A demand from the International Association of Machinists that Boeing agree to limits on future outsourcing is a central part of the union's strike against the company, as I wrote earlier this month. The union contends -- and some experts agree -- that Boeing's increasing use of outside contractors is damaging its long-term competitiveness. They point to its much-delayed Dreamliner 787 jet as the result of a highly horizontal supply chain.
But the Seattle Post-Intelligencer's Bill Virgin poses an interesting question: How hard would it be for Boeing to scale back its outsourcing, assuming it wanted to do so? Though there are plenty of instances of companies bringing previously outsourced tasks back in-house, they tend to involve work that is accomplished by staffers sitting in front of a PC, so it's easily moved from one location to another. As Virgin points out:
That's not the same as moving a production line, or an entire manufacturing plant, to Mexico or China, and then trying to get it back.
More companies may find themselves mulling this question as rising freight costs and wage inflation in low-cost countries erode some of the cost advantages of manufacturing in distant locations like China. Last month I cited research showing that when costs such as wages, shipping, product returns and carrying inventory are factored in, it's becoming cheaper for North American companies to manufacture some goods in near-shore locations like Mexico or even in the U.S.
But bringing work in-house is "at least as complicated as the original outsourcing," PA Consulting Group's Scott Lever tells Virgin. Among other issues, Boeing would have to make sure it can staff up in the States, sort out any intellectual property issues with its partners, and hope like heck that vendors losing contracts wouldn't cut corners.
Virgin concludes that Boeing won't move to reverse its practices any time soon. But he does wonder about the long-term impact of outsourcing. Unless companies are careful, he writes, they may find they have "off-loaded not just work, jobs and costs but expertise, intellectual property and, eventually, customers and orders as well."