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.