The Wichita Decision The past few decades have seen the interesting trend of the commercial aircraft industry manufacturing operations shifting from vertical to horizontal integration with the major players choosing a structure they feel is best for them. This industry started with a vertically integrated airframe-manufacturing model with Boeing as the major commercial aircraft manufacturer. Airbus later joined the industry 20 years later also adapting the same platform and derivatives strategy. In as much as the as the industry was highly vertically integrated, these companies still sourced distinctive components from specialists such as Pratt and Whitney.
However, in the early 1990s many commercial aircraft manufacturers including Douglas Aircraft, McDonnell Aircraft, and Boeing switched to horizontal integration through mergers. The major drivers to this shift were technology that progressively became more specialized, costs of production using vertical integration became uncompetitive and the dire need for management efficiency. On the other hand, factors such as lower costs due to increased economies of scale and increased market power made Airbus maintain vertical integration.
Horizontal industry structure seems to be a benefit since it helped resuscitate Boeing that had stagnated after many years of vertical integration structure. It helped it install a lean system and clean up the production of the 737. The evolution of the auto industry is similar to that of the commercial aircraft industry. Major players in the industry have adopted the “lean production system”. However, competitive forces are far from being static, and hence vehicle manufacturers can no longer rely on excellence in production only (Shih and Pierson 2010).
Questions to ask
Should Airbus shift to horizontal integration in their manufacturing structure?
Should Boeing go ahead with the sale of Wichita Division? Why?
Shih, W., and Pierson, M. Boing 737 manufacturing footprint: The Wichita Decision. 2012. PDF file.