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.