Boeing's Strategic Initiative: Raw Material Supply Chain Risk Mitigation

For the exclusive use of N. Pujawan, 2020.
case W58C01
April 5, 2019
Prakash Sathe
Boeing’s Strategic Initiative: Raw Material Supply Chain

Risk Mitigation
Andrew Burgess emerged from a meeting with his boss reflecting on raw materials risks.
Burgess, senior manager of supplier performance for aircraft materials and structures at The Boeing
Company, had been discussing strategy with William Schaffer, Boeing’s director of raw materials. Raw
material production was a critical part of the Boeing supply chain. Losing just one aluminum or titanium
mill could greatly impact the entire supply chain, including airline customers.
If a shortage of aluminum and titanium occurred, Boeing’s suppliers could not obtain the material they
needed to produce parts, and Boeing could not build airplanes. For example, if the U.S. government were to
ramp up trade sanctions on Russia, Boeing would risk losing supply from one of its largest titanium mills,
and production could be impacted for years.
Burgess and Schaffer agreed the risks were clear, and they urgently wanted to mitigate them. They
decided to enlist a Tauber Institute for Global Operationsi intern team, consisting of students William
Chen, Tamara Craven and Shannon Watt, to perform a risk analysis of Boeing’s entire raw material strategy.
Following its analysis, the team would make recommendations to Boeing’s top executives about how to
mitigate supply chain risks.
The Boeing Company
Boeing was a global leader in the design, manufacture and sale of commercial and military aerospace
equipment. At the time the Tauber team was enlisted to help assess its supply chain risks, the company
was the top U.S. manufacturing exporter, supporting airlines and government customers in 150 countries.1
i
The Tauber Institute at the University of Michigan is a multidisciplinary operations program that works closely with the university’s
business and engineering schools.
Published by WDI Publishing, a division of the William Davidson Institute (WDI) at the University of Michigan.
©2019 Prakash T. Sathe. This case was written by Prakash T. Sathe, Lecturer at the University of Michigan, School of Engineering,
Department of Industrial & Operations Engineering, with assistance from case writer Shea Gibbs. This case was prepared as the basis
for class discussion rather than to illustrate either effective or ineffective handling of a situation. Some data has been altered to
safeguard proprietary information and simplify the case. The author acknowledges valuable assistance from the Tauber team comprised
of William Chen, Tamara Craven and Shannon Watt.
This document is authorized for use only by Nyoman Pujawan in 2020.

Boeing’s Strategic Initiative: Raw Material Supply Chain Risk Mitigation W58C01
Boeing Commercial Airplanes manufactured both single- and twin-aisle commercial aircraft and cargo
freighters. More than 10,000 Boeing-built commercial jetliners, almost half the world fleet, were in service
worldwide.2
Boeing relied on suppliers to deliver millions of parts on time and at an acceptable quality standard to
assemble airplanes for timely delivery. If even one part was missing, planes could not be delivered, making
supply chain risk assessment a critical part of Boeing’s strategy.
Aluminum and titanium together accounted for about 75% of the weight of a typical commercial jet.3
Boeing purchased hundreds of millions of pounds of the metals per year to manufacture structural parts,
making them critical for production. In 1998, the company created the Boeing Raw Material Strategy
(BRMS),4 which transformed the way Boeing handled aluminum and titanium within its supply chain. Prior
to 1998, all Boeing suppliers separately negotiated prices with raw material mills. This resulted in the
following situations:5
1. excess costs and decreased competitiveness due to inflated demand at mills;

2. parts shortages due to competitive buying and hoarding by suppliers;
3. emergent costs due to artificial shortages;
4. price advantages to larger suppliers; and
5. artificial price increases due to artificial demand.
After introducing the BRMS, Boeing began aggregating and buying aluminum and titanium on behalf of
its suppliers. Boeing then resold the raw material to the suppliers.6 By aggregating raw material purchases,
Boeing was able to leverage economies of scale and minimize cost variance in the aluminum and titanium
markets. The new strategy ensured suppliers had enough material to produce Boeing parts, thus reducing
supply chain risk. The strategy stabilized the participating suppliers’ costs by establishing five year contracts
with mills.
ThyssenKrupp Aerospace (TMX) handled BRMS logistics, inventory and distribution on behalf of Boeing.
TMX was responsible for ordering, holding, processing and shipping raw material based on forecasts and
supplier orders. In total, more than 230 million pounds of raw material was shipped to the suppliers each
year through the BRMS (see Exhibit 1).7
Boeing’s BRMS had five phases, each of which had to be completed successfully to ensure on-time
delivery of aluminum and titanium parts to Boeing final assembly plants (see Exhibit 2). The BRMS was
a closed loop strategy including forecasting and contracting, ordering raw material, mill production, TMX
processing and shipment, and scrap revert.

Exhibit 1
Raw Material Acquisition Before and After 1998
Source: Tauber Institute
Exhibit 2
BRMS Phases
Forecasting. TMX determined how much aluminum and titanium Boeing needed each year. Boeing
then used the forecasts to set up contracts with each of its aluminum and titanium mills.
Ordering. Ordering occurred in three steps: (1) Boeing ordered parts from its suppliers, (2) suppliers
ordered aluminum and/or titanium from TMX, and (3) TMX ordered aluminum and titanium from mills,
either for inventory or further processing by Boeing and suppliers.
Mill production. The aluminum and titanium was processed by mills into useable product forms,
such as sheet, plate, coil, ingot or extrusion.
TMX processing and shipment. Material was either sent from mills to suppliers in a direct shipment,
bypassing TMX, or via “crossdock shipment,” where material went to TMX for further processing and
shipment to suppliers. While orders always went through TMX, material did not.
Scrap recovery. Based on BRMS participant agreement contracts, suppliers were required to return
a portion of their titanium scrap to Boeing for recycling.

