How Boeing and ALCOA Implemented a Successful Vendor Managed Inventory Program

Describes what led to the success of partnership between Boeing and Alcoa ... for a VMI program to succeed, there must be adaptation, flexibility and streamlining in both the organizations ... electronic platform helps in communicating forecasts between parties quickly and in an orderly manner. Boeing's Skin and Spar facility enjoys a relationship with its raw material supplier, Alcoa, which pays off big for both companies. The pay off came about through a comprehensive restructuring of our supply chain. Skin and Spar is the supplier of large wing products for most of Boeing's commercial airplanes. As airplane production increased, we started to experience difficulties with the supply of our raw material. After looking into the situation we identified a couple of things that were causing the difficulties: * First, the transportation system used, railcar, made the delivery of parts within a defined window, which were unreliable at best. * Second, the order of multiples and minimum quantities we were using were distorting the forecast we provided to Alcoa. This distortion led to shortages of some parts and overages of others. The implementation of vendor managed inventory (VMI) for the raw material is the result of Boeing and Alcoa working together to solve our forecasting and delivery problems. Implementing VMI has also been the catalyst for considerable change in many areas of our supply chain. This article addresses the co-sponsored process to implement VMI, with the objective to improve our forecasting process. We will review four areas: 1) How the process was developed; 2) Key factors in implementation; 3) Process outcomes and results; and, 4) Valuable lessons learned. PROCESS DEVELOPMENT Both companies wanted to achieve cost and flow-time reduction and improve delivery performance throughout the whole supply chain. A team was formed to address the issues. Members included supply chain, production control, procurement, sales, and information technologies from both companies. The team identified several tactics to achieve the goal: * Integration of information systems * Real time information exchange * Tight linkage between our operations * Joint implementation of the lean manufacturing system * Joint problem solving in an atmosphere of candor, trust and cooperation Both companies agreed up front that the new process needed to be a win-win for both of them. As a result, the team was challenged to analyze the supply chain from the supply of aluminum ingot to the delivery of the finished part to Skin and Spar's customer. We started by documenting the current issues and inadequacies in our supply chain. We then brainstormed solutions to the issues. Next, we developed a couple of tests to determine the best fit for our supply chain. In the end, Vendor Managed Inventory (VMI) with an end of line buffer stock is the solution we chose. Both companies have worked together in the past on many projects including ordering procedures, quality concerns, and delivery issues, but this is the first time we had taken such a comprehensive approach to a project. KEY FACTORS IN IMPLEMENTATION There were three keys to our success: * Team members representing every interest or "stakeholder" for each company were willing and ready to make changes to their current process. * Senior management sponsored and supported the process at both companies. This commitment was formally recognized in a charter statement that both companies signed. * The last key to success was the teams' ability to have everything on the table. PROCESS OUTCOMES AND RESULTS There were several outcomes as a result of our project. Each played a role in reducing costs and flow-time, as well as improved delivery performance. The following is a list of changes at each company. Boeing started: * Sending weekly electronic forecasts to Alcoa * Sending weekly electronic inventory counts to Alcoa * Recording raw material at the end of line buffer stock on site at Boeing * Utilizing its ERP system to generate electronic purchase orders for raw material to be issued to shop orders Alcoa started: * Implementing a vendor managed inventory system * Using new level load process for internal production * Creating longer forecast visibility in their system * Changing order entry process to accept new purchase orders These process changes have resulted in a strong and flexible supply chain. …