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This will be two separate papers all instuctions are included in the attached documents
THe first is due 7/31/13
THE last is due 8/16/13
I will be checking for plagarism
For Helloworld please send your price both papers
668 Part 6″
Cases
Boeing’s newest commercial jet aircraft, the wide-body
787 jet, is a bold bet on the future of both airline travel
and plane making. Designed to fly long-haul point-to-
point routes, the 250-seat 787 is made largely of com-
posite materials, such as carbon fibers, rather than
traditional materials such as aluminum. Some 80 per-
cent of the 787 by volume is composite materials, mak-
ing the plane 20 percent lighter than a traditional
aircraft of the same size, which translates into a big sav-
ing in jet fuel consumption and costs. The 787 is also
packed full of other design innovations, including larger
windows, greater headroom, and state-of-the-art elec-
tronics on the flight deck and in the passenger
compartment.
To reduce the risks associated with this technological
gamble, Boeing decided to outsource an unprecedented
70 percent of the content of the 787 to other manufac-
turers, most of them based in other nations. In contrast,
50 percent of the Boeing 777 was outsourced, 30 percent
of the 767, and only 5 percent of the 707. The idea was
that in return for a share of the work, partners would
contribute to the estimated $8 billion in development
costs for the 787. In addition, by outsourcing, Boeing
believed it could tap into the expertise of the most effi-
cient producers, wherever in the world they might be
located, thereby driving down the costs of making the
plane. Furthermore, Boeing believed that outsourcing
some work to foreign countries would help it to gamer
sales in those countries. Boeing’s role in the entire
process was to design the plane, market and sell it, and
undertake final assembly in its plant in Everett,
Washington. Boeing also believed that by outsourcing
the design of so many components, it could cut down
the time to develop this aircraft to four years from the
six that is normal in the industry.
Some 17 partners in 10 countries were selected to pro-
duce major parts of the aircraft. The rear fuselage was to
be made byVought Aircraft Industries in South Carolina;
Alenia Aeronautical of Italy was to make the middle fu-
selage sections and horizontal tailpieces. Three Japanese
companies, Fuji, Kawasaki, and Mitsubishi, were to pro-
duce the wings. The nose section was to be made by
Toronto-based Onex Corporation. All of these bulky
pieces were to be shipped to Everett for final assembly
aboard a fleet of three modified Boeing 747 freighters
called Dreamlifters.
Until late 2007, the strategy seemed to be working re-
markably well. Boeing had booked orders for over
770 aircraft, worth more than $100 billion, making the
787 the most successful aircraft launch in the history of
commercial aviation, But behind the scenes, cracks were
appearing in Boeing’s globally dispersed supply chain. In
mid-2007, Boeing admitted the 787 might be a few
months late due to problems with the supply of special
fasteners for the fuselage. As it turned out, the problems
were much more serious. Byearly 2008 Boeing was admit-
ting to a delay of up to 12 months in the delivery of the
first 787, an additional $2 billion in development costs,
and the possibility of having to pay millions in penalty
clause payments for late delivery to its leading customers.
The core issue was that several key partners had not
been able to meet Boeing’s delivery schedules. To make
composite parts, for example, Italy’s Alenia had to build
a new factory, but the site that it chose was a 300-year-
old olive grove, and it faced months of haggling with
local authorities and had to agree to replant the trees
elsewhere before it could break ground. To compound
problems, its first fuselage sections delivered to Boeing
did not meet the required quality standards. Then when
parts did arrive at Everett, Boeing found that many com-
ponents had not been installed in the fuselages (as
required), and that assembly instructions were available.
only in Italian. Other problems arose because several .
partners outsourced mission-critical design work to
other enterprises. Vought, for example, outsourced the …..
design and building of floor pieces for which it was
responsible to an Israeli company. In turn, the Israeli
company had trouble meeting Boeing’s exacting qualiry .
standards. However, because it was reporting to Vought; …..
not Boeing, executives at Boeing did not learn of this <
until it had already become a serious bottleneck. Upon
learning of the issue, Boeing rapidly dispatched engi-
neers to Israel to work with the company, but by now
several months had been lost. Boeing also subsequentlyta
acquired Vought in 2009, bringing the supplier''
in-house. ..•••.
Despite all of these issues, Boeing remains committed\
to its outsourcing program. However, the company haf
leamed that if it is going to outsource work to foreign’
suppliers, much closer management oversight and coordi-
nation is required to make it work. The company has also
indicated that as valuable as outsourcing can be, it prob-(
ablywent too farwith the 787. Going forward, Boeing h~\
signaled that it will not outsource key components thar.
are seen as a source of Boeing’s competitive advanta:g~;
(wings, in particular, are often mentioned as a compone …•”
that may not be outsourced for future aircraft models).’