Mill Production Analysis
Boeing purchased raw material from 16 mills, each with different work statements.8 The mills consisted
of three types: aluminum flat roll mills, aluminum extrusion mills and titanium mills. While some mills
produced proprietary alloys for specific airplane programs, most mills provided commodity products used
across all Boeing’s aircraft lines. Aluminum flat roll mills produced plate and sheet, while aluminum extrusion
mills produced large press and small intermediate press extrusions. Titanium mills produced a variety of
products, including plate, sheet, bar, billet and ingot.
To assess mill production risks, Burgess and the Tauber team conducted interviews with TMX, purchasing
agents (PAs) and industrial engineers (IEs), researched the aluminum and titanium industries, and observed
mill operations. The team identified five risk categories: capacity constraints, mill disruption, aluminum and
titanium industry capacity constraints, geo-political issues, and quality and delivery challenges.
Capacity Constraints: Mills could encounter insufficient capacity to support Boeing production if work
statements increased while running capital equipment near full utilitzation.
Mill Disruption: Identified mill disruption risks included union issues, expiration of facility leases, MRP/ERP
system changes, catastrophic failures, production process changes, facility changes, equipment failures,
supply chain issues and environmental regulations.
Aluminum and Titanium Industry Capacity Constraints: The Tauber team identified that one of the most
significant risks to Boeing’s production was a lack of aluminum or titanium industry capacity to supply raw
material ingots to mills for further processing.
Geo-political Issues: Boeing purchased aluminum and titanium from mills throughout the world. If a mill
was located in a politically unstable area, Boeing’s ability to access products could have been compromised.
Quality and Delivery Challenges: If a mill provided product at an unacceptable quality level or did not deliver
material on time, Boeing was at risk. Since raw material was at the beginning of Boeing’s supply chain, the
issues could trickle down and negatively impact airplane production.
Industry Capacity and Risk Analysis
Burgess and the Tauber team analyzed the aluminum and titanium industries and determined they each
contributed their own unique risks to Boeing’s raw material strategy.
Aluminum
Aluminum was used in a diverse set of industries and applications, from automobiles to construction
to beverage cans. Boeing contributed less than 1% of the total aluminum demand in a competitive market,
while the automotive industry accounted for the largest share of total demand.9
Using the most comprehensive dataset available, the U.S. Geological Survey’s (USGS) “Historical
Statistics for Mineral and Material Commodities in the United States,”10 Burgess and the Tauber team
identified a dependent variable as “primary production of aluminum.” Primary production was used as a
proxy for domestic capacity. Imports were added to determine total domestic capacity (see Appendix A). To
predict future supply, the team had to identify lagging macroeconomic independent variables with strong

linear relationships to domestic production. The team determined key inputs into aluminum production and
identified variables such as raw material (bauxite), energy and gross domestic product.
To calculate demand, the Tauber team initially determined U.S. light truck production and net imports
had a strong relationship with aluminum consumption, with an adjusted R-squared of 0.92.11 But the
relationship did not serve as a leading indicator and, combined with changes in how USGS reported imports
and exports after 2015, the model became untenable. However, USGS consumption data reporting remained
unchanged, allowing the team to create a simple demand forecast using aluminum consumption growth
rates projected by IHS Markit.ii
The relationship between U.S. domestic capacity and demand (see Exhibit 3) indicated an increase in
capacity due to a decrease in global energy prices—refining and milling aluminum was an energy intensive
process. While imports drove down domestic production, imports from Canada made up the majority of
domestic supply.
Exhibit 3
Aluminum Capacity Analysis
Source: Created by the Tauber Institute using information from the 2016 U.S. Geological Survey Data Series (https://minerals.usgs.
gov/minerals/pubs/historical-statistics/)
Titanium
The titanium industry had fewer players than the aluminum industry. The material was also found to
be used in fewer applications, with aerospace being the largest driver of demand at 77% of total titanium
usage in 2015.12 Because of the predictability of aerospace consumption and high cost of titanium, demand
was relatively stable and consistent.
Three major titanium mills operated domestically; Boeing contracted with two of them, while the other
contracted exclusively with Airbus. Burgess and the Tauber team realized more emphasis needed to be
placed on how Boeing mitigated catastrophic failures at titanium mills. Major disruptions could be caused
by natural disasters, geopolitical instability or macroeconomic events. It would be difficult and costly for
the mills to mitigate such risks, but they could cost Boeing billions of dollars in production stoppage.
ii IHS Markit is a business analytics firm providing subscription-based forecasting services. For more information, visit www.ihsmarkit.
com.
5

