By Kevin Meyer
Just the other day I told you how Boeing has apparently learned a lesson and is making an about-face on its outsourcing strategy by buying the assembly operations of a key supplier, Vought. Well yesterday the deal happened, and the writeup in the Wall Street Journal itself explains why companies continue to go down the path to outsourcing hell.
Boeing Co. agreed to acquire manufacturing operations from one of its key suppliers on the delayed 787 Dreamliner aircraft at a cost of $1 billion. The purchase of a plant in North Charleston, S.C., from Vought Aircraft Industries would mark the second time Boeing has taken over a key part of the Dreamliner's supply chain. Boeing is paying $580 million in cash and will forgive $422 million in cash advances paid to privately held Vought for work on the 787.
The move gives Boeing additional control over a sprawling global supply chain that has created numerous problems for the 787, leading to delays in testing and production. Those delays have cost Chicago-based Boeing millions of dollars in penalties and concessions and have damaged the companies credibility with customers.
Let's repeat some of those negatives, as they'll soon provide the 2x4 we'll use to smack some people upside the head. Cash costs, sprawling supply chain, delays, penalties, concessions, damaged credibility. Pretty expensive, eh? Since it's almost always overlooked, we'll also tack on the human cost of tens of thousands of years of experience, knowledge, and creativity that Boeing shed as part of their outsourcing adventure.
But some people just don't see that. In the same article whiz-bang analyst Robert Spingarn at Credit Suisse had a slightly different perspective.
"While such a transaction should afford Boeing greater control over 787 production, we see another negative in that Boeing is bringing more fixed cost into the company."
What rock has this dude been living under? In what universe has moving "fixed cost" outside of the company been a good thing for Boeing? So you shed some massive assembly operations, tens of thousands of years of knowledge and experience, but you've somehow created a good thing because if times get rough the assembly operation is magically "flexible" because you can demolish a supplier instead of yourself? In the words of Dr. Phil, "how's that working for you?" I know, stupid question.
But here's the really scary part:
And now you know one reason why it's so hard for public companies to implement lean manufacturing. Not only do they have to come to grips with the often counterintuitive nature of lean, but they have to battle the traditional accounting and short-term mindset of the capital markets... and the analysts and investors that reward companies that play by traditional rules.
After years of telling them they were going down a very expensive path, I do have to hand it to Boeing for changing direction. I just hope their shareholders also recognize it's a good move.