Volume 7 Issue 1
INSIDE THIS ISSUE Organizational Boeing Update Life Cycles |R ight Place, |A nticipating Challenges Right Time
LIFT 2018 | The Next Chapter Page 2
2018 Focus | EnCore International
American Retrofits! Page 7
Welcome to the Team Page 8
2017 Holiday Party Photos Page 8
Boeing Update | Right Place, Right Time Boeing had a pretty stellar 2017 resulting in a 90% stock price increase making it the #1 performer on the Dow Industrial Index. Some other notable milestones for our biggest customer: Tom McFarland
• 763 airplane deliveries (a record) •5 ,864 airplanes on order (921 booked in 2017) representing 7.7 years of backlog
• 4,309 737 MAX aircraft on order • 737 rate is ramping from 47/month to 52/month in 2018 & to 57/month in 2019. • 787 current rate of 12/month with an announcement to go to 14/month in 2019. •F irst 777X being assembled this year. 777 rate is down to 5/month, but is sold out through 2019 which should bridge the gap until the 777X takes over. •B oeing’s 20-year forecast anticipates the need for 41,030 airplanes (interesting note, Boeing’s 1997-2016 forecast predicted 23,600 and the actual fleet total at the end of 2016 was 23,500 – I think the 41,030 prediction is pretty sound!). •O nly 18% of the world has ever flown – we are definitely in a growth market that should always outpace World GDP.
experience trust growth relationships
Luckily, EnCore has positioned itself on the right platforms at the right time. Our 737 MAX content includes Floor Panels, Ballistic Walls and Galleys for all North American carriers. EnCore International is delivering 787-10 Sidewalls and Cargo Liners and is also about to ship our first set of 777X Door Liners. Seal Beach will grow by almost 90% from 2017 to 2019 with the MAX ramp and Mexico will triple in sales over the same period with the 787-10 ramp and 777 Door Liner introduction. Last but not least, LIFT is honing in on a lower cost, lighter weight derivative seat of the one currently flying for LOT Polish’s 737 MAX airplanes. Certification of that product is scheduled for later this year. Boeing has also made a significant strategy shift that has the industries attention. They have completely realigned their Supplier Management organization in what they termed a “transformation”. I would need a lot more of this newsletter to explain the change fully, but the high-level message is that Boeing wants to operate as “one Boeing” where their operating procedures, contracts, production lines, logistics, etc. are the same across all platforms (unlike the supplier-specific, product-line approach today). Every manager we dealt with previously has changed, but, luckily, we know the new ones just as well! Continued; Page 3 2
Boeing Update | Right Place, Right Time (Continued) Part of their transformation also involves becoming more vertically integrated. They have announced several areas of focus for both new production aircraft and to grow their aftermarket business, Boeing Global Services (BGS). One of those areas of focus is Interiors. While this definitely unnerved our competition, I believe this is an opportunity for EnCore. We are one of the few (if not only) companies that Boeing would like to align with as they develop their vertical strategy for Interiors & Seats. The most effective way to continue to be a part of Boeing’s future strategy is a relentless focus on being Clearly Ahead continuing to outperform & over-support our peers. Instead of going on the defensive like our competition, we need to be on the offensive making ourselves an indispensable resource for Boeing.