Mill Risk Analysis
Boeing performed Production Readiness Assessments (PRA) for all suppliers, including raw material
mills, to assess risk annually. The standardized PRA process was led by Boeing PAs and IEs. The PRA assessed
a supplier’s operational capabilities and determined if it was prepared for production rate increases.
The PRA process began with each supplier answering questions regarding current operations and
procedures. For most suppliers, the pre-assessment work consisted of 76 questions in 12 categories: staffing,
capital equipment, manufacturing and assembly, quality and delivery performance, rate tooling, facilities,
lean manufacturing (flow reduction), work movement, supply chain, business systems and engineering.
Many questions were related to current processes, plans for future changes, and facility improvements and
mitigation plans (see Appendix B). Each supplier was required to complete the work no later than two
weeks prior to an onsite PRA by the Boeing team. For each question, the supplier answered whether it had
a plan or process in place and provided proof of the plan and supporting data and documentation showing
how it worked. The supplier then assigned itself a risk rating for each question according to the Boeing
Opportunity, Risk and Issue System (BORIS) scoring matrix (see Exhibit 4).
Exhibit 4
BORIS Scoring Matrix
The onsite assessment team consisted of the supplier’s primary PA, an IE and representatives of the
programs the supplier supported. During the onsite PRA the supplier presented information related to
the initial questions. The Boeing team toured the facility, validated the information provided in the pre-
assessment and requested additional information. The Boeing team then determined how the PA assigned
risk ratings to each PRA question using the BORIS scoring matrix. For each question receiving a yellow or
red rating, the supplier was required to provide a mitigation plan to make it green.
To determine the historical risks at mills, Burgess and the Tauber team analyzed past PRA results
including risk ratings and comments for each of the 76 PRA questions from 2013, when the online tracking
application known as Scores was initially launched, to 2017 for each mill tracked. The analysis included
five aluminum flat roll mills, five aluminum extrusion mills and three titanium mills, with answers to 3,876
total questions.iii The initial analysis showed few questions were rated yellow or red, especially within the
aluminum mills (see Exhibit 5).
iii
The number includes 76 questions for all 13 mills over four years; however, one aluminum mill did not complete a PRA in 2016.
6

Exhibit 5
Yellow and Red Ratings for All Mills
Percent of Questions Yellow/Red
2017 Total 2013-2016 Total
(2013-2016)
AL Flat Roll 0 3 0.21
AL Extrusion 0 3 0.20
TI 1 32 3.51
TOTAL 1 38 0.98
Next, the team reviewed the reasons questions were rated yellow or red (see Exhibit 6). Not all the
reported reasons represented an identified potential risk. For example, nine questions were rated yellow
due to a missing document, but the mill located the document and the score changed to green. Also, lean
initiatives were not a potential risk since they were unlikely to impact a mill’s overall ability to support
Boeing production. And, TMX forecast errors caused inaccurate information for the mills, who could do
nothing to correct the errors.
Exhibit 6
Reasons for Yellow or Red Ratings
Yellow/Red Ratings
Reason
(2013-2016)
Quality 10
Missing Documents 9
Delivery 7
Adding Equipment 5
TMX Forecast Errors 2
Union Contract 2
Lean 1
None 1
Staffing Expansion 1
Total 38
The only categories from the list in Exhibit 6 representing potential risks were quality, delivery, adding
equipment, union contracts and staffing expansions. The number of yellow or red ratings associated with
the relevant categories is shown in Exhibit 7.

Exhibit 7
Total Yellow or Red Ratings Related to Potential Risks
Percent of Questions Yellow/Red
2017 Total 2013-2016 Total
(2013-2016)
AL Flat Roll 0 2 0.21
AL Extrusion 0 3 0.13
TI 1 20 2.19
Total 1 25 0.64
The Tauber team also analyzed the impact of historical issues on Boeing’s production via late delivery
data from TMX. The data included all late deliveries of raw materials over 18 months from January 2016
to June 2017. For each of the 11,865 late delivery records, the team looked at degree of lateness and
responsible party.
Forecasting Risks
Responsibility for forecasting, the basis for all of Boeing’s raw material planning, resided with TMX.
TMX and the procurement teams used the forecasts to communicate to mills how much raw material was
needed for a given year and the contracting process. Contracts were structured for several years, stating
Boeing would buy X amount over Y years. Inaccurate forecasts could lead to shortages or longer lead times.
Over-forecasting could lead to financial losses, either through holding costs or contractual obligations. For
example, at approximately $16 per pound, a titanium over-forecast of 3% (i.e. 1 million pounds) yielded
$16 million in excess inventory.
The forecasts were created by multiplying Boeing’s production rates by the “ship set weights” (the
material weight on an airplane, also referred to as “fly weight”) of each material. This yielded the amount
of finished titanium or aluminum parts on an aircraft. For every 1 pound of titanium on an airplane,
approximately 5.5 pounds of raw titanium had to be purchased. The difference accounted for scrap during
final product manufacturing. TMX was forced to make assumptions about these “buy-to-fly” ratios (the
amount of raw material needed to produce all finished components assembled on a plane) to determine the
amount of raw material needed.
Boeing’s supplier base was relatively constant; new suppliers generally accounted for only 1-2% of the
total tonnage of material shipped per year,13 and little variation was expected for mature product lines, such
as the 777-300ER launched in 2004. With the exception of minor engineering changes, parts rarely changed
and were highly predictable and consistent. Variability did result on new models and aircraft variants where
new techniques or requirements were necessary.
Prior to Boeing’s 787 Dreamliner program launch, airplanes were primarily manufactured using aluminum
and a small amount of titanium.14 The inverse of the titanium buy-to-fly ratio (see Exhibit 8) was therefore
much lower in the early 2010s when 787 production was ramping up.iv
iv
The 787 constitutes the majority of Boeing’s titanium usage. The Tauber team assumed the changing buy-to-fly ratios were the
result of 787 production.
8

