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787 problems and outsourcing

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  • Martha Koester
    Boeing s outsourcing strategy in the spotlight as FAA grounds the Dreamliner
    Message 1 of 1 , Jan 24, 2013
      Boeing's outsourcing strategy in the spotlight as FAA grounds the Dreamliner
      In the wake of the FAA's decision to ground Boeing's snazzy 787 Dreamliner planes after a series of scary incidents, Boeing's decision to outsource the plane's parts to factories around the world is being questioned. It would be hard to overstate the scope of the outsourcing, which involved 50 suppliers and 135 sites, which had already caused the 787 to be released years behind schedule, and which may have contributed to problems now:
      Fifty per cent of the Dreamliner is made from composite materials, including much of the fuselage and wings, which come from manufacturers in Japan, Italy, South Korea, the United States and elsewhere.
      Some 70 per cent of the plane is outsourced, said Richard Tortoriello, an analyst at Standard and Poor’s.
      “That creates a potential for more problems to occur than if production is centralized, because quality control can be better managed” in a centralized process, he said.
      Market Discipline for the Boeing 787
      The 777 program leaders built in, from the beginning, the engineering problem-solving culture we used successfully on decades of previous programs. Technical leaders could capitalize on trust built through teamwork to allocate sacrifice to some stakeholders, and focus extra resources elsewhere, optimizing on the program overall. This is best done upstream in the course of a program -- assuming you have the decision-making authority, which was intrinsic to the 777 business model.
      It's much harder to solve problems downstream, and harder still, if, like on the 787, you have weak decision-making authority and poor understanding of what other stakeholders are doing.
      The 777 was built on schedule and delivered on time; it qualified for long-range operations over water at entry into service; it had great dispatch reliability from the beginning; it is currently making customers happy; and is making money for shareholders.
      In contrast, the business culture on the 787 program was structured, from the beginning, to skip all those coordination costs. The 787 business model relies much more on suppliers for design and manufacturing. Coordination and problem-solving are relatively weak. Program leaders seem paralyzed when problems come up, because authority for fixing problems is also diffused into the supply chain.
      In business school terms, it can be expressed this way. Are airplanes more commodity-like or are they performance-driven products? I can think of my cell phone as commodity-like, and replace it with another brand. I can switch airlines to get from Dallas to Chicago, which makes air travel more commodity-like.
      On the other hand, when airline customers pay $100 million for an airplane with a 25 year service life, they expect a reliable, heavily-engineered, performance-driven product.
      Commodities might do well in the global supplier business model, regulated by market discipline. To the extent airplanes are more performance-driven, it makes sense to pay higher up-front coordination costs.
      A company that helped Wichita become known as the Air Capital of the World is leaving.
      Boeing, one of the city’s iconic manufacturers, said it will close its sprawling facilities in south Wichita by the end of 2013.
      The decision ends Boeing’s 85-year history with the city and affects 2,160 workers in Wichita, their families and the community.
      Boeing's newest China plant to launch production in 2013
      The 21-million-U.S.-dollar project will double the size of Boeing Tianjin Composites Co. Ltd., a joint venture between Boeing and the China Aviation Industry Corp. which produces components and parts for the Boeing 737, 747, 767, 777 and the 787 Dreamliner aircraft.
      The expansion will increase the venture's composite material production capacity by 60 percent by 2013 and add an extra 300 jobs, bringing the venture's total employment to more than 1,000.
      <snip >
      Boeing purchases more than 200 million U.S. dollars worth of products and services every year from China, making it the country's largest buyer of aircraft subassemblies. The company is expected to purchase twice as much by 2015.
      Boeing and its related businesses have created about 20,000 jobs in China to date, including 6,000 employees working directly for Boeing, its subsidiaries and joint ventures.
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