Some people seem to think location is the key to outsourcing agreements. They're wrong. It's governance.
There is perhaps no better illustration than the travails of Boeing in working with a network of global partners to produce its Dreamliner 787, a story I began following in late 2007. The New York Times has a pretty thoughtful analysis of Boeing's missteps in managing a complicated supply chain.
The Dreamliner project was supposed to revolutionize the manufacturing process by outsourcing much of the work -- and more importantly, the accountability -- to suppliers. The project is now more than two years overdue, with 60 canceled orders, at least some of them attributable to the delay. Analysts estimate Boeing may end up spending $20 billion on the Dreamliner, rather than the $8 million to $10 million the company had estimated earlier.
Perhaps the most amazing part of the story are the comments from Boeing executives, who admit their outsourcing plans went awry. Said Scott Carson, who led Boeing's commercial division and will retire at year-end:
"I think there were places where we went too far. Clearly, we made some poor judgment calls in terms of what people's capabilities were."
And the Times quotes CEO W. James McNerney Jr.:
"You ultimately get to the question: Is it worth it? And my answer is yes. And that is why you take the risks. But could we have done it smarter? Yes."