Exhibit 8
Inverse Titanium Buy-to-Fly Ratios
Despite being a smaller jet, the 787 utilized twice as much titanium as the 777-300ER. When 787
production began, suppliers were still learning how to produce titanium parts and producing more scrap. As
production matured and less material was scrapped, the buy-to-fly ratio steadily improved and plateaued
around 0.17. In another learning curve error, Boeing saw its lead times increase to 72 weeks after it failed
to anticipate increased titanium sheet usage due to 737 MAX quality issues (see Exhibit 9).
Exhibit 9
Increased Titanium Lead Times
The Tauber team arrived at the following buy-to-fly ratios for three levels of production maturity (see
Appendix C):
• Pre-production: 9.1 (inverse 0.11)

• Initial production: 6.7 (inverse 0.15)
• Mature production: 6.0 (inverse 0.17)

Because the existing forecast model made assumptions for ship set weights, incorrect assumptions
skewed demand. Titanium consumption was driven primarily by the 787 family, while aluminum was driven
by the 737 and 777 programs. Incorrect assumptions on the programs could lead to over- or under-estimated
raw material requirements. By using the additional inputs to build a forecast model and comparing it to the
previous six years of actual shipments, the total difference was close to zero (0.2%), as shown in Exhibit
10 and Appendix D.
Exhibit 10
Improved Forecasting Model
Ordering, TMX Processing and Shipment
Once forecasts had been finalized and contracts established with mills, Boeing suppliers could order
the aluminum and titanium required for production. The material was produced at a mill, then processed by
TMX and/or shipped to the supplier (see Exhibit 11).
Exhibit 11
Ordering, TMX Processing and Shipment
Risk of late delivery arose at multiple points in the process. Burgess and the Tauber team identified
several ordering errors in the last 18 months prior to their investigation, including orders with inaccurate
10

or missing information, drawing errors and incorrect material specifications. The communication errors led
to significant delays in raw material delivery, as the orders had to be placed on hold pending approval or
input from either Boeing or the supplier.
Several risks were associated specifically with TMX processing and shipment: (1) capacity constraints,
(2) quality issues, (3) equipment downtime, (4) vendor errors, (5) logistic errors and (6) outside factors.
Capacity constraints could be an issue during both processing and shipment, with limitations emerging
due to staffing, capital equipment and transportation availability. Delays also resulted from poor quality
because damage could occur during both processing and shipment. Equipment downtime at TMX also caused
delivery delays and was caused by failures and widespread power outages. Vendor errors, logistic errors and
outside factors, such as weather and traffic accidents, could all affect the shipment process.
Risks identified within the ordering, TMX processing and shipment steps included communication
delays, miscommunication and late/emergent orders. Late/emergent orders due to grounded aircraft also
caused late deliveries due to compressed supplier lead times. Emergent and late orders also displaced on-
time orders.
Late Delivery Analysis

Many of the potential risks discovered by Burgess and the Tauber team were rare and resulted in
minimal cost to Boeing. To determine the risks where Boeing should focus mitigation efforts, the team
performed an analysis using TMX’s previous 18 months of order and late delivery data.
Using the data, the team was able to establish if an order was late, how many days late it shipped,
the root cause of the late delivery, and who was responsible. The first step of the analysis was calculating
the number of late deliveries to suppliers by responsible party. In total, 11,865 raw material deliveries to
suppliers were late from January 2016 through June 2017 (see Exhibit 12).
Exhibit 12
Late Raw Material Deliveries
Responsible Party Late Raw Material Deliveries
Boeing 141 (1%)
Supplier 2,375 (20%)
Boeing/Supplier 290 (2%)
TMX 9,055 (76%)
Mill 4 (0.03%)
Although almost 12,000 raw material orders were delivered late to suppliers, only some resulted in parts
being delivered late to Boeing’s final assembly plants. The second step of the analysis was to determine
how often suppliers delivered parts to Boeing on time under a compressed lead time and late raw material
delivery. Often, Boeing gave its suppliers a compressed lead time due to emergent or late orders. However,
the historical data indicated suppliers were able to deliver parts by the deadline 82.7% of the time even
with a compressed lead time. Assuming a late raw material delivery to suppliers functioned like a late
or emergent order, the Tauber team used overall supplier delivery data as a proxy for late raw material
deliveries. Therefore, only 17.3% of the 11,865 late orders were expected to result in delayed parts delivered
to Boeing for final assembly (see Exhibit 13).
11

Exhibit 13
Raw Material and Late Parts Delivery
Late Parts Due to Late Raw
Responsible Party
Material Deliveries
Boeing 25
Supplier 411
Boeing/Supplier 51
TMX 1,567
Mill 1
In the final step of the analysis, the Tauber team examined whether the cost of a late delivery was
substantial and required mitigation. Using an analysis from Boeing finance, the Tauber team estimated the
average cost of a late part delivery, including a lower-bound cost, most likely cost and upper-bound cost
(see Exhibit 14). The most likely annual cost of late raw material deliveries was about $2.5M. Of the annual
cost, 76% was caused by TMX (see Exhibit 15 and Appendix D).
Exhibit 14
Average Cost of Late Parts
Scenario Average Cost Per Late Delivery
Lower-Bound $496.33
Most Likely $1,855.17
Upper-Bound $4,028.99
Exhibit 15
Annual Cost of Late Raw Material Deliveries
(lower-bound, most likely and upper-bound)
12

Late Deliveries Caused by TMX

Using the same late delivery data, The Tauber team determined the root causes for raw material delays
by TMX (see Exhibit 16). Ninety percent of late raw material deliveries caused by TMX were due to capacity
issues. With TMX causing 76% of Boeing’s total late raw material deliveries, about 68% of the total (90% of
76%=68%) was due to capacity constraints at TMX.
Exhibit 16
TMX-Caused Late Deliveries
Using the TMX late delivery dataset (see Appendix D), the team further examined the firm’s capacity
issues (see Exhibit 17) and determined the capacity constraints occurred during the plate sawing process
at least 50% of the time. In 46% of late deliveries caused by capacity constraints, the team could not
determine at which point in the process the issue occurred.
Exhibit 17
TMX Capacity Constraints
13

TMX was rated green for PRA categories associated with capacity in 2017 after being given a yellow
rating for the same category the previous year. However, comments indicated the firm had been over
capacity and had “external sources in place to help with surge capacity.” The Tauber team used the late
delivery data to determine if TMX had actually decreased its number of capacity issues via external sources,
comparing TMX performance from January through June 2016 to its performance during the same period in
2017 (see Exhibit 18). The analysis showed TMX had not improved, and the firm should have been rated
yellow in the “capital equipment” category in 2017.
Exhibit 18
Late Deliveries Due to TMX Capacity Constraints 2016-2017
Scrap Recovery
The final phase of a successful raw material strategy at Boeing was scrap recovery (revert).v Boeing
determined it was not cost effective to collect and recycle aluminum scrap; therefore, its scrap recovery
program focused solely on titanium.
Based on BRMS participant agreement contracts, Boeing suppliers were required to return a portion
of their titanium scrap to the airplane manufacturer for recycling. By recycling its scrap, Boeing created
a closed loop strategy. Boeing’s titanium scrap recycling program reduced the company’s industry risk.
Titanium mills relied heavily on scrap as a production input and Boeing kept aerospace grade scrap in the
market. Mills used less energy to make product using scrap than other inputs, therefore Boeing’s recycling
program helped keep prices down. Because Boeing was the largest purchaser of titanium in the world, its
suppliers held a significant amount of scrap, and its scrap revert program impacted the performance of the
entire industry.
In addition to mitigating risk, Boeing benefited from the revenue and discounts generated by recycling
titanium scrap. The company profited about $0.75 per pound of scrap recycled. Boeing also received mill
discounts for scrap. ATI, for example, agreed to give Boeing direct discounts for providing 0.4 pounds of
scrap for every 1 pound of product. The mill discounts ranged from 3% for bar and plate to 6% for ingot.
v
Data and information used in the analysis of the scrap revert program was provided by Jennifer Trujillo of The Boeing Company.
14

Since 2010, Boeing had increased titanium scrap collection from under 4 million pounds to almost 15
million pounds, a more than 250% increase in just six years, corresponding to a 55% annual growth rate
(see Exhibit 19).
Exhibit 19
Titanium Scrap Collected by Boeing
In 2014 and 2015, Boeing did not meet minimum mill scrap recycling requirements to receive discounts.
Because the discounts were negotiated during contracting, Boeing was also forced to pay a penalty for
failing to meet the requirements. In 2014, the penalty was about $2 million. In 2015, it was $615,000.
Boeing exceeded mill requirements by about 500,000 pounds in 2016 and received no penalty. By 2017,
Boeing was collecting almost all its recoverable titanium scrap.
Although Boeing had made substantial improvements, around 60% of its titanium scrap was classified
as non-recoverable. Many of the company’s BRMS contracts did not require suppliers to recycle 100% of their
titanium scrap through its revert program, and the contracts specifically excluded forgings and extrusions
from recovery requirements. The Tauber team recognized Boeing needed to update the supplier contracts
with stricter requirements, but suppliers had little incentive to give up their existing contract terms.
The Tauber team had to determine how much titanium demand would exist in the coming years before it
could recommend Boeing pursue a new revert process. The existing forecasts had not been accurate enough
for this purpose, so the team developed a forecasting model using airplane production rates and production
status to estimate titanium demand. The team used the production rates and buy-to-fly ratios to estimate
the amount of titanium used on final products.
With project time running out, the Tauber team recognized it needed to calculate the opportunity value
of the unrecovered scrap (see Appendix C).
15

Next Steps for the Tauber Team
Burgess and the Tauber team had done considerable work gathering information and analyzing data. It
was then up to the team to make recommendations to Boeing management about how to mitigate the firm’s
raw material supply chain risks.
How could the company better forecast its raw material needs? How could it rework its PRA process to
better suit raw material mills? Could it better limit errors in the ordering, processing and shipment steps
of the supply chain? How could it better account for late raw material deliveries when they did occur? And
how could Boeing improve its scrap recovery process to boost its bottom line?
16

Unit Unit Global
Secondary Per
Secondary Value Value Price of
Primary Production Secondary Apparent Capita
Year Production Shipments Imports ($/t), in ($/t), Energy
Production (new Production Consumption GDP
(old scrap) current in 1998 Index
scrap) (2009)
Appendices
dollars dollars (2005)

