What about design?

One aspect of operations we have yet to touch on in this blog is design. Within operations it is clearest to focus on how to build products or deliver services. But there is an initial question of how do you decide what the specifications of the product are or what the characteristics of the services should be. The answer, of course, lies in design and “design thinking”. Sara Beckman has a piece in today’s New York Times (Welcoming the New, Improving the Old) that describes design thinking as follows:

Aiming to help companies innovate, design thinking starts with an intense focus on understanding real problems customers face in their day-to-day lives — often using techniques derived from ethnographers — and then entertains a range of possible solutions.

Design thinking is somewhat in vogue as source of corporate advantage. Beckman makes a nice contrast between design thinking and other operations/management methodologies such as six sigma, noting that

To survive, many businesses will have to figure out how to incorporate both approaches. Design thinking offers tools for exploring new markets and opportunities; Six Sigma skills can be applied to improve existing products. Companies that adhere strictly to one or the other risk failure.

Today’s Times has another design-related piece about Boeing (A Dream Interrupted at Boeing). Much has been written about the travails Boeing has experienced trying to get its 787 Dreamliner off the ground. The project is years behind schedule and Boeing’s aggressive use of outsourcing has largely been blamed. As this article highlights, there are two factors that are in many ways unique to the 787 project that make it distinct from a typical outsourcing gone bad story. First, Boeing outsourced a significant part of the design, including wing and fuselage sections. The challenge here is that these are not modular components. There are significant interfaces that are not necessarily cleanly defined. Choices in one part have non-trivial impact in others. This has come back to bite them as the total design has not met expectations.

The second story here is the contract structure. Boeing outsourced in part to spread the risk around, getting suppliers to do work upfront while waiting for payment until the plane starts to sell. If everything stays on schedule, this is all well and good and suppliers potentially have greater upside if this model proves to be a hit. In reality, this has not been a particularly smooth process. Keep delaying the project and suppliers (some of whom are not involved in any of the issues delaying the 787’s launch) are on the hook with no idea of when they will get paid. Smaller suppliers are now left in financial jeopardy as a result.

It seems that both of these issues should have been anticipated. Much was made of Boeing’s last commercial jet project, the 777, which was Boeing’s first plane designed and tested using CAD software. A major benefit of using CAD was that designers were able to catch many issues early before they caused major scheduling problems. (See Karl Sabbagh’s book on the 777 Twenty-First-Century Jet: The Making and Marketing of the Boeing 777 or the PBS series on project. In a rare trifecta, today’s Times also has an interview with Alan R. Mulally — Planes, Cars and Cathedrals — who ran the 777 project and now runs Ford.)

On the risk-sharing side, basic microeconomics should have raised red flags. The whole theory of insurance is that the least risk averse party should shoulder the majority of the risk. It is hard to imagine that there are many players in the supply chain for the 787 that are better positioned than Boeing to absorb hiccups in the schedule. There is also moral hazard problem here. The system integrator (i.e., The Boeing Company) needs to exert effort to coordinate the work of the suppliers and maintain the schedule. However, the contracts are set up to protect Boeing from having things go wrong.