MANAGEMENT CONTROL SYSTEM

Individual Case Report

Boeing Company

By
Muhammad Verman Bayu Putra

F0313062

Fakultas Ekonomi dan Bisnis

Universitas Sebelas Maret
2015/2016

A. Factual summary
Mike MacFarlane, a cost analyst, transferred from the Boeing Companys corporate
headquarters to Propulsion Systems Division (PSD). He was assigned to a project team
that examined the potential value of process and activity analysis. Mary Barclay,
supervisor For programmer cost targets and budgets, had been designated as the team
leader oi: the process and activity analysis project team. Joe Kelker, director of finance at
PSD, explained to Mike the objective of the process and activity analysis project. The
central theme was to achieve continuous quality improvement in every aspect of the
company's

operation.

However,

top

managements

commitment

to

continuous

improvement can be realised only if specic opportunities for improvement identified. He

think that viewing cost data based on process and activity analysis is a key factor to
identify these opportunities.
The Propulsion Systems Division
Boeings Propulsion Systems Division provided the link between the engine
manufacturer and the airplane. PSDs functions included the design, procurement,
build-up and installation of all the hardware associated with the engine. PSDs
assembly operations were Fairly complex, since they included more han 20 possible
different, basic engine-airplane combinations that were modied to customer
specifications. This complexity was Further increased by strict inspection requirements
by Boeing's quality assurance organisation and the Federal Aviation Administration.
Milcels assignment involved the EBU shop at PSD. The engineering department
listed the following considerations as the most important factors For the design of an

engine: performance (i.e. thrust), reliability, maintainability and weight.

The process and activity analysis project
The methodology developed by the project team was referred to as process and
activity analysis. Process and activity analysis was like a comprehensive medical
check-up, a labour-intensive diagnostic tool that pointed to the areas where highleverage opportunities existed. Process and activity analysis did not provide the

remeasurement capabilities of a costing system, which the term activity-based costing

implied. In its statement of work, the project team agreed to ve objectives for the
process and activity analysis project:
o increase cost visibility;
o identity major cost drivers;
o trace overhead cost to processes where possible;
o identify non-value-added activities;
o provide a process ow chart to help guide improvement measures.
Process and activity analysis
In the first step of process and activity analysis each workgroup developed a list
of activities and tasks. ln Boeing's terminology, a task was dened as a generic
operation, whereas an activity represented a group of tasks. Each task was characterised
by its value, end-product (or process), activity type, task time, ow time and task
dollars. For each task, the workgroup estimated the task time, which was the number of
hours spent on each task per product unit. The task time described the actual duration of
the work performed. Task times were distinguished from flow times, which included
task times as well as wait, transport and idle times. The hours spent per unit then were
multiplied~by the number of units produced to obtain estimated total hours. Since the
estimates provided by the workgroups often did not add up to the total hours worked,
the estimated hours were adjusted.
In addition, the project team collected all directly assignable costs for each
workgroup. These costs included direct labour, indirect labour, overtime, fringe benefits
and non-labour costs such as supplies, tra.ining, furniture and fixtures, shipping
material, etc. These costs were extracted from the current cost accounting system by the
charge number, which uniquely identified each workgroup. That is, the only costs
assignable ro each workgroup were those that the groups supervisor could control.
B. Problem statement

In this case study, the problem statement is how to achieve continuous quality
improvement in every aspect of the Boeing's operation.
C. Analysis of problem
We know from case study that the main problem in boeing company is achieve
continuous quality improvement in every aspect of the company's operation. However, top
managements commitment to continuous improvement can be realised only if specic
opportunities for improvement identified. He think that viewing cost data based on process
and activity analysis is a key factor to identify these opportunities. Process and activity
analysis was like a comprehensive medical check-up, a labour-intensive diagnostic tool
that pointed to the areas where high-leverage opportunities existed. There are ve
objectives for the process and activity analysis project:
First, Boeings management felt that the current cost management system did not
provide enough visibility. Specically, when work crossed organisational boundaries, costs
created by the underlying total production process remained largely hidden. Process and
activity analysis would provide information that increased cost visibility.
Second, process and activity analysis would identify the major cost drivers so that
Boeing could better identify items to be analysed and predict cost behaviour if a process
were modied.
Third, the analysis would improve the traceability of overhead costs. A better
understanding of the production process and its relation to total cost would improve
management's ability to make each organisational unit responsible for the overhead
resources it consumes.
Fourth, the project would support the continuous quality improvement initiative by
identilrying which activities add value to the end-product and which activities are nonvalue added. Reducing or eliminating non-value added activities would ensure the Boeing
Companyls ability to maintain its competitive advantage.
Fifth, process and activity analysis would need a process ow chart to help guide
improvement measures.
D. Solution