Organizational Life Cycles | Anticipating Challenges and Success At some point in the middle of last century, scholars and business people began to look more closely at how organizations operate and grow to better understand how to make businesses successful. Out of these observations, the concept of an organizational life cycle was identified, and over the next 50 years numerous theories and articles have been written to describe this phenomenon. In quick summary, a product or even a business Karl Jonson will go through a series of phases during its existence. These phases mirror the phases of life – birth, growth, maturity, decline and death - which is why this phenomenon has been referred to as a life cycle. Understanding where a product or a business is in its life cycle can greatly improve an organizations’ understanding of challenges it should be taking on and help to identify opportunities to extend existing product life cycles or create new ones. In the birth phase, a product or organization is faced with many unknowns as there is inherent risk in any developmental process. The work necessary to deliver on a new vision often requires new understandings, so an organization is required to make investments of time, energy and money. These investments are necessary to understand all of the various intricate details that will eventually lead to success. EnCore’s branding product line of business represents an example of an initiative that is in the “birth phase” of its life cycle. We are currently exploring the marketspace to understand the customers’ wants and needs. We are looking to understand the materials, processes and supply chain partners that are necessary to master the delivery of a product that the customers want. All the time we are making significant investments of money to develop new customers, creating unique engineering, and investing in our suppliers to ensure they can support the endproduct delivery requirements. As is typical with this phase, profits are often not apparent initially and those profits that are generated, are quickly reinvested into the further development of the product as it continues to the growth phase of its life cycle. During the growth phase, the product or business will experience rapid expansion and the corresponding challenges. These challenges include training, improvements to process and systems and additional capital equipment investments. Examples of our products that are in the “growth phase” include both the machining and assembly components of the ballistic panel. This product will face the challenges of rate ramp in 2018 as we progress from shipping 24 shipsets of product in January to 60 shipsets per month in November. That represents a growth rate of approximately 150% in 10 months. Another example is the expansion of our multiopening press capabilities to support Boeing’s Interior Resource Center in Seattle. We currently have a mature press operation; however, we will be reapplying these skills to support new demand from an outside customer. Although operational profits from these growth products are beginning to show, these profits are almost immediately reinvested into the business in the form of new equipment, support structures, raw material inventory and training of new employees. These types of investments are easy to see today. The goal during this phase is to try to responsibly minimize the cash demands so that when the program moves to the next phase, the investment is returned faster allowing for more new projects to be undertaken. Continued; Page 7 3
LIFT 2018 | The Next Chapter From time to time, it is good to thoughtfully reflect on the past. Understanding what happened is usually straight forward. Dissecting how and why it happened is where the learning occurs. Today in LIFT, we are in the middle of one these periods of reflection. First, let’s consider the history of LIFT: Mike McCarthy
2014: LIFT Established
•S tarting small in Aliso Viejo, the original team worked to establish the company, and began developing different seating concepts.
• Investment in LIFT = Small: $
2015: LIFT Officially Open for Business
• LIFT’s first prototype seat design was displayed at the Hamburg Aircraft Interior’s Expo.
•S everal development tests performed throughout the year at an outside dynamic lab, to verify the seat’s basic structure.
2016: Boeing 737 Collaboration Announced
•A t the Hamburg Expo, Boeing and LIFT publicly announced a partnership to co-develop an SFE seat for the 737 MAX.
• Soon after, launch customers LOT POLISH and MONARCH were secured.
•T he LIFT team relocated from Aliso Viejo to HB, and a significant investment was made to install a state of the art dynamic test lab.
• The new test lab was broken in with 51 tests accomplished.
• Investment in LIFT = Large: $$$
2017: First TSO Approval
• In October 2017, LIFT’s first FAA TSO for LOT POLISH’s first 737 MAX.
•B oth shipsets 1 & 2 were delivered on-time to Boeing, and the seats were installed without incident. A last-minute compliance issue arose at Boeing, which was quickly resolved with the “Thanksgiving Day Quadrant,” allowing LOT POLISH to accept their first airplane on schedule.
• Significant quality improvements were made on Shipset 2, with the defect rate shrinking by half.
• In total, 317 development and certification tests were run, 109 for static, and 200+ for flammability.
•B oeing and LIFT’s second collaboration was announced at the Hamburg Expo, this time for 787 economy class seats.
• In June 2017, LIFT’s third 737 MAX customer was secured with Spicejet’s 50 shipset order.
• In October 2017, MONARCH declared bankruptcy, nullifying our seat order.
• In December 2017, commercial issues regarding product features escalated with SPICEJET, and could not be fairly resolved, which ultimately led them to cancel their seat order.
