Wednesday, April 12, 2006

Third of four parts

EVERETT, Wash. — Boeing Corp. looked to Japan’s Toray Industries when it needed to tap the world’s most innovative technology to manufacture raw material for the carbon-composite skin of its new 787 Dreamliner.

France’s Messier-Dowty will make the new aircraft’s landing gear structures. Britain’s Rolls-Royce and Connecticut’s General Electric will build engines for the flagship of American commercial aviation.

“This is still very much an American product,” said Walter Gillette, vice president of airplane development for the Boeing 787 program. “And it is very much a global product. It is the most global thing we have done.”

Mr. Gillette leads the team that created the 787, a technologically advanced, fuel-saving aircraft that is scheduled to start mass production this year and join commercial fleets in 2008.

The Dreamliner’s path from concept to the air follows a process that began in the late 1990s and was formalized by Boeing executives in 2000 to tap into a global network of suppliers, innovators and technology to build the next generation of passenger jets.

Companies building sophisticated products, including computers, heavy machinery and aircraft, often rely on such a broad supply chain to compete worldwide. These days, instead of “Made in the U.S.A.,” many products could say “Idea made in the U.S.A., product made by the world.” For them, the key to success is in imagining, designing and implementing an idea as much as the actual manufacturing.

In this four-part series, The Washington Times looks at the past, present and future of products made in the U.S.A. Today’s article examines the globalization of manufacturing and the impact that has had on American companies.

Taking off

Boeing remains a major American manufacturer. Its aircraft exports are one of the bright spots when calculating the U.S. trade balance in manufactured goods.

In 2004, a year of marked recovery for the industry, the U.S. sold $22.9 billion in civilian aircraft abroad and imported $11.4 billion, Commerce Department figures show. Boeing’s commercial airplane division in 2004 delivered 285 aircraft, generating $21 billion in revenue.

Last year’s exports reached $29 billion, while commercial aircraft sales generated almost $22.7 billion in revenue for the Chicago company.

Mr. Gillette’s office, which overlooks snowcapped mountains, is near the massive hangars where 747s, 767s and 777s are assembled and where the 787 will be put together. Boeing moved its corporate headquarters to Chicago several years ago, but maintains its biggest factories in the Seattle area.

In the hangars, workers scramble inside, over and under the large aircraft. The jumbo 747 — with a tail as big as a six-story building, wings weighing in at 95,000 pounds each and interior space for 450 passengers — rolls off the assembly line at a rate of about one a month.

The workhorse 737 is put together in nearby Renton at a hangar originally built for U.S. Army seaplanes and in World War II converted to B-29 bomber production.

Boeing last year booked its 6,000th 737 sale, a milestone for the best-selling commercial jet in history.

The fuselages arrive from Wichita, Kan., on rail cars. Inside, five aircraft at different stages of assembly move slowly — about 2 inches per minute — along a 732-foot line. About 300,000 hydraulic, electronic and interior parts and about 300,000 fasteners are attached to each one amid a quiet hum of machinery punctuated by occasional bursts from a rivet gun.

Boeing, as part of a drive toward greater efficiency, cut assembly time in half, to 11 days from 22 in 1999, said Sandra Angers, a Boeing spokeswoman. The goal is eight.

Competition from Airbus, a European rival in Toulouse, France, and a three-year, industrywide downturn pushed Boeing to greater efficiency.

Airbus has surpassed its American rival in aircraft orders every year since 2001.

The September 11 attacks depressed sales, forcing heavy layoffs. Boeing Commercial Aircraft employed 93,000 workers before the attacks. As of Feb. 28, that number was 50,646.

But Boeing last year appears to have turned a corner with a record sales year.

Airbus said it booked a record 1,055 orders in 2005, more than Boeing’s 1,002. But Boeing sold more expensive aircraft, like the new 787, bringing its sales to about $84 billion, according to the Teal Group, a Fairfax consulting outfit that tracks the aerospace and defense industries. Airbus sales were about $60 billion.

