Boeing has received a tremendous amount of criticism for how it managed outsourcing construction of the 787.  Hindsight is 20/20 but that doesn’t change the fact that it would appear that Boeing hadn’t fully considered the implications behind their decisions in this area.

This was about lowering risk and saving money in the development of the aircraft.  After everything is said and done, Boeing will have likely spent as much or more than if it had done this work itself.   In the early 2000’s, Boeing was ( and to some degree still is) under control of former McDonnel Douglas executives rather than Boeing management and McDonnel Douglas had spent the previous 20 years outsourcing work to save money.  How these executives came to be in control of Boeing still defies my imagination given the business track record McDonnel Douglas had enjoyed prior to being swallowed up by Boeing.

There is nothing wrong with outsourcing.  However, given the complexity of the job involved with designing and building an airliner such as the 787, there was a key ingredient left out of the mix:  close and frequent cooperation.  To be fair, Boeing had never done this kind of thing on a global scale and its primary outsourcing (prior to 787 kickoff) was with Japanese firms.  Firms that, today, are still doing their job with precision and care. 

A better approach would have been to insist that these various firms co-locate with Boeing in the Washington area and to insist that these partners work cooperatively with Boeing workers both on the design and initial production phases.   Other companies more closely associated with global production such as Ford and Volkswagen have already learned that it is important to keep partners close by in the manufacturing process.   Ford’s newest assembly plant in Brazil sees a variety of partners actually co-located in the manufacturing facility working literally right alongside Ford employees. 

Outsourcing doesn’t mean inviting your partners to do what they want when they want.

If anything, outsourcing requires these partners not only to be in close communication with Boeing but also with each other.  Each major sub-assembly that is shipped to Boeing is being made by another partner and in all cases they need to fit together and work together with the same levels of quality.   When you work with global partners, they aren’t just far from you.  They are potentially even farther from the other partners producing items that must fit and work properly with each other’s work. 

Did outsourcing go too far?  In terms of execution, yes.  In terms of risk sharing, perhaps not.  The original Boeing 707 prototype, the Dash 80, cost about $16 million to develop and was an exceptional risk for Boeing to take on.  Today, some are projecting the total costs to Boeing for the 787 nearing $16 billion (with a “B”) and collecting together that kind of cash on one’s own is difficult to do no matter what company you are. 

Going forward, outsourcing for Boeing will have to be done a different model.  Not just to reduce execution risk for Boeing but to also ameliorate the effects that one partner’s tardiness or poor quality might have on another partner.  While a few partners have performed poorly, that effect isn’t just on Boeing.  Every partner with Boeing that is performing well is being affected by the slow development and certification process.  They planned to be selling their parts in high quantities by now and instead they are enjoying the high costs of slow and even sporadic production while they wait for Boeing to get the aircraft going.

Those companies are being severely impacted today and they’ll want better performance on the next Boeing project to realize the fruits of their success earlier.

Filed under: Aircraft Development by ajax