From the problem above, i have two solution to solve the problem about continous
quality improvement:
First, use Lean. Lean is a systematic method for the elimination of waste within a
manufacturing system. Lean also takes into account waste created through overburden
and waste created through unevenness in work loads. For example:
o Reduced set-up times by providing tools and parts in kits to workers, so workers no
longer have to go looking for what they need. The result is the workers no longer
o
o
o
o

spend much of their time looking for tools and parts; they just put things together.
Limit and reduce inventory so there is no residual by use just-in-time system.
Give Instructions to workers to do specific jobs and standardised work procedures.
Keeping the continuous production flow so the workers can focus on assembling.
Make two shift to balancing the work.

By use this lean, Boeing can reduce the operation cost of airplanes, greater productivity,
increase eficiency in assembling, and shorten the lead time required to build airplane
and reduced cycle times. Lean requires commitment and the involvement of everyone
to implementing it. Beside that, increase in eficiency it means the workers jobs
unnecessary so they resist the lean.

Second, use six sigma. six sigma is a set of techniques and tools for process
improvement. six sigma seeks to improve the quality of the output of a process by
identifying

and

removing

the

causes

of

defects

and

minimizing variability in manufacturing and business processes. It uses a set of quality

management methods, mainly empirical, statistical methods, and creates a special
infrastructure of people within the organization, who are experts in these methods. Each
Six Sigma project carried out within an organization follows a defined sequence of
steps and has specific value targets. For example Boeing discovered that recirculating
air fans were being rejected during production, costing Boeing money in waste,
removal, testing, and cost of replacing the component. Boeing assembled a crossfunctional detective squad that included employees from engineering, quality,

manufacturing, supply management, procurement, and their supplier Hamilton

Sundstrand who began the problem-solving techniques of the DMAIC process by
examining data from the fans and beginning root-cause analysis. This analysis
determined that Foreign Object Debris (FOD) damaged the fans and the test tools.
Further inspection led the team to discover failures in ductwork caps and plastic
sheeting two items ironically intended to prevent FOD damage and two electrical
issues. One failure of improperly modified test equipment and the second issue related
to crimping procedures in manufacturing process that improved connections in the fans.
Although the FOD in the fans was the main X, the results were clear.
E. Recommended solution:
I recommend to use lean because six sigma only works if all levels of management
are enthusiastic about its implementation. The method also has not ability to actually
measure its effectiveness. Lean is still primarily used in manufacturing environments.
Some manufacturing company have success in implementing lean, such as its use in
Toyota Production System. Beside that, Lean is fast implementation. Immediate benefits
relate to productivity, reduce the operation cost of airplanes, greater productivity, increase
eficiency in assembling, and shorten the lead time required to build airplane and reduced
cycle times.
F. Implementation
The step to implementing lean :

Make a plan, a solid plan and some attainable targets are needed to make a action.
Training, the key to implementing any new idea or concept is training.
Eliminate the waste, the basic concept of lean manufacturing is the elimination of
waste. Ensure all workers company understand the types of waste, where to find it and
how to identify it. They should start to identify areas of excessive waste and make plans
to eliminate it. Be sure to start eliminating some of the more costly sources of waste. Be

sure to document the activity in order to report it to upper management. This will be an

on-going process during and after all stages of implementing lean.

Standardized work, highlight some of the not-so-obvious areas of waste, you need to
put things into a logical order that will reveal the waste that wasn't easy to notice
before. Work instructions will need to be created to ensure each worker understands the
work sequence for performing the job duties correctly. The work load will need to be
balanced to eliminate major gaps in the production cycle.
There is no end to the process of reducing effort, time, space, cost, and mistakes. If

fail in implementing, we can return to the first step and begin the next lean transformation.