Development of the 787 Dreamliner exposed significant weaknesses in the supply chain developed by Boeing to produce the groundbreaking composite-bodied aircraft.
“I think it’s a fair criticism that, particularly during 787 development, real-time visibility of the supply chain was not perfect,” Boeing CEO Jim McNerney said to investors recently.
And wow is that an understatement.
It’s curious because Boeing is one of the most respected of American companies from a management perspective, and even was considered a leader in supply chain management in some professional circles.
But Boeing made a major gamble with the 787 because of the enormous financial risk and daunting amount of work involved. It outsourced some 70 percent of the aircraft’s production to partners in Japan, Korea, Italy and elsewhere.
Boeing contracted with more than 50 suppliers, 28 of them outside the U.S. The airliner’s wings were going from Nagoya, Japan to Everett, WA. Fuselage Section 43 was going from Nagoya, Japan to Charleston SC, to Everett, WA. Fuselage Section 46 went from Grottagli, Italy to Charleston, SC, to Everett, WA, and so on.
Partners assumed financial risk for their parts of the project. At the same time, the 787 pioneered revolutionary materials’ technology, a dramatically expanded use of carbon-reinforced plastic for the fuselage and wings. Production equipment such as autoclaves had never been used on this scale before. Nothing close. A big yacht maybe, that’s it.
If there is one criticism, Boeing may have had too much hubris heading into this and has been battered by problems.
Here are the supply chain problems as reported by Design News:
Shortages of standard fasteners slowed production of the very first test aircraft. Somehow Boeing’s supply chain managers were unaware that capacity to produce aircraft fasteners had been dealt a body blow by weak economic conditions dating back to 2002.
Training and production got off to a slow start at a partner’s new Charleston, S.C. plant where the 787’s aft fuselage sections are manufactured. Boeing had to take over the plant to get back on track.
Poor communications among partners resulted in delays in discovering serious design flaws. One example is the failure of wing joints on both sides of the plane to perform as predicted in virtual models. Teams of design engineers from Fuji, Mitsubishi and Boeing worked collaboratively to develop a fix, which involves18 small locations on each side of the airplane.
Up to 30 percent of the nut plates used to fasten bundles of wires and other parts for 2007 through mid-2008 were defective because of poor supplier labeling and miscommunications about coatings. The problem was discovered at a Spirit AeroSystems factory in Wichita, KS.
There have been a variety of serious problems with the Dreamliner partner in Italy, Alenia Aeronautica, which is manufacturing fuselage sections for the middle of the plane. Small wrinkles were discovered on the composite skin of fuselages early in the production process. A design fix was developed. Boeing also had problems with 787 horizontal stabilizers from Alenia, and may bring some of that work in house. The factory’s startup was delayed because of a requirement that olive trees on the site in southeastern Italy had to be replanted elsewhere.
Some systems work that was originally planned to be handled by contractors was brought in-house because of supplier problems.
Dreamliner deliveries have been postponed seven times, resulting in a three-year delay as a result of supply chain, design, and labor problems. The first Dreamliner is due for delivery to All Nippon Airways in August or September.
Boeing is producing two Dreamliners a month at this time and expects to gradually accelerate output, moving to ten per month by late 2013.
Dreamliner executives-those still standing at least-are more humble in their public statements these days. ”We just booted it,” says McNerney. “Our only defense is that every industry I know boots that at least once, and then they learn. Unfortunately we paid billions upon billions in the learning process.”
OK, but I still really love this airplane. It shows American technology at its best. Brave-and world leading. Even the supply chain model was brave. Spread product development and risk around the world. And we’re not talking about something virtual or the size of a microprocessor. We’re talking about giant aircraft sections.
Boeing couldn’t fail on the 787. It threw resources after resources into the project to ensure its eventual success. Its future was on the line, both from a credibility and financial perspective. Thousands of suppliers of products ranging from titanium fasteners to interior components are following in the wake of the 787. It was too big to fail.
Boeing took a lot of butt kicking, but it led the way.
Not only does Boeing have the supply chain issues but now they have a much bigger issue facing them. The National Labor Relations Board's suit against Boeing is one that all eyes are on right now.
As a former Boeing employee, I heard more than once that Boeing was a great company when it was lead by Engineers. When the accountants and bean counters took over the Engineering decisions, particularly on outsourcing, that was when the company suffered.