1991 4,121,000 1,320,000 969,000 2,290,000 6,350,000 1,280,000 4,830,000 1,310 1,570 $35,295 -
1992 4,042,000 1,610,000 1,140,000 2,760,000 6,850,000 1,460,000 5,450,000 1,270 1,480 $36,067 37.46
1993 3,695,000 1,630,000 1,310,000 2,940,000 7,330,000 2,230,000 6,310,000 1,180 1,330 $36,579 33.62
1994 3,299,000 1,500,000 1,580,000 3,090,000 8,170,000 2,990,000 6,480,000 1,570 1,730 $37,597 31.98
1995 3,375,000 1,510,000 1,680,000 3,190,000 8,260,000 2,550,000 5,880,000 1,890 2,020 $38,166 34.95
1996 3,577,000 1,570,000 1,730,000 3,310,000 8,330,000 2,410,000 6,210,000 1,570 1,630 $39,155 40.36
1997 3,603,000 1,530,000 2,020,000 3,550,000 8,880,000 2,630,000 6,260,000 1,700 1,730 $40,426 38.20
1998 3,713,000 1,500,000 1,950,000 3,440,000 9,260,000 3,050,000 6,590,000 1,440 1,440 $41,736 26.95
1999 3,779,000 1,570,000 2,120,000 3,700,000 9,840,000 3,390,000 7,160,000 1,450 1,420 $43,195 34.45
2000 3,668,000 1,370,000 2,080,000 3,450,000 9,830,000 3,290,000 6,890,000 1,640 1,550 $44,474 53.68
17
2001 2,637,000 1,210,000 1,760,000 2,970,000 9,300,000 3,240,000 5,720,000 1,520 1,400 $44,464 48.02
2002 2,707,000 1,170,000 1,750,000 2,930,000 9,620,000 3,600,000 5,850,000 1,430 1,300 $44,829 47.22
Appendix A
2003 2,703,000 1,070,000 1,750,000 2,820,000 9,710,000 3,690,000 5,680,000 1,500 1,330 $45,662 55.22
2004 2,516,000 1,160,000 1,870,000 3,030,000 10,400,000 4,180,000 6,060,000 1,850 1,600 $46,966 72.26
2005 2,481,000 1,080,000 1,950,000 3,030,000 10,500,000 4,850,000 5,990,000 2,010 1,670 $48,089 100.00
Boeing’s Strategic Initiative: Raw Material Supply Chain Risk Mitigation
2006 2,284,000 1,580,000 2,800,000 4,380,000 10,500,000 4,660,000 5,690,000 2,680 2,160 $48,905 119.40
2007 2,554,000 1,660,000 2,450,000 4,120,000 9,720,000 4,020,000 5,170,000 2,690 2,120 $49,300 131.88
2008 2,658,000 1,500,000 2,130,000 3,630,000 8,530,000 3,710,000 3,940,000 2,660 2,010 $48,699 184.70

Aluminum Industry Production Capacity (t)
2009 1,727,000 1,260,000 1,570,000 2,820,000 6,840,000 3,680,000 3,320,000 1,750 1,330 $46,930 116.80
2010 1,726,000 1,250,000 1,540,000 2,790,000 7,720,000 3,610,000 3,460,000 2,300 1,720 $47,720 147.08
2011 1,986,000 1,440,000 1,670,000 3,110,000 8,520,000 3,710,000 3,530,000 2,560 1,860 $48,125 193.79
2012 2,070,000 1,630,000 1,760,000 3,380,000 9,080,000 3,760,000 4,130,000 2,230 1,580 $48,842 195.20
2013 1,946,000 1,630,000 1,790,000 3,420,000 9,450,000 4,160,000 4,530,000 2,080 1,450 $49,316 191.73
2014 1,710,000 1,700,000 1,880,000 3,570,000 9,960,000 4,290,000 5,070,000 2,300 1,590 $50,118 177.43
2015 1,587,000 1,470,000 1,910,000 3,380,000 10,400,000 4,560,000 5,220,000 1,940 1,340 $51,054 97.89
W58C01

Appendices (cont.)
Appendix A (cont.)
Aluminum Industry Production Capacity (t)
18

Appendices (cont.)
Appendix B
Sample of Current PRA Questions
SUPPLIER FORECASTING - What forecasting visibility do you provide to your sub-tiers? How often do
you provide updates? Does forecast include spares, AOG, aftermarket or any unplanned demand?
RAW MATERIAL PROCUREMENT - What is your process for accurately forecasting, ordering, and
tracking raw material to ensure ability to achieve and sustain rate? Have you signed a Raw Material
Strategy Participation Agreement? Review your most recent Boeing/TMX score card. Do the SOW Quality or
PO Quality and Order Method metrics indicate a risk to Production readiness? Are you and your suppliers
current on raw material invoice payments?
DESIGN FOR MANUFACTURABILITY - Identify any products with design requirements which could
hinder producibility or achieving rate. Are you re-designing those products to support rate? What is your
progress to plan?
SUPPLIER MONITORING - Describe in detail your process and plan for monitoring your supply base
(sub-tier suppliers) as they transition to a derivative (model mix) introduction.
LEAN METRICS - Provide data to show how your Continuous Improvement/Lean activities are helping
you meet your targets.
DELIVERY COMMUNICATION - Do you proactively provide advanced notification to Boeing and Boeing
aftermarket customers of known delays that may impact delivery dates? How is the notification provided?
BOEING OWNED INVENTORY PLAN - For those suppliers who consume or provide Supplier Banked
Material (SBM) or Partner Managed Inventory (PMI), describe the process and provide an example of how
this is managed. What issues are you having surrounding PMI or SBM?
Source: The Boeing Company
19

