The NY Time had interesting news on the continuing saga of the Boeing 787 Dreamliner (“In-Flight Fire Endangers Delivery Date for Boeing 787“)
We have written several times about the Dreamliner, but it is important to remind the readers that the Dreamliner is innovative along multiple dimensions, most significantly in its materials (and thus its fuel efficiency)
The plane, the first passenger jet made substantially with lightweight carbon composites that are supposed to greatly cut fuel costs, is already running nearly three years late. And given other recent problems with suppliers and a test engine, some analysts said, Boeing might be able to deliver only about two dozen of the planes next year, down from earlier estimates of 40 to 50 or more.”
as well as the fact that most of the design and the production have been outsourced to many different firms in different countries, which have resulted in the following problems:
The plane’s development has been marred by persistent problems with Boeing’s far-flung supply network. Company executives have acknowledged that they farmed out too much design and production work and did not initially keep close enough tabs on suppliers.”
These two approaches are of course not unrelated. Part of the idea behind such a revolutionary approach to outsourcing of production and design was based on the fact that many of the technologies were new and are still developing.
The article reports that the new delays are going to be caused by engine issues. It is important to note that most delays until now have been related to completely different parts:
Boeing has had to tell suppliers around the world to halt parts deliveries three times this year because Alenia Aeronautica, a unit of Finmeccanica of Italy, could not deliver the 787’s horizontal tails on time. The latest parts delay occurred in late October. Boeing officials have said that poor workmanship by Alenia and other suppliers forced Boeing to rework many parts, further slowing its production line.
I think we see here a combination of multiple issues. Managing supplier relationship is not an easy task: there are different aspects that a firm must manage, from the timeliness to quality and even tracking them over time can be a nightmare. But here, we have another layer: The Dreamliner involves many suppliers that contribute components that interact with each other and thus the quality of the whole product depends on the quality of each subcomponent. It seems that many of the suppliers just know that this is going to drag forever and do not put the required investment to provide a product in a timely manner that is also of the highest possible quality. Investor are somewhat optimistic, but the delays are mounting and the production is lagging. Boeing is still ahead of Airbus in this competition for fuel efficient planes, but that will not last for long.
Gad,
You raise an interesting point: “many of the suppliers just know that this is going to drag forever”.
Because managing supplier relationships is so important AND because the controls in place to build a space age material aircraft were from the stone age (paper and phone calls – yes they had phones in the stone age, circa 1960).
This problem isn’t unique to Boeing…they just are the poster child. In a recent project with a large retailer it became apparent that their control, and that of many/most companies that outsource overseas, is poor at best. Masterlock is bringing 2/3rds of their international outsourcing back to the US in a hopes of raising the quality and control they have over their Asian counterparts.
I have just begun an analysis on the full costs of outsourcing. Comparing labor rates for manufacturing AND transportation costs to get the products to their destination AND inventory carrying costs for a 12K mile long supply chain v. a 500 mile. My perspective is that raw material is consistent regardless of manufacturing country. Any insight anyone has on this topic, please contact me.
In the mean time, with the retailer we are deploying Enterprise Apps for International Trade Compliance and Detailed Inventory Control from production line all the way to the DC door here in America. Estimated savings range from $1.2 – 3.5M per year on an investment of less than $100K.
I believe outsourcing could actually save costs on various business activities. It should certainly help the Boeing also.