1. What are the benefits to Boeing of outsourcing so .’
much work on the 787 to foreign suppliers?Whatatf’
the potential risks?Do the benefits outweigh the ris~
2. In 2007 and 2008 Boeing ran into several publicizec}c
issueswith regard to its management of a globally.·.•·.’
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dispersed supply chain. What are the causes of these
problems? What can a company like Boeing do to
make sure such problems do not occur in the future?
3. Some critics have claimed that by outsourcing so
much work, Boeing has been exporting American
jobs overseas. Is this criticism fair? How should the
company respond to such criticisms?
Cases
1. J. L Lunsford, “Jet Blues,”The Wall StreetJoumal, December
7,2007, p. AI; J. Gapper, “A Cleverer Way to Build a Boe-
ing,” Financial Times, July 9,2007, p. 11; J. Teresko, “The
Boeing 787: A Matter of Materials,” Industry Week, Decem-
ber 2007, pp. 34-39; and P. Sanders, “BoeingTakes Control
of Plants,” The Wall Streetlournal, December 23,2009, p. B2.
Following a European Union mandate, from January 1,
2005, onward, some 7,000 companies whose stock is pub-
licly traded on European stock exchanges were required to
issue all future financial accounts in a format agreed upon
by the International Accounting Standards Board (IASB).
In addition, some 65 countries outside of the EU have
also committed to requiring that public companies issue
accounts that conform to IASB rules. Even American
accounting authorities, who historically have not been
known for cooperating on international projects, have been
trying to mesh their rules with those of the IASB.
Historically, different accounting practices made it very
difficult for investors to compare the financial statements
of firms based in different nations. For example, after the
1997 Asian crisis, a UN analysis concluded that before the
crisis two-thirds of the 73 largest East Asian banks hadn’t
disclosed problem loans and debt from related parties, such
as loans between a parent and its subsidiary. About 85 per-
cent of the banks didn’t disclose their gains or losses from
foreign currency translations or their net foreign currency
exposures, and two-thirds failed to disclose the amounts
they had invested in derivatives. Had this accounting in-
formation been made available to the public-as it would
have been under accounting standards prevailing at the
time in many developed nations-it is possible that prob-
lems in the East Asian banking system would have come
to light sooner, and the crisis that unfolded in 1997 might
not have been as serious as it ultimately was.
In another example of the implications of differences in
accounting standards, a Morgan Stanley research project
found that country differences in the way corporate pension
expenses are accounted for distorted the earnings state-
ments of companies in the automobile industry. Most strik-
ingly, while U.S. auto companies charged certain pension
costs against earnings and funded them armually, Japanese
auto companies took no charge against earnings for pension
costs, and their pension obligations were largely unrecorded.
By adjusting for these differences, Morgan Stanley found
that the U.S. companies generally understated their earn-
ings, and had stronger balance sheets, than commonly sup-
posed, whereas Japanese companies had lower earnings and
weaker balance sheets. By putting everybody on the same
footing, the move toward common global accounting stan-
dards should eliminate such divergent practices and make
cross-national comparisons easier.
However, the road toward common accounting stan-
dards has some speed bumps. In November 2004, for ex-
ample, Shell, the large oil company, announced that
adopting international accounting standards would reduce
the value of assets on its balance sheet by $4.9 billion. The
reduction primarily came from a change in the way Shell
must account for employee benefits, such as pensions.
Similarly, following lASB standards, the net worth of the
French cosmetics giant L’Oreal fell from 8.1 billion to
6.3 billion euros, primarily due to a change in the way
certain classes of stock were classified. On the other hand,
some companies will benefit from the shift. The UK-based
mobile phone giant Vodafone, for example, armounced in
early 2005 that under newly adopted IASB standards, its
reported profits for the last six months of 2004 would have
been some $13 billion higher, primarily because the com-
pany would not have had to amortize goodwill associated
with previous acquisitions against earnings.’
1. What are the benefits of adopting international
accounting standards for (a) investors and (b)
business enterprises?
2. Wha[ are the porential risks associated with a
move in a nation toward adoption of international
accounting standards?
3. In which nation is the move to adoption of IASB
standards likely to cause revisions in the reported
financial performance of business enterprises, the
United States or China? Why?
Sources
1. E.McDonald, ”What Happened?” The Wall Street}ourTlal,
April 26, 1999, p. R6; P. Grant, “IFRS BoostsVodafone
Profits by Sterling 6.8 Billion,” Accountancy Age, January 20,
2005; and G. Hinks, “IFRS to Wipe $4.7 billion off Shell’s
Balance Sheet,” Accountancy Age, November 23, 2004.
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