Flightglobal.com had a very interesting and thorough article about Boeing (h/t to Ben Thompson). The article specifically focuses on the attempts made by Boeing to smooth the ramp us process it is going through. (“Boeing aims at smooth ramp-up“)
Boeing has gone through two events that define their attitude towards this ramp up. First, the 1995 recession with the issues that arose in the following ramp-up:
We pulled a lot of work from our supply chain back into Boeing to stabilise the employment and stabilise the statement of work within Boeing – so that coming out of that downturn in 1995 we had significantly weakened our supply chain,” Loftis says. “We had a number of suppliers that, when we asked them to ramp back up the rates, were no longer there or no longer helping to ramp up the rates quickly.”
This is an important lesson for many firms that go through cost cutting during a recession and do that by pushing their suppliers for even bigger cost cuts.
Second, and probably more familiar to the reader are the issues with the Dreamliner
The Boeing 787′s supply chain has proved a trial by fire for the company since 2007, delaying the Dreamliner’s deliveries by three-and-a-half years and pushing its first production plateau four years to the right while it absorbs the astronomical costs of the delays.
With the key sentence from the article:
What you end up realising is, you need more cost to supervise outside factories” outweighing the benefits of outsourcing design and manufacturing on the 787, says Boeing chief Jim McNerney.
In designing the Dreamliner and its supply chain, Boeing chose a very ambitious outsourcing model, in which not only production is outsourced, but also design and management of lower tiers. The main goals were to reduce production cost, development lead time and costs, among other reasons. The “experiment” resulted in long delays and significant financial losses, as implied by Mr. McNerney.
It is reassuring to see that Boeing has learned from this: In the wake of the 787 supply-chain challenges, Boeing set up the Production Integration Center, which serves as a mission control for the Dreamliner’s global supply chain. The facility, monitors moment-by-moment changes at suppliers of the highest and lowest tiers.
We have to have the full supply chain aligned, which means there’s a tremendous amount of collaboration and there’s a tremendous amount of information sharing that has to go on. In that way, that’s what allows our supply chain to begin to achieve that competitive advantage.”
Of course, the ramp up process for the 787 is at its infancy, yet information sharing in such a complex supply chain is an essential first step. One has to remember, however, that such a center does not come for free: In many cases, the (usually) hidden cost of supervising suppliers may dominate any benefits. How can you predict and prevent it? Invest more upfront and try to account for all of these costs by visiting the suppliers, for examples. Of course, one cannot completely prevent such mistakes, yet one can reduce their impact.
The Boeing Supply Chain is complex, of that there is no doubt. 5,400 suppliers isn’t a world record but it must be near the top for a single “product” such as the 787. I just checked my calendar to confirm this was 2011. McNerney said in the article you reference:
“You need more insistence on commonality of IT tools, and you need more insistence on [supply chain] integration. And we just booted it. And our only defence is that every industry I know boots that once and then they learn. And unfortunately, we paid billions upon billions in the learning process there.”
The reason I had to check my calendar is because this statement should have been made in 1960′s when enterprise software first began use in businesses. Collaboration remains a struggle for many companies because the enterprise software they all use wasn’t made to collaborate.
If Boeing takes the path of proven IT failure where they require their 5400 suppliers to modify, integrate or replace their IT investments – they are going to boot it again. Next generation enterprise software should be used that protects all 5,401 legacy applications so that “Boeing must engage its supply chain of 5,400 companies in a game of four-dimensional chess…” and win.
The 5,400 vendors each perform transactions at a detail level that impact the “game”. If the only collaboration are updated schedules and EDI they are playing chess with blinders on. Boeing needs to be able to see the vendors operation as if they were Boeing employees – in real time and at a process level with sufficient granularity that dependencies can be monitored and messaged in real time.