Appendices (cont.)
Appendix C
Scrap Revert Analysis
20

Appendices (cont.)
Appendix C (cont.)
21

Appendices (cont.)
Appendix C (cont.)
22

Appendices (cont.)
Appendix D
Definitions & Assumptions
Assumption Basis
Even if it was for multiple parts, only the first
One late order of raw material = One late part order from Boeing should be late to Boeing because the others
would have a longer lead time
The percentage of late raw material deliveries to suppliers that are In both cases, the suppliers are under a
late to Boeing can be estimated using the percentage of short flow compressed lead time; the root cause is the
purchase orders to the supplier that are late to Boeing only thing that differs
Term Definition
Responsible Party The group who caused the late delivery
The reason the material was not delivered
Root Cause
on time
23

Cost/Late Delivery Calculation
Lower Bound- Lower Bound- Most Likely- Upper Bound- Upper Bound-
Count of Late Most Likely Cost
Month Cost per Month Cost per Late Cost per Late Cost per Cost per Late
Deliveries per Month ($M)
($M) Delivery Delivery Month($M) Delivery
Jan-15 1470 $0.73 $496.60 $2.73 $1,857.14 $5.92 $4,027.21
Feb-15 1995 $0.99 $496.24 $3.70 $1,854.64 $8.04 $4,030.08
Appendices (cont.)
Mar-15 1994 $0.99 $496.49 $3.70 $1,855.57 $8.03 $4,027.08

Apr-15 2145 $1.06 $494.17 $3.98 $1,855.48 $8.64 $4,027.97
May-15 1855 $0.92 $495.96 $3.44 $1,854.45 $7.47 $4,026.95
Jun-15 1537 $0.76 $494.47 $2.85 $1,854.26 $6.19 $4,027.33
Jul-15 1224 $0.61 $498.37 $2.27 $1,854.58 $4.93 $4,027.78
Aug-15 1259 $0.62 $492.45 $2.34 $1,858.62 $5.07 $4,027.01
Sep-15 1259 $0.62 $492.45 $2.34 $1,858.62 $5.07 $4,027.01
Oct-15 1183 $0.59 $498.73 $2.19 $1,851.23 $4.77 $4,032.12
24
Nov-15 993 $0.49 $493.45 $1.84 $1,852.97 $4.00 $4,028.20
Dec-15 1111 $0.55 $495.05 $2.06 $1,854.19 $4.48 $4,032.40
Jan-16 1292 $0.64 $495.36 $2.40 $1,857.59 $5.21 $4,032.51
Appendix D (cont.)
Feb-16 1188 $0.59 $496.63 $2.20 $1,851.85 $4.79 $4,031.99

Mar-16 1241 $0.62 $499.60 $2.30 $1,853.34 $5.00 $4,029.01

Apr-16 1162 $0.58 $499.14 $2.16 $1,858.86 $4.68 $4,027.54

May-16 3538 $1.75 $494.63 $6.56 $1,854.15 $14.26 $4,030.53
Jun-16 2866 $1.42 $495.46 $5.32 $1,856.25 $11.55 $4,030.01

Jul-16 1569 $0.78 $497.13 $2.91 $1,854.68 $6.32 $4,028.04
Aug-16 1281 $0.64 $499.61 $2.38 $1,857.92 $5.16 $4,028.10
Sep-16 960 $0.48 $500.00 $1.78 $1,854.17 $3.87 $4,031.25
Oct-16 938 $0.47 $501.07 $1.74 $1,855.01 $3.78 $4,029.85
Nov-16 761 $0.38 $499.34 $1.41 $1,852.83 $3.07 $4,034.17
Dec-16 610 $0.30 $491.80 $1.13 $1,852.46 $2.46 $4,032.79
Jan-17 760 $0.38 $500.00 $1.41 $1,855.26 $3.06 $4,026.32
W58C01
Cost/Late Delivery Calculation (cont.)
Lower Bound- Lower Bound- Most Likely- Upper Bound- Upper Bound-
Count of Late Most Likely Cost
Month Cost per Month Cost per Late Cost per Late Cost per Cost per Late
Deliveries per Month ($M)
($M) Delivery Delivery Month($M) Delivery
Feb-17 527 $0.26 $493.36 $0.98 $1,859.58 $2.12 $4,022.77
Mar-17 827 $0.41 $495.77 $1.53 $1,850.06 $3.33 $4,026.60
Appendices (cont.)
Apr-17 571 $0.28 $490.37 $1.06 $1,856.39 $2.30 $4,028.02

May-17 743 $0.37 $497.98 $1.38 $1,857.34 $2.99 $4,024.23
Jun-17 803 $0.40 $498.13 $1.49 $1,855.54 $3.24 $4,034.87
Scenario Average Cost Per Late Delivery
Lower Bound $496.33
25
Most Likely $1855.17
Upper Bound $4,028.99
Appendix D (cont.)
Legend
Parameter*
Calculated Value

Notes
1) ”Count of Late Delivery” and “Costs per Month” were taken from analysis done by the Boeing finance team (“BCA Cost of Poor Quality / Parts Shortage”)
W58C01
Appendices (cont.)
Appendix D (cont.)
Late Delivery Cost Analysis

