Boeing Is Latest Company to Learn Importance of Outsourcing Management

The global economy allows companies to take the best-of-breed concept to tremendous lengths -- sourcing parts and labor from virtually anywhere in the world to get the desired combination of low cost and high quality. Yet visibility into suppliers' activities can suffer with a lengthier and more convoluted supply chain -- and product quality along with it.

That appears to be what happened to Boeing, which is facing the gloomy prospect of shelling out millions of dollars in penalties to some of the 52 airlines that have ordered its new Dreamliner 787 jets, the fastest-selling airplanes in history, according to a Chicago Tribune story. Yet it looks as if Boeing may not be able to fill its orders on time. Already it has delayed the rollout of the 787 from May 2008 to November or December of 2008.

The production of the 787 was supposed to revolutionize the way Boeing manufactures its planes. The aerospace giant contracted with partners around the world to help it defray its projected $10 billion development costs by designing and building major components, which Boeing would then assemble at its Seattle factory.

The initiative has been fraught with numerous problems, most of which boil down to three words: poor project management. Somewhat inexplicably, Boeing seemingly underestimated how common outsourcing issues such as different time zones and language and cultural differences might affect the production of its planes.

A front-page Wall Street Journal story says that Boeing's problems are testament to the risks and limitations of outsourcing and global supply chains. Perhaps the single biggest problem was a lack of transparency into suppliers' processes. The president of Boeing's Commercial Airplanes unit tells the WSJ:

In addition to oversight, you need insight into what's actually going on in those factories. Had we had adequate insight, we could have helped our suppliers understand the challenges.

This hard lesson was learned earlier this year by companies like Mattel, which suffered from costly product recalls and negative publicity after toys made for the company in China came off the assembly line with lead paint and other safety issues. My blog about the product recalls featured some good advice gleaned from a Purchasing.com article:

• Make sure that product specs and technical drawings are in both English and the native language of the supplier.
• Outline the quality control process, using illustrations if possible.
• Require periodic tests of components and ingredients.
• Ensure that subcontractors meet the same quality control standards as the primary contractor.