Boeing's Outsourcing Hell

A year ago we began to question the rationale of the supply chain convolution Boeing was creating for the 787 Dreamliner, and we've chronicled the problems since then.  From having to design and build huge Rube Goldberg transportation devices, miscalculating total assembly time, transferring knowledge to a potential competitor, running out of fasteners, and even spinning off a subassembly operation that turned into a profitable company... something just didn't pass muster.  Sure there are a lot of political aspects to their selling activities, and the design and technology of the Dreamlifter is extraordinary... but was it worth it?

Last month, Mike Bair, former 787 boss, gave a rather remarkable speech where he confronted many of the problems.

Mike Bair, former 787 boss, gave a pretty blunt talk about 787 suppliers on Wednesday to a group in Everett. "Some of these guys we won't use again,'' Bair said.

If he had to do it over again?

For Boeing's next all-new jet program after the 787, Bair said, it would be better to have a central manufacturing site rather than the global assembly method that is being used for the 787. He said Boeing would put pressure on its suppliers the next time to locate in the same area.

Yes, Bair somehow remains a Boeing employee.  Time will tell if he's right, but Friday's Wall Street Journal brought Boeing's supply issues to the forefront.  Pardon me if I gloat a bit, although I really wish I didn't have to, but we predicted that out a year ago.

On Tuesday, Boeing Co. will give Wall Street a progress report on its 787 Dreamliner, as it scrambles to overcome a six-month delay in producing the new jet. A look inside the project reveals that the mess stems from one of its main selling points to investors -- global outsourcing.

And a major part of the problem is not just the assembly from parts built around the world, but the actual design.

The 787 is the first jet in Boeing's 91-year history designed largely by other companies. To lower the $10 billion or so it would cost to develop the plane solo, Boeing authorized a team of parts suppliers to design and build major sections of the craft, which it planned to snap together at its Seattle-area factory. But outsourcing so much responsibility has turned out to be far more difficult than anticipated.

And what happened from a design standpoint?

The supplier problems ranged from language barriers to snafus that erupted when some contractors themselves outsourced chunks of work. An Italian company struggled for months to gain approval to build a fuselage factory on the site of an ancient olive grove.  Boeing overestimated the ability of suppliers to handle tasks that its own designers and engineers know how to do almost intuitively after decades of building jets. Program managers thought they had adequate oversight of suppliers but learned later that the company was in the dark when it came to many under-the-radar details.

But many of these handpicked suppliers, instead of using their own engineers to do the design work, farmed out this key task to even-smaller companies. Some of those ended up overloading themselves with work from multiple 787 suppliers, Boeing says.  The company says it never intended for its suppliers to outsource key tasks such as engineering, but that the situation seemed manageable at the time. "We tended to say, 'They know how to run their businesses,'" says a Boeing executive familiar with the company's thinking.

Ouch.  That's something to think about... when you outsource to a third party, that company may also outsource to yet another company.  Think about the communication, delay, and even intellectual property ramifications.  We wrote a few months ago about the problems with missing fasteners, but it turns out that was the least of Boeing's problems with unit #1.

Not until the first Dreamliner was unveiled in July did Boeing realize the magnitude of its troubles. In an effort to meet the rollout target for the 787 of 7/8/07, Boeing told suppliers to ship partly completed sections to its final-assembly bay in Everett.  Boeing believed that the first plane's biggest problem was a shortage of specialized nuts and bolts needed to put it together. The industry-wide shortage was worse on the Dreamliner because it required dozens of new fasteners not used on other planes. 

When mechanics later opened boxes and crates accompanying the fuselage sections, they found them filled with thousands of brackets, clips, wires and other items that already should have been installed. In some cases, officials say, components came with no paperwork at all, or assembly instructions written in Italian, requiring translation.

Remind me not to fly on unit #1, although presumably it will never be used commercially.  Boeing still believes it can execute pretty close to its original schedule, and perhaps we'll get an update on that on Tuesday.  I do believe the 787 Dreamliner is an exceptional machine, and I wish Boeing all the best in getting full production up and running.  They do have a knack for working out bugs.  But this experience provides lessons for all of us. 

