategy 1 Strategy 2

Strengths Weight AS TAS AS TAS

1. Boeing is the world’s leading manufacturer of commercial aircraft with 60% of the market.

0.10 - - 4 0.40

2. Boeing is one of the largest U.S. exporters with over $ 10 billion in sales to foreign countries.

0.08 2 0.16 4 0.32

3. Boeing 737 is the best-selling commercial aircraft of all time with 3 604 orders and 2 840 deliveries.

0.07 1 0.07 4 0.32

4. Boeing has been successful in teaming with other defense and space companies and its

0.08 4 0.32 1 0.08

business in this area is widely diversified.

5.Boeing 777 is the most spacious, fuel-efficient airplane in its class.

0.06 2 0.12 3 0.18

6. In 1996 the number of orders of jet crafts is two times bigger than in 1995.

0.08 2 0.16 3 0.24

7. Boeing’s net income moved up 179% in 1996. 0.08 3 0.24 4 0.32

8. Defense and space business’s operating profit increased by about 269% in 1996.

0.08 4 0.32 3 0.24

9. Boeing is the world’s leading producer of military aircraft.

0.09 2 0.18 4 0.36

10. Mergers\ acquisitions have given Boeing a greater share of the military and space market.

0.08 3 0.24 4 0.32

Weaknesses

1. Long-term dept increased by 70% in 1996. 0.05 3 0.15 2 0.10

2. Backlog of unfilled orders at December 31, 1996 was $ 87 700 million.

0.07 1 0.07 3 0.21

3. Boeing’s civilian sales are driven by economic cycles- ‘’feast’’ or ’’famine’’.

0.04 2 0.08 4 0.16

4. Boeing’s military sales are driven by external threads and politics.

0.04 2 0.08 4 0.16

Subtotals 1.00 2.19 3.41

TOTALS 4.69 5.99

Conclusion:

Introducing present products or services into new geographic areas is a more attractive strategy than adding new related products or services.

10. Evaluating the worth of a business.

Business worth = 5 * firm’s annual profit

Business worth = 5 * 178 million = $ 890 million for 1997

One can observe that the profit of the Boeing Company fell to negative $ 178 million, after rising dramatically in 1996.