The 787, which relies on lightweight composites coupled with efficient design and systems to increase cargo space while cutting fuel use, led the way for Boeing.

The strategy behind the aircraft has repositioned Boeing as the world’s top aircraft manufacturer, said Richard Aboulafia, an aircraft analyst at the Teal Group.

“You look at the nature of manufacturing … look at your [Apple] IPod, Motorola cell phone. The companies that made them integrated the concept, designed them, created the software, but the touch labor was hardly relevant. That’s the template that is used. That’s what successful companies do,” Mr. Aboulafia said.

Those successful companies include well-known electronics giants like computer maker Dell, but also old-line manufacturers such as Boeing and John Deere and defense industry stalwarts such as Lockheed Martin.

Deere & Co., maker of John Deere tractors, operates in 40 countries, including manufacturing operations in the U.S., Britain, Brazil, India and China. The Moline, Ill., company also has suppliers around the world.

“Globalization affects virtually everything we do at John Deere — from supplier sourcing, to manufacturing processes, to recruiting highly skilled men and women from all over the world,” said Robert W. Lane, Deere & Co. chairman and chief executive officer, in a speech last spring.

“Today, we ship combines made in East Moline, Ill., to the former Soviet Union, Chinese combines to the Middle East, Brazilian combines to Europe, and German and Indian tractors to the U.S. In fact, to be competitive, we produce a tractor in Augusta, Ga., that is assembled largely with parts received from 12 other countries,” he said.

The manufacturer of green and yellow farm equipment, lawn-care equipment, and industrial, construction and forestry machinery booked $5.89 billion in sales outside the U.S. and Canada last year. Net sales of the equipment worldwide last year was $19.4 billion, the company said.

Of course, a global network does not automatically mean success. Ford Motor Co. and General Motors integrate designs and parts from around the globe into autos assembled in the U.S. and Canada, although both companies are losing money in the North American auto market, laying off tens of thousands of U.S. workers and closing factories.

Buy American

Lockheed Martin, the biggest U.S. defense contractor, also looks overseas for markets, manufacturing and ideas for lucrative, and sensitive, defense projects.

“Aerospace and defense is still — rightly — probably the most nationalistic of any manufacturing sector. But I think what has surprised people in recent years, is that even in this most national security-oriented sector, that there has been long-standing cooperation, particularly on global supply chain,” said Robert Trice, senior vice president for corporate business development at the Bethesda company.

The phenomenon is not entirely new — European and U.S. contractors pooled resources when building F-5 and F-16 fighter jets.

But it is taking on new prominence. Lockheed Martin is leading a team of Italian and British contractors to build the new Marine One helicopter — a prestigious, high-profile project won by the multinational group despite vociferous objections from some members of Congress and U.S. helicopter manufacturer Sikorsky.

Mr. Trice, speaking from Lockheed’s Bethesda headquarters, said the choice to look overseas is driven by multiple considerations. Foreign suppliers may offer the best technology and capabilities. But including them also means that foreign governments are more likely to buy the jet, helicopter, ship or other new product.

“No one has a monopoly on all the good ideas and technologies and processes,” he added.

Some lawmakers are trying to reverse the trend. They want to keep the bulk of defense engineering and manufacturing work in the U.S. through Buy American laws that require that 50 percent of Pentagon purchases come from within the U.S.

Rep. Donald Manzullo, Illinois Republican and author of one Buy American provision, last year pressed for strict mandates on U.S. content. Keeping work inside the U.S. “will help restore the struggling U.S. industrial base and create jobs for Americans,” he said.

Companies such as Lockheed Martin worry that cutting allies out of defense contracting will kill off lucrative markets.

“One of the unfortunate circumstances, if we were to implement some of the more robust Buy America [provisions], it would be America by itself. America needs allies and friends. We need industrial partners. There’s nothing sinister in this philosophy,” Mr. Trice said.

Manufacturing a chip

Globalization is taken to an extreme in the high-tech industry.

Dell, based in Round Rock, Texas, assembles its desktop computers at seven locations in the Americas, Asia and Europe, including a factory in Winston-Salem, N.C., that opened in October. All laptops are put together in Malaysia. The company, with 24,600 U.S. and 39,100 non-U.S. employees, does not manufacture most of the components that go into a desktop or laptop.

Dell instead works with multiple vendors. For example, it looks to companies such as Seagate Technology, based in Scotts Valley, Calif., and Tokyo company Hitachi for hard drives.

Dell’s engineers work with each company to ensure that the parts have up-to-date technology and are interchangeable, making it easier to quickly assemble machines in rapid response to customer orders.

“We work with companies in the industry to help create standards. Once you get a standard in place, then you can manufacture with any of the parts,” said Lionel Menchaca, a Dell spokesman.

Other American companies treat manufacturing almost as an afterthought.

“We don’t have our own fabs. The manufacturing is done all over the world,” said Sanjay Jha, president of Qualcomm CDMA Technologies, using industry jargon for a semiconductor fabrication factory.

Qualcomm CDMA, a unit of San Diego company Qualcomm, is the world’s largest “fabless” semiconductor manufacturer, designing chips that, for example, allow streaming video to be viewed on cell phones.

Qualcomm builds systems based on its own design for chips and the software that makes the chips work. The silicon wafers are stamped out in the U.S.; Taiwan, or the Republic of China; and elsewhere.

“What it does is allow us to focus on solving the system problems, rather than a business model dominated by the process of manufacturing. There are lot of companies that are very good at manufacturing a chip,” Mr. Jha said.

Best value

Boeing executives emphasize that the 787 relies on designs and engineering that originated within the company. More than 90 percent of the 787, by value, will be built in the U.S.

Japanese politicians and businessmen stress that Fuji Heavy Industries, Kawasaki Heavy Industries and other companies will build more than one-third of the aircraft’s structure, including the wings.

Mr. Aboulafia, in an analysis, estimates that about 65 percent of the work on the 787 will be outsourced to suppliers both in and outside the U.S.

The strategy will keep the cost for the 220- to 300-passenger 787 down to roughly $125 million to $135 million each, about as much as the older 767 despite a raft of new technologies.

Workers are not entirely pleased with the strategy.

“We are really concerned about the outsourcing that is going on. … I think the company needs to be mindful that its success depends on the strength of its U.S. work force — the work force that helped build the company,” said Owen Herrnstadt, director of trade and globalization at the International Association of Machinists and Aerospace Workers, which represents Boeing workers.

Boeing executives see the mix of in-house manufacturing and outsourcing as a careful balance to stay competitive.

“This is a very strategic thing we are doing, and it is very carefully thought-out,” said Mr. Gillette, a 40-year veteran of Boeing.

Boeing has gone as far as making its own divisions compete for work against domestic and foreign suppliers.

Boeing’s Fabrication Division, with 11,500 employees spread over three countries — the U.S., Canada and Australia — designs and manufactures aerospace parts that haven’t been made anywhere else yet.

Its division in Auburn, Wash., looks like an old-fashioned manufacturer, with spans of aluminum on the factory floor, forges heating metal to red-hot temperatures and machine tools honing 7,000 pound hunks of steel into precision aircraft parts.

But the cavernous factory is at the global forefront of design and manufacturing, making and testing parts that will ensure the safety of thousands of passengers on hundreds of aircraft for dozens of years.

One such part is the tail cone for the 787, a combination exhaust system and aerodynamic cap. Staff at the sprawling fabrication campus designed and built the piece, then had to provide the specifications to five other companies in a competition to mass produce it.

Boeing’s engineers reconfigured a section of the manufacturing floor to squeeze more product out of fewer hours of labor — two persons staff multiple machines in a 10,000-square-foot area to make the cone.

The Boeing division won the competition only after it shaved $10,000 off the cost for making each piece.

“To be competitive, we have to industrialize in ways that make us more efficient. All manufacturing, everywhere, is becoming more efficient or it is going away,” Mr. Gillette said.

Part I: Companies close up shop

Part II: Flexible companies change to stay put

Part IV: America’s cutting edge

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