• Investment in LIFT = XXL: $$$$$
A lot to digest there. Certainly one of the main takeaways is that starting a commercial aircraft seating company from scratch is a very expensive undertaking. Growth can be very exciting, almost intoxicating at times. But it can also be very dangerous if pursued too quickly, which is a scenario that LIFT was flirting with. The MONARCH and SPICEJET cancellations at face value were initially disappointing, because we had invested lots of time and energy in both programs. However, in retrospect, losing these 2 deals were in fact Continued; Page 5 4
LIFT 2018 | The Next Chapter Continued a blessing in disguise. These 2 airlines are low cost carriers, and their pricing requirements for seats followed suit. From a cost, weight, and robustness standpoint, our seat was not mature enough to compete at this end of the market. This is what we are working on now. In 2018 we will develop a new and improved seat, with a hyper focus on cost, weight, and durability. The goal is to take the best elements of our first seat, namely the look and comfort, and incorporate these into a low cost, lightweight seat that will stand the test of time. As much as Airlines love the bling of a beautiful, new seat outfitted with all the latest bells and whistles, there is much greater emphasis on cost, weight and reliability. Our seat must age gracefully. On Day 1, the seat must look perfect, and work like a charm. On Day 1,000, the seat must still look good, and like an old Timex watch, after taking a licking, it must keep on ticking. As we thoughtfully reflect on the events of the past 4 years, it prepares us for the challenge in front of us. From a lessons learned perspective, our approach will now include: 1. Setting Aggressive Targets: a. Target Weight: 10.0 kg per pax b. Target BOM Cost: $1,000 per pax c. Target Durability: pass all abuse/abrasion loads…perform like a Timex d. O n the subject of BOM cost, I’d like to share a success story the team achieved on one of the seat’s large, more complicated machine parts, the aisle spreader.
i. A pril 2017: part was being purchased outside for $330. Material was 7075 aluminum, exposed surface was beautifully contoured.
ii. J une 2017: part was being made in-house for $211. Same material, same shape, 6.5 hours of machining.
iii. August 2017: after making significant programming improvements, part was being made in-house for $111. Same material, same shape, 1.8 hours of machining.
iv. J an 2018: for our new seat, we changed the material from 7075 to 6061, and greatly simplified the shape. Cost of the part is now $60, with 30 minutes of machining. And further material cost reductions are being sought as we explore different nesting options.
v. A $60 aisle spreader supports our overall BOM cost target of $1,000 per pax.
vi. T his achievement required deep collaboration between design, stress, programming, machine shop, supply chain, mockup shop, and testing.
2. F requently Measure Progress: Establishing targets for these critical items is STEP 1, but frequently monitoring progress is crucial to achieving our targets. As well, a clear understanding of the “maturity” of estimates is vital to this process. When the two measurements converge at “GREEN/GREEN”, then we are confident that our designs meet the criteria, and we are safe to release it. a. E stimate vs. Target Index
i. GREEN = meets target
ii. YELLOW = close to target, within 20%
iii. RED = off target, over 20% b. Maturity Index i. GREEN = confirmed value ii. YELLOW = calculated or quoted value iii. RED = first pass estimate, ROM value Continued; Page 6 5
LIFT 2018 | The Next Chapter Continued 3. F ail Often & Early to Succeed Sooner: Also referred to as “failing forward” A note on “failure”. Does our culture permit failure? More specifically, is it ok to fail a test? Well, it depends. If it’s a cert test that we need to pass so we can ship tonight, then no. But if we are running a development test to save critical pounds and dollars, then we should push the limits and take the risk, without fear of failure! If we do fail, then we study the results, absorb the learning, and adjust. I really want our people to feel safe in this way of working, for so much can be learned and gained. 4. I mplement Good Habits & Routines: Was NFL coach Bill Belichick or Aristotle who first said, “We are what we repeatedly do. Excellence, then, is not an act, but a habit.”
2018 Focus | EnCore International
2018 is an important year for EnCore International. The last two years have been very successful, ranging from the start-up of our operations in Mexico, including the installation of various equipment and multiple capabilities being established, winning several contracts, and ultimately establishing ourselves as an important supplier to the other EnCore divisions. Our focus now is targeted on improving margins by reducing our overhead expenses and bills of material.