If you outsource design and/or production to a company, do you know if they are in turn outsourcing to a different company?  Have you accounted for delays in communication, even in processing actual paperwork?  Are design standards consistent, common, and clear?  What level of support will you need to provide to those suppliers?

And if you have to design and build a version of your own product just to ferry parts around the world, it might be worth giving your supply chain just a bit more thought.

Comments

[Mark Graban]

What part of "do it right the first time" do they not understand? That level of rework is economically efficient, they would argue? Or is it just a matter of people "doing whatever it takes" to meet targets and deadlines? (Oh Deming would have a field day if he could see any of this).

[GeorgeMichaelHale]

I appreciate that there are senior supply chain managers who, for the lack of a better word, fail to due diligence on critical parts of the supply chain. China, regarding pet food, cosmetics, and other products are in the forefront. I suspect there are more, given Boeing's recent woes. The good news: College professors such as I, who have also had 30 plus years in supply chain and other disciplines are making certain that your inadequacies do not inherit to the next generation. We use your stories as poster children for how not to in our classrooms. Thank you for your shortcomings.

Sincerely, George Michael

[Darren Dasburg, PE COP]

As a certified outsourcing professional, I can inherently see that Boeing had a beautiful strategy to leverage the global marketplace and learned some tough lessons in risk management. It appears that Boeing might have been overly dependent on suppliers to assume risk and forgot that their key role is risk management. Many of the woes illustrated above could have been mitigated through proper oversight. To be clear I think Boeing is on the cutting edge for manufacturing and that they will receive many dividends for this way of thinking once the process gets smoothed out.

[Mark Graban]

We now have "certified outsourcing professionals?" God help us!

[Afraid to Fly]

> The 787 is the first jet in Boeing's
> 91-year history designed largely by other
> companies.

That's the most amazingly stupid idea I've ever heard. Aren't they the ones who are supposed to have expertise in building planes? So shouldn't they know to design a plane and keep everything on track? It literally frightens me to think a plane has been designer by a huge number of distributed groups who have no accountability. And what will Boeing say if the plane isn't any good? It's not our fault, we didn't design it? Oh, that sounds good.

[Lucie Voves]

Outsourcing certainly is not the cost-nirvana that many initially perceived. Hopefully considering the cost of mis-communication, time delays, and the lack of control and monitoring that have plagued companies ranging from Boeing to Fisher-price, there will be renewed interest in focus on how we can do better by producing more at home. While not all may be appropriate in every situation, we have lower transportation costs, reduced risk of mis-communication, improved accountability, the ability to offer more product customization with faster deliver times, the opportunity to provide turnkey marketing support for our resale customers, hands-on controls and a trained, educated workforce to deliver consistently high-quality products, and the ability to provide great personal service. U.S. car makers lost ground because they did not get close to consumers and deliver products that went above and beyond to meet their needs and leverage emerging technologies. That happens when price and cost-reduction is the primary focus. While producing cost-effectively and continuing to automate and improve our processes is essential, so too is using our wealth of human resources to sharpen our competitive blade and build a value equation that includes the best service, great support and follow-through, flexible customization, product superiority, and fast, cost-effective delivery. These are the areas where foreign companies and foreign goods stand on disadvantaged ground. With a growing groundswell of people looking for "made in the U.S.A" and an increasing realization of the importance of spending at home to support our economy, all U.S. companies should take a hard look at what they can do better here at home. Here is a link to a relevant article on this topic from Fortune Small Business: http://money.cnn.com/2007/12/05/smbusiness/offshoring.fsb/index.htm?postversion=2007120610

[James Henderson]

Sorry folks... No matter what Boeing will try to do, they will remain flat on their butts! They're working on the new 747-8 which is the latest redesign of the mightly 747. All new Engineering HAS BEEN KEPT IN HOUSE, and Boeing is over a year behind in that endeavor as well.

Boeing needs to stop blaming their vendors and realize there has been a massive brain drain in the field of areospace, and now the entire industry has to play catch-up.