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MGT 6367 Mark Finkelshteyn

Boeing 787 Outsourcing Disaster

Table of Content 1. Executive summary...................................................................................................................2 2. Background information...........................................................................................................3 3. Problem description ..................................................................................................................4 4. IOM concepts/tools that can be applied...................................................................................6 5. Application of IOM concepts/tools...........................................................................................6 6. Analysis of expected results......................................................................................................8 7. Conclusion..................................................................................................................................9 ...................................................................................................................................................10 Appendix 1: Employment numbers...........................................................................................11 Appendix 2.................................................................................................................................12

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customerannounced orders and commitments for the 787 reached 237 aircraft. Washington.5 million for the 787-3. financial crisis or bad operations management? Many people think it was the outsourcing strategies that cause the delay. Boeing claimed the 787 would be near to 20% more fuel-efficient than the 767. the list price was US$146–151. in January 2011. Boeing need to determent the rut cause and learn on its own mistakes in the future. Boeing had originally planned for a first flight by the end of August 2007 and premiered the first 787 at a rollout ceremony on July 8. The SIC Matrix and Conceptual Framework for Network Design are IOM tools that can be used to determine if outsourcing strategy caused the delay or not. What cause delay? Is it bad design. In 2007. US$157–167 million for the 787-8 and US$189– 200 million for the 787-9. Boeing in Seattle. Boeing initially priced the 787-8 variant at US$120 million. By the end of 2004. 2 . The 787 was designed to become the first production composite airliner. Boeing finally announced that the first 787 delivery was scheduled to the third quarter of 2011 due to software and electrical updates following the inflight fire in November 2010. Executive summary Boeing 787 Outsourcing Disaster The Boeing Company is an American multinational aerospace and defense corporation. However after multiple production delays in the schedule.MGT 6367 Mark Finkelshteyn 1. founded in 1916 by William E. a low figure that surprised the industry. 2007.

orders and deliveries. Boeing is made up of multiple business units. Illinois since 2001. Boeing Corporate headquarters has been in Chicago. Boeing Defense. which are Boeing Commercial Airplanes (BCA). founded in 1916 by William E. On March 2011. Background information Boeing 787 Outsourcing Disaster The problem is related to Boeing 787 Dreamliner manufacturing delay. 2011[1]. Boeing is the largest exporter by value in the United States. Its stock is a component of the Dow Jones Industrial Average. a program through which Boeing's top engineers and scientists set technical direction for the company. which many believe is related to outsourcing strategy and assembly process chose by Boeing management. and the third largest aerospace and defense contractor in the world based on defenserelated revenue. Boeing has expanded over the years. Boeing Capital. merging with McDonnell Douglas in 1997. The Boeing Company is an American multinational aerospace and defense corporation. Space & Security (BDS). Air China will buy 5 Boeing 747-8 aircraft which will be delivered 3 . and Boeing Shared Services Group.5% of Boeing employees are in the Technical Fellowship program. Number of Boeing employees per location and group is shown in attachment 1 Approximately 1. Operations & Technology. Boeing has made a deal with two Chinese airlines for a total 43 aircraft worth about $10 billion. Boeing is among the largest global aircraft manufacturers by revenue. Washington.MGT 6367 Mark Finkelshteyn 2. Boeing in Seattle. The two largest divisions are Boeing Commercial Airplanes and Boeing Defense. The problem was described in the article “787 Dreamliner teaches Boeing costly lesson on outsourcing” by Michael Hiltzik in Los Angeles Times February 15. Space & Security (BDS). Engineering.

Hong Kong Airlines have still to finalize an agreement to buy 38 aircraft. North Charleston. Boeing had originally planned for a first flight by the end of August 2007 and premiered the first 787 at a rollout ceremony on July 8. Subcontracted assemblies included wing manufacture (Mitsubishi Heavy Industries. wing-tips. floor beams (TAL Manufacturing Solutions Limited. 2007. with pre-installed systems reducing final assembly time by three-quarters to three days. landing gear (Messier-Dowty. wiring (Labinal. Wichita. the aircraft's major systems had not been installed at that time. passenger doors (Latécoère. Although intended to shorten the 4 . and many parts were attached with temporary non-aerospace fasteners requiring their later replacement with flight fasteners. This approach was intended to result in a leaner and simpler assembly line and lower inventory.MGT 6367 Mark Finkelshteyn Boeing 787 Outsourcing Disaster between 2014 to 2015. However. USA. South Korea). fuselage sections (Global Aeronautica. South Korea). which include 6 freighters and 30 Boeing Dreamliners [2]. USA. USA). Problem description Instead of building the complete aircraft from the ground up in the traditional manner. Spirit AeroSystems. Connecticut. France). Sweden). central wing box) horizontal stabilizers (Alenia Aeronautica. France). The Boeing 787 parts assembly scheme is provided in attachment 2. Korea Aerospace Industries. Italy. flap support fairings. Boeing. France). Boeing assigned its global suppliers to do more assembly themselves and deliver completed subassemblies to Boeing for final assembly. and crew escape door (Saab. South Korea). 3. and longerons (Korean Air. Kawasaki Heavy Industries. India). access doors. Korean Air. air conditioning packs (Hamilton Sundstrand. cargo doors. Japan. Japan. wheel well bulkhead. Italy. and power distribution and management systems.

or both. However. factory. 2008. it was reported that some early 787 deliveries may be delayed. Boeing announced that it planned to buy Vought Aircraft Industries' interest in Global Aeronautica. leaving remaining assembly work for Boeing to complete as "traveled work". On March 28. it was announced that Boeing was facing a US$1 billion compensation claim from Air India due to the delays for the 27 Dreamliners it has on order. 2010 it confirmed that the first delivery would be delayed until early 2011. In August 2010. that the first delivery to launch customer All Nippon Airways could slip into 2011. Boeing announced that the first 787 delivery was rescheduled to the third quarter of 2011 due to software and electrical updates following the in-flight fire in November 2010. [4] In early November 2010.MGT 6367 Mark Finkelshteyn Boeing 787 Outsourcing Disaster production process. perform the subassembly on schedule. 787 subcontractors initially had difficulty completing the extra work. because they could not procure the needed parts. to allow for rework to address issues found during flight testing. S. When launching its 787 program Boeing goal was to lower production cost by outsourcing parts manufacturing to suppliers.C. Some subcontractors couldn't meet their output quotas. 2010. creating huge production logjams when critical parts weren't available in the necessary sequence. As a result Boeing is facing schedule delays leading to financial losses due to compensation 5 . the company later agreed to also purchase Vought's North Charleston. Boeing announced on July 15. in an effort to gain more control over the supply chain. and on August 27. In January 2011. in one case some three months. some of the pieces manufactured by farflung suppliers didn't fit together.

4. SIC Matrix is the best tool to analyze Boeing 787 outsourcing. IOM concepts/tools that can be applied The Strategic importance and Criticality Matrix (SIC Matrix) can be used in this case to determine whether parts should be produced in house or by an outside vendor. By using those dimensions it will be determent if current supply chain structure used by Boeing is correct or not. The review of Conceptual Framework for Supply Chain Structure should provide general idea on what degree of modularization should be used by Boeing and will help to conclude if current Boeing strategy is acceptable. Application of IOM concepts/tools SIC Matrix 6 . The SIC Matrix has two dimensions: the strategies value of the part itself and criticality of the part to the final product. This paper considers the problem of whether aircraft manufacturing parts shall to be produced in house as it was done before or outsourced to suppliers and if yes. than to what extent. Current Boeing approach to build 787 is clearly showing modularization approach in order to reduce fixed costs. The framework captures the degree of modularization and postponement in order to compare and contrast clearly differentiated supply chain structures. and most important. Boeing lost its market share to its number one competitor French AirBus with its new A-380 model. 5. Conceptual Framework for Supply Chain Structure is based on two dimensions: outbound logistics and inbound logistics. it will evaluate if modularization approach for Boeing 787 is the right choice.MGT 6367 Mark Finkelshteyn Boeing 787 Outsourcing Disaster claims from buyers. Modularization is a product design approach in which the product is assembled from a set of standardized constituent parts. Also.

which makes their outbound postponement degree high. Due to limit of the size of this paper. Boeing 787 wing. Based on above. Boeing 787 Framework Supply Chain should be as shown on figure 3.MGT 6367 Mark Finkelshteyn Boeing 787 Outsourcing Disaster Considering number of parts for Boeing 787. when considering constrains of product design specification and the industry structure. Boeing 787 wing has low strategic value since its can serve no purpose on its own. its position in relation to outbound postponement does not correspond to the fact that. it shifts wing to higher on strategic value scale. High Postponed Boeing 787 Flexible 7 . if to review technological complexity of the part and proprietary nature. will be reviewed. However. On the other hand. which corresponds to its current position in the Framework. example of one part. airplanes are very expensive to build to stock. Results are shown on the figure 1. Boeing 787 wing is critical part of the final product and can be graded as a high on criticality of the part to final assembly. High Outbound postponement Low Inbound outsourcing Postponed Rigid Flexible Boeing 787 Modularization High Figure 2: Boeing 787 Framework Supply chain However. However. they are built to order. outsourcing of each part shall be analyzed individually and consider that all the parts will fell in the same block within SIC Matrix. High Strategic Value based on technological High Wing complexity and proprietary nature Low Criticality of the part to final assembly Figure 1: Outsourcing decision Framework for supply chain Figure 2 below represents current Boeing 787 Framework for Supply Chain. Boeing 787 should have high Inbound Logistics.

during manufacturing of the parts. the company's commercial aviation chief. due to high degree of outbound postponement of the partst. in order to expedite Boeing 787. it should be manufactured In-House. The review of Boeing 787 Framework for Supply Chain also shows that chosen Framework for Supply Chain was not correct. told business students at Seattle University. Instead of modularization approach Boeing should choose flexible supply chain. 35 of the parts 8 . Boeing did not provide enough oversight to contractors who did not have an experience with technology: “We gave work to people that had never really done this kind of technology before. Analysis of expected results By appearing on the upper right corner of the SIC Matrix. According to SIC Matrix concepts company should choose an In – House production. and then we didn't provide the oversight that was necessary”. Boeing’s outsourcing approach is not the best option for 787 or any other airplane production. This approach also will be in line with the fact that. manufacturing of the wing will require sophisticated technology and quality. Flexible supply chain includes making some parts In-House and outsourcing. Since any airplane parts have critical strategic value due to their unique and proprietary technology and critical for the final assembly of the airplane. and according to the text book Global Operations and Logistics. fully supports results shown in the SIC Matrix. Boeing problem related to not providing enough oversight over supplier job. Jim Albaugh. However.MGT 6367 Mark Finkelshteyn Outbound postponement Low Inbound outsourcing Rigid Boeing 787 Outsourcing Disaster Modularization High Figure 3: Recommended Boeing 787 Framework for Supply Chain 6.

translation. Based on evaluation analysis. etc. 7. Conclusion After analyzing situation. The best option for airplane manufacturer is to have flexible Supply Chain where parts used in assembly of multiple airplane models can be outsources and model’s unique parts should be produced in the house. Boeing should evaluate suppliers past performance. it will eliminate some of the cultural. Boeing should made decision which parts to outsource to suppliers who performed well during the past. 9 . Since Boeing 787 program is almost completed and first airplane will be delivered to customer (ANA) in the near future the complete elimination of the outsourcing problem is not possible. However. recommendation to Boeing in the future is to do not repeat the same outsourcing mistake as it was done for Boeing 787. Using flexible supply chain will allow Boeing to keep control over the manufacturing of critical parts In-House without incurring additional not direct costs related to remote oversight over the suppliers’ job. As well. So Boeing could easily outsource those 35 parts because they are not unique to Boeing 787. as a next step forward in manufacturing of 787. and which parts one should be taken to In-House production along with the parts that are unique to Boeing 787. legal and other barriers related to international operations.MGT 6367 Mark Finkelshteyn Boeing 787 Outsourcing Disaster were copied from Boeing 747. using SIC Matrix and Framework for supply chain concepts.

html? _r=2&partner=rss&emc=rss 3.com/aircraft-engines-components/news/boeing-facesclaim-787-delays-sixth-flight-test-aircraft-wont-fly-u. 10 . "Boeing faces claim on 787 delays. 2011 New York Times http://www.com/2011/03/09/business/global/09air. August 16. sixth flight test aircraft won't fly until September".MGT 6367 Mark Finkelshteyn References Boeing 787 Outsourcing Disaster 1. Aaron. http://atwonline. Air Transport World July 16. 2011 http://articles.nytimes. 2010 4. “787 Dreamliner teaches Boeing costly lesson on outsourcing” by |Michael Hiltzik Los Angeles Times February 15. ATW Online.com/2011/feb/15/business/la-fihiltzik-20110215 2. “Boeing Deals Show Rising Clout of Asian Airlines” by BETTINA WASSENER March 8.latimes. "Boeing: 787 first delivery may be delayed to 2011". 2010. Karp.

586 15.073 & Shared 8. Space & 68.900 5.591 Total Company 157.958 Employees Other Locations 22.073 11 .183 157.619 59.727 72.971 4.MGT 6367 Mark Finkelshteyn Appendix 1: Employment numbers Boeing 787 Outsourcing Disaster Employment by location Location Alabama Arizona California Kansas Missouri Pennsylvania Texas Washington Employees 2.341 Security Commercial Airplanes Engineering.012 Administration Corporate Total Company 1.499 2.594 5.960 & Technology Finance Services Human Resources & 1.853 24. Operations 17.352 Employment by division Group Boeing Defense.

MGT 6367 Mark Finkelshteyn Appendix 2 Boeing 787 Outsourcing Disaster 12 .