Case Study: Boeing Dreamliner MOD004050 Supply Chain Strategy and Operations

The Boeing Dreamliner

On 15 December 2009, over two years later than originally planned, the Boeing 787 – the so-called
‘Dreamliner’ – made its maiden test flight. The 787 was a radically new concept embodying highly innovative
technology and design features. The market positioning of the aircraft had proved to be highly successful
with pre-launch sales options from airlines around the world in the region of 850 planes. With a passenger
capacity of up to 330 and with a range of 8,500 nautical miles the 787 would use less fuel and operate at a
cost per seat mile approximately 10 per cent less than other comparable aircraft. These savings were
enabled primarily by the lower weight of the 787, which was achieved through the use of novel composite
materials, and new engine technology.

The Challenge of Building the Dreamliner

Even though most industry commentators expected that in the long term the 787 would be a great success,
there was no doubt that the delay in the launch had impacted negatively on Boeing’s financial performance.

Clearly, a design as innovative as the 787 brought with it many challenges as much of the technology was
untried and untested. Beyond this, however, there were a number of risks that were systemic, i.e. risks that
arose as a result of decisions taken by the company on the precise form of the chosen supply chain
architecture.

Outsourcing at Boeing
Traditionally Boeing has built most of its aircraft in its own facilities in Washington State, USA. In the case of
the 787 the only part manufactured in the Washington factory is the tail fin (and even this manufacturing is
shared with another facility outside Washington). The other parts of the aircraft are manufactured as
subassemblies by a myriad of external suppliers around the world (see diagram). For example, the forward
fuselage and nose are made by Spirit AeroSystems in Witchita, Kansas, whereas parts of the midsection are
manufactured by Alenia in Italy and the wings and a further fuselage section are built by companies in Japan.
The final assembly of the aircraft takes place in Boeing’s facilities in Everett, Washington and Charleston,
South Carolina.

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Case Study: Boeing Dreamliner MOD004050 Supply Chain Strategy and Operations

Not only has the manufacture of most of the sub-assemblies been outsourced but those same suppliers
were also involved in much of the detailed design of the sections/systems they were responsible for.
Perhaps not surprisingly a number of problems were encountered.

Many of the suppliers found that the innovation involved challenged both their design and their engineering
capabilities. Boeing had to send its own staff to help the suppliers sort out these problems. Often sub-
assemblies would arrive at Everett incomplete or wrongly manufactured, requiring disassembly and
rebuilding. Months were lost in the process of putting things right. These delays had financial consequences
and the cost of additional design, rework and penalty payments ran into billions of dollars.

The paradox is that the business model adopted by Boeing, i.e. outsourcing the design and manufacture of
sub-assemblies to supply chain partners, was motivated by the aim of speeding up time-to-market. The
original view at Boeing was that using external specialists would enable a more flexible supply chain, capable

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Case Study: Boeing Dreamliner MOD004050 Supply Chain Strategy and Operations

of responding more rapidly to customer demand. In the event the outcome was a significant delay in time-
to-market and a major cost over-run.

Undoubtedly a product as innovative as the 787, embracing as it does entirely new materials and
technology, would always face significant challenges. However, beyond this, Boeing’s experience highlights
the fact that whilst companies might outsource the execution of an activity they should never outsource its
control.

Continuing quality problems at Boeing and with the Dreamliner

Boeing have continued to experience quality and engineering problems with the Dreamliner. By the middle
of 2013, there were 14 reported problems with the Dreamliner. These problems included fires, over-heating
and air pressure sensor issues (Reuters, 2013 and The Telegraph, 2013). These repeated problems revealed
that the issues are not over yet. Boeing continued to innovate with other models and launched the new 737
Max in 2016. However, the Boeing 737 Max was found to have serious safety problems a malfunctioning
flight control caused two new aircraft to crash resulting in fatalities. The 737 Max’s were grounded whilst
Boeing investigated and redesigned the systems used. The problems with the 737 Max were almost
resolved, when new issues arose with the Boeing 787 Dreamliner this September, 2020 (Slotnick, 2020).
The Dreamliner was found to have problems with the horizontal stabilizer, the part of the tail that lies
parallel to the wings, is constructed. Boeing have reported a  $466m loss for the third quarter of 2020. Chief
Financial Officer, Greg Smith said the company’s cash flow may not turn positive until 2022. Boeing’s cash
flow hinges on receiving payments from customers when it delivers planes, hence, the grounding of the 737
Max and combined with defects on the 787 Dreamliner have led to Boeing having a massive inventory and
their cash flow is effectively tied up until this can be resolved. This is without even mentioning the potential
reduction in new orders due to the reduction in flights due to the impact of the pandemic.

N.B. It is not expected that you can resolve the engineering/technical aspects in this case. The focus is on
how the supply chain can be improved to minimise these problems occurring in the first place.

Sources:
Bushey, C. 2020. Boeing plans deeper job cuts as crises stifle aircraft demand, Financial Times, [online] 28
October, 2020. Available at: < https://www.ft.com/content/a5c6625b-13bc-4af9-a242-d9c620f24956 >

Gates, D. 2009., Dreamliner Makes History with Plastic, Outsourcing, Design – And Delays, The Seattle Times
[online] 12 December 2009. Available at: < https://www.seattletimes.com/business/dreamliner-makes-
history-with-plastic-outsourcing-design-8212-and-delays/> [Accessed on 1 October 2018]

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Case Study: Boeing Dreamliner MOD004050 Supply Chain Strategy and Operations

Lunsford, L. 2007., Jet Blues: Boeing Scrambles To Repair Problems With New Plane, The Wall Street Journal,
[online] 7 December 2007. Available at: < https://www.wsj.com/articles/SB119698754167616531>
[Accessed on 1 October 2018].

Peterson, K. 2011., Special Report: A wing and a prayer: outsourcing at Boeing, Business News, Reuters, ,
[online] 20 January, 2011. Available at: <https://www.reuters.com/article/us-boeing-dreamliner/special-
report-a-wing-and-a-prayer-outsourcing-at-boeing-idUSTRE70J2UX20110120> [Accessed on 1 October
2018].

Reuters, 2013., Timeline: Boeing's 787 Dreamliner woes, Business News, Reuters, [online] 13 July, 2013.
Available at: < https://www.reuters.com/article/us-boeing-dreamliner-timeline/timeline-boeings-787-
dreamliner-woes-idUSBRE96B13L20130712 > [Accessed on 1 October 2018].

Scott, A. and Hepher, T., 2014. Boeing reports wing cracks on 787 Dreamliners in production, Business
News, Reuters, [online] 7 March 2014. Available at: < https://www.reuters.com/article/us-boeing-
cracks/boeing-reports-wing-cracks-on-787-dreamliners-in-production-idUSBREA261QG20140307 >
[Accessed on 1 October 2018].

Slotnick, D. 2020. Boeing's dealing with fresh 787 Dreamliner production problems, just as it prepares to
bring the 737 Max back into service. [online] 12 December 2009. Available at: <
https://www.businessinsider.com/boeing-787-dreamliner-quality-problems-737-max-crisis-2020-9?
r=US&IR=T#:~:text=Major%20new%20safety%20concerns%20with,the%20787%2C%20it%20said
%20Tuesday.> [Accessed on 1 October 2020]

The Telegragh., 2013. Boeing 787 Dreamliner a timeline of problems, The Telegraph , [online] 28 July, 2013.
Available at: < https://www.telegraph.co.uk/travel/comment/Boeing-787-Dreamliner-a-timeline-of-
problems/ > [Accessed on 1 Sept 2020].

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