By Taras Berezowsky
The Boeing Company (NYSE:BA), long known for its extensive supply chain management practices (not counting the recent 787 Dreamliner debacle), is one U.S.-based OEM that can teach us a lot about metals procurement. Procurement of the raw materials that go into the aerospace OEM's products, including but certainly not limited to aluminum and titanium and its alloys, is quite a job considering the thousands of parts that go into a typical Boeing aircraft. And the competition spurred by newly developed materials, such as plastic and carbon fiber composites, give the old dogs a run for their money. One old dog, in this case, is aluminum.
Recently, at the Paris Air Show, Boeing CEO Ray Connor "defended the use of traditional aluminum metal for the fuselage of its upgraded 777 twin-aisle jet as Airbus SAS (NYSEMKT:EAD)'s A350, a competing model made chiefly of composite plastic," made its first test flight just before the show began. Connor told Bloomberg BusinessWeek that "using the existing 777 production system is part of Chicago-based Boeing's strategy to reduce the cost of airplane development." These costs of airplane development, and how aluminum procurement by Boeing as a major OEM reflects their management of suppliers and supply chain, are naturally what we is interested in.
So, we did a Q&A with Jeff Carpenter, senior procurement manager, Raw Materials, of Boeing Commercial Airplanes Supplier Management. Although Carpenter did not disclose to us exactly how much money Boeing spends per year on its aluminum buy or what some of the biggest metal cost components are for Boeing in general, citing confidentiality, he did shed some light on how Boeing manages its metal spend.
Metal Miner: How do you tend to buy your aluminum (through which channels, how do you hedge your aluminum spend, etc.)?
Jeff Carpenter: Purchase of aluminum for our supply chain is handled directly by Boeing through our aggregator, TMX. This enables us to reduce costs, control quality and ensure inventory to meet our increasing production schedules. To further this strategy, we have recently begun a new program to revert scrap aluminum and return it to our supply chain.
MM: How much does initial material cost factor into sourcing aluminum (or other metal) parts vs. plastic composite parts?
JC: Cost of the base material and finished part/assembly is a major factor in selection.
MM: How do you stay on top of the commodity markets? How do you stay informed?
JC: We work closely with metals manufacturers, our supply chain partners, [and] our aggregator, and participate in industry events to continually monitor commodity markets. This allows us to anticipate any changes to materials availability or pricing.
MM: Do you use any metal price forecasting tools?
JC: We work closely with our service provider, suppliers, and internal experts to generate a forecast.
How does Boeing manage its suppliers effectively? Continued in Part Two.