EnCore International is on track for profitability for 2018, while continuing rate acceleration on our existing programs. Our focus does not stop there, as we are also starting up our 777X Door Liners and four small 777X Lay Up programs. The 787-10 Cargo and Sidewall programs have reached a rate of one per month and will soon be at two per month this summer. Deliveries for the newly added Vent Shrouds to our 787 portfolio started in February at the full 787 rate. We are set for first deliveries of 777X Door Liners and small programs in March at 5 shipsets per month by January 2019. Our support on the LIFT programs has resulted in finished machined parts for Lot and Monarch shipsets and we have painted 2 shipsets of composite seatbacks. Part of our development work encompasses creating a new food tray using our recently installed Vacuum Forming equipment. The first sample food tray was provided to LIFT for testing in January. At the same time, we continue to support Seal Beach and Huntington Beach with their machined components and we are working on improvements for high-run machine parts. We have established several controls to monitor our expenses day-to-day and we are tracking future purchases both on direct material and supplies. We have also sourced better cost options for supplies, improved the use of materials, and very soon we will start using our company truck for deliveries to reduce freight charges. Cost activities are not a one-time chore; this is a focus that must and will be constant. It is the way a company excels and prospers. We must work with the mindset to simplify our work, make it error-free and maintain a relationship-based environment inside and out.
Organizational Life Cycles | Anticipating Challenges and Success (Continued) As a product or business enters the maturity phase of its life cycle, there will be stability in the process as well as earnings. These programs are the cash generators of a business that support the birth and growth products described above. Our floor panel business is a product that is in the “maturity phase.” It is repeatable, and predictable. It runs with a well trained and capable manufacturing team, and it delivers consistent revenue and cash to support the business. Understandably, products will go into a declining phase as they are replaced with improved products or broader innovation, and unless we react, the business will start to decline – a trend that can be difficult to reverse. It is the role of all of us to anticipate these changes during the maturity phase and look to find new ways of extending a products’ life- or look to start new product development. As programs mature, the aftermarket becomes a key area to extend the life and contribution well beyond the production demand. These activities allow for the overall business to remain in a growth mindset. EnCore has a robust mix of products that are in the various phases of birth, growth and maturity. It is the responsibility of everyone within each of our roles to work together to maintain the stability of the mature products, to responsibly grow the growth products and to seek out new opportunities that might successfully enter the product pipeline. With these actions, together we can confidently expand our overall business.
American Retrofits! | First Article Production Overview - Over the course of 2018, the Huntington Beach facility will be starting the production of a 430 shipset order to retrofit American Airline’s 737’s (228) and A321’s(202). EnCore will be providing two medium sized galleys for the 737 and one small galley and closet for the A321. A successful FAI is complete for the 737 program and engineering is nearing completion for the A321. EnCore will start delivery on the 737 program in March David Burke and the A321 is slotted for a December on-dock. The programs will hit rates of 14 per month for the 737 and 8 per month for the A321 lasting into 2020 and 2021 respectively. These programs represent a sizeable portion of the Galley business’ backlog over the next few years. Retrofit Purpose - The retrofit that American is undertaking for their 737 and A321 fleet is one of the largest scale programs possible. They are completely replacing the floor-to-floor interior with the Boeing Sky Interior, adding 12 seats to the cabin with in-seat power, enhancing the function of the galleys and improving the wifi streaming capability significantly. This will provide commonality between the older 737 NG’s and the newer MAX and similarly the older A321’s and the enhanced NEO version. Opportunity - Building to such lofty rates for this retrofit program is a manufacturer’s dream. Due to this rate, a mixed model approach is required in which different units and customers are built on the same line, back to back. This will allow for dedicated work spaces, tools, and better kit delivery geared specifically for just these galleys. Additionally, our purchasing team can leverage the supply base to drive down pricing due to the volume and rate incentive.. At the same time, the program also has clear challenges; namely achieving a high rate quickly. We will be dedicating an entire line to the 737 and A321 program, but this also requires a clear and achievable industrialization plan that cannot directly piggyback off existing infrastructure. The Bill of Material improvements and reduced takt time during build will define how well Huntington Beach performs in 2018. The goal is to go beyond Clearly Ahead making the cost and production efficiencies standard across all programs providing capital to help fuel other EnCore growth. David Burke
2017 Holiday Party
Welcome to the Team! Dela Cruz, Marilyn
Assembler - Inserts and Edgefill
Thermwood Machine Operator
CNC Machine Operator
CNC Machine Operator
CNC Machine Operator
Assembler - Final
CNC Machine Operator
Quality Control Inspector
Quality Control Inspector
St. Patrick’s Day Observed Friday, March 16th. A bit of malarkey and lots of green to go around. Make no mistake, you’ll want to wear green on St. Patrick’s Day!
Published on Mar 8, 2018