Percentage Delivered Late to Boeing:† 17.3%
Cost to Boeing/Late Delivery (Lower Bound):* $496.33
Cost to Boeing/Late Delivery (Most Likely):* $1,855.17
Cost to Boeing/Late Delivery (Upper Bound):* $4,028.99
Months of Data*: 18
Responsible Party Late Deliveries

Boeing 25
Boeing/Supplier 51
Supplier 411
TMX 1567
Mill 1
Responsible Party Lower Bound - Cost/Month Most Likely - Cost/Month Upper Bound - Cost/Month
Boeing $689.34 $2,576.62 $5,595.82
Boeing/Supplier $1406.26 $5,256.31 $11,415.47
Supplier $11,332.81 $42,359.65 $91,995.28
TMX $43,208.05 $161,502.61 $350,745.99
Mill $27.57 $103.06 $223.83
$56,636.46 $211,695.19 $459,752.56
Responsible Party Lower Bound - Cost/Year Most Likely - Cost/Year Upper Bound - Cost/Year
Boeing $8,272.12 $30,919.45 $67,149.84
Boeing/Supplier $16,875.13 $63,075.69 $136,985.67
Supplier $135,993.68 $508,315.825 $1,103,943.35
TMX $518,496.58 $1,938,031.35 $4,208,951.89
Mill $330.88 $1,236.78 $2,685.99
$679,637.51 $2,540,342.31 $5,517,030.75
Legend
Calculated Value
Parameter
† Used the percentage of short flow POs to suppliers that were delivered late to Boeing (from Boeing report)
* Calculated on “Cost Per Late Delivery” tab using data from Boeing finance team
26

Appendices (cont.)
Appendix D (cont.)
Late Delivery Cost Analysis
27

Appendices (cont.)
Appendix D (cont.)
TMX Late Delivery Analysis
Root Cause Late Deliveries

Capacity Constraints 8181
Extrusion Capacity 44
Heat Lot 2
Lack of Personnel 48
Plate Sawing 4077
Staffing 164
Transportation 108
Unspecified 3738
Late/Emergent Orders 8
Displaced by Late Order 2
Displaced by Late Orders 1
No Inventory Available 5
Miscommunication 164
Delayed Notification 1
Delayed Transfer 2
Incorrect Delivery Information 4
Late Manifest 14
Loaded on Incorrect Manifest 3
Loaded on Incorrect Truck 2
Misplaced Order 21
Misplaced Paperwork 4
Missing Certifications 16
Not Taken Out of System 2
Order Missed During Loading 14
Packaged Incorrectly 5
Partial Shipment 1
Quality Process Not Completed 1
Sent Information to Wrong Supplier 1
Shipped Wrong Order 1
Truck Did Not Get Closed 9
Unspecified 63
Order Errors 26
Entered Incorrect Information 25
Placed as Credit 1
Quality Issues 23
Cut Incorrectly 2
Damaged/Non-Conforming Material 6
Labelled Incorrectly 1
Paperwork Errors 1
Re-cuts Required 13
Systems/Equipment Downtime 718
CNC Downtime 164
Extrusion Downtime 57
Power Outage 112
Saw Downtime 366
Server Downtime 18
Waterjet Downtime 1
Vendor Error 10
Crates Arrived Late 8
Truck Arrived Late 2
28

Endnotes
1 “Boeing in Brief.” The Boeing Company. www.boeing.com/company/general-info/. Accessed 8 Aug. 2018.
2 “Boeing in Brief.” The Boeing Company. www.boeing.com/company/general-info/. Accessed 8 Aug. 2018.
3 Chen, William, Tamara Craven and Shannon Watt. “The Boeing Company: Assessing Risk within the Raw Material Strategy.” Tauber
Institute. Boeing internal presentation, August 2017.
10 Kelly, Thomas D. and Grecia R. Matos. “Historical Statistics for Mineral and Material Commodities in the United States.” U.S.
Geological Survey Data Series 140. 2016. https://minerals.usgs.gov/minerals/pubs/historical-statistics. Accessed 10 July 2017.
29

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The Boeing Company

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1. excess costs and decreased competitiveness due to inflated demand at mills;

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Mill Production Analysis

Industry Capacity and Risk Analysis

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Mill Risk Analysis

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• Pre-production: 9.1 (inverse 0.11)

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Ordering, TMX Processing and Shipment

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Late Delivery Analysis

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Late Deliveries Caused by TMX

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Next Steps for the Tauber Team

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dollars dollars (2005)

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Source: The Boeing Company

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Definitions & Assumptions

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Mar-15 1994 $0.99 $496.49 $3.70 $1,855.57 $8.03 $4,027.08

Feb-16 1188 $0.59 $496.63 $2.20 $1,851.85 $4.79 $4,031.99

Mar-16 1241 $0.62 $499.60 $2.30 $1,853.34 $5.00 $4,029.01

Apr-16 1162 $0.58 $499.14 $2.16 $1,858.86 $4.68 $4,027.54

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Apr-17 571 $0.28 $490.37 $1.06 $1,856.39 $2.30 $4,028.02

Scenario Average Cost Per Late Delivery

Lower Bound $496.33

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Late Delivery Cost Analysis

Responsible Party Late Deliveries

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Late Delivery Cost Analysis

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TMX Late Delivery Analysis

Root Cause Late Deliveries

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