At Boeing I particiated in several projects that were outsourced. Inevitably this created more problems and issues than were anticipated. Several times, as a result of golf course deals, management was making decisions that ignored the recommendations of the engineers. This had predictable results on productivity and morale.
Not surprisingly this was also the case at one of my first places of emplyment with a very large Defense contractor. Outsourcing work on that project created far more problems than it solved. Additional management attention and resources were required to support the off-location teams. Frequent expensive trips to the off-site locations were required. The usual fog of war was increased as a result of these additional process steps and more inspections and controls had to be put in place.
This is not to say that outsourcing is always bad. All companys have partners that they depend on but the successful ones are the result of long term relationships, carefully built up over many years that earn mutual trust and respect. Any new outsourcing efforts must be very carefully managed and appropriate measures put in place before things go south.
In my entire career, almost never have the problems that were crucial to the success of the project been technical, the ones that created the most pain and suffering laong the way were political and managment issues, people problems. Long ago when I was still in college but working in the cooperative education program I was advised by a manager to the effect of "All this engineering is fun and interesting but the real problems are managing schedules and people". He was right then adn his words still ring true today.
Hopefully the issues which Boeing has had with the 787 have been high profile enough that other companies will take notice. It's always better to learn from someone else's bad decisions than to make your own bad decisions - and hope you survive to learn from them.
You are right many companies are outsourcing part of their mundane engineering tasks to others, who can produce it cheaper and faster. To some it may appear that outsourcing is not necessary or this can be avoided. But the reality of economics is taking root in many of multinational companies today in USA. Boeing is no exception. For many managers and business executives, outsourcing of mundane (boring repetitive) tasks has become the order of the time. Considering the differences in wages of developing countries, why would not a bean counter outsources their mundane tasks to others, who can do it (say in half the price or time, or both, whichever is important )? Why would you pay someone in USA twice as much when someone else can do it in half the cost? -- Considering such outsourcing decisions do not hurt the company in any way (say for example, by creating an indirect loss like losing competitive edge of some short).
As such I agree with you, one should be selective in what they outsource and when.
Prasad, I think the comments have been directed mostly towards outsourcing of manufacturing operations rather than outsourcing of engineering tasks. I think all of us are probably in agreement that there are situations where outsourcing is a good idea, and other situations where it isn't. I would caution that in many cases, "boring, repetitive, mundane" engineering tasks can make the difference between success and failure for a project.
With regard to outsourcing of manufacturing, until the 1970s or 1980s, many manufacturing organizations were highly vertically integrated, i.e. they manufactured many of their own components in house. At some point, they began to outsource by handing off manufacturing processes which had been developed in-house to outside suppliers. This seemed to generate savings, and created the impression (which seems to persist among business school graduates to this day) that vertical integration is always bad and outsourcing is always good.
However, the savings might not always be as big as they appear on paper. For one thing, in many cases, the engineers at the outside supplier are not capable of supporting the processes when problems arise, and need to rely on help from the engineers at the "original" company who developed the process. This creates a very real drain on engineering resources which is almost never accounted for.
Another trend which came along a little later was outsourcing to so-called "low cost countries." Generally, if one buys the cheapest components one can find, they will not be the best quality. This is true whether one buys the cheapest components in one's own country, or the cheapest components which are available on the world market. Unfortunately, while there are many good measures to evaluate cost of non-quality, it seems like they are not used often enough in decision making.
In one of my previous jobs, there was a small plastic part which was purchased from Asia and which cost 79 cents. We found multiple quality problems with this part due to poor process controls. Due to the length of the supply chain, we couldn't return the parts to the supplier - there wasn't time. We needed to sort the parts ourselves. I calculated that each part which actually made it into an assembly ultimately cost over $12, once the scrap rate and sorting costs were factored in. The cost from a local supplier? 82 cents.
Fortunately, I think many companies are starting to become aware of these issues. (The companies whose leaders are ideologically committed to the belief that outsourcing is always good and that low cost countries are always cheap will probably not survive the recession, in my view). Lately, I am hearing more and more that "key competencies" should be kept in-house, that it is important to have an "agile" supply chain, and that it is a good idea to reduce the number of suppliers and build a better relationship with a smaller number of suppliers.
This is a welcome change in management rhetoric, and I wonder how much of it has been informed by Boeing's experiences with the 787.
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