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Boeing's Outsourcing Woes Illustrate Importance of Long-Term Strategy

Ann All

When you're trying to re-engineer a process as complex as the manufacturing of an airplane, something aerospace giant Boeing is trying to do with its new 787, there are bound to be stumbles along the way. And Boeing has made plenty of them, as I've written previously.

 

The production of the 787 was supposed to revolutionize the way Boeing manufactures its planes. The company 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. But the initiative has been fraught with numerous supplier problems and repeated production delays.

 

Critics of the Boeing initiative, including Evolving Excellence blogger Kevin Meyer, say most of Boeing's problems come down to the convoluted supply chain it created for the 787. Meyer describes the airplane game, a simulation used to educate folks about the principles of lean manufacturing during which participants construct planes out of materials like Legos or popsicle sticks. He writes:

By the end you understand that, although counterintuitive, one piece flow really is far more productive, efficient, and higher quality than push-batch. But what else did you learn? That it is very important for each operation to be close to the previous and next operations to minimize transportation and WIP while improving communication and coordination.

A detailed analysis of the outsourcing efforts of both Boeing and rival Airbus is found in this AINonline article, which makes the interesting observation that the manufacturers are trying to incorporate outsourcing lessons learned by their counterparts in the automotive industry. For instance, notes a management consultant interviewed in the article, automakers know it's important for companies to share technology roadmaps with their suppliers.

 

Boeing's troubles with the 787 have improved the negotiating position of members of the International Association of Machinists and the Society of Professional Engineering Employees in Aerospace (SPEEA), writes the Seattle Post-Intelligencer's Bill Virgin. Both groups for years have warned Boeing of the long-term pitfalls of outsourcing. One of the chief risks, they say, is losing business as suppliers' skills grow and in-house expertise declines. The two unions note that Boeing's efforts to broaden the scope of its outsourcing will make it tough to recruit new talent as current aerospace engineers retire. From a SPEEA report:

If our outsourcing strategies prove disappointing, as some other industries have found, then our ability to retreat and recover will be limited.

The unions are currently more focused on wages and benefits than on any formal positions on outsourcing. Yet such a discussion will need to take place if both the unions and Boeing want to remain viable moving forward, opines Virgin. His point is valid on a much broader business scale. The possibility of cost-cutting strategies leading to a long-term loss of competitive advantage is an issue being faced by many companies, not just Boeing. Virgin writes:

Anyone can draw a facsimile of a plane. If you want that plane built and flown, however, it might be nice to have a people around who still remember how that's accomplished.

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