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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