Boeing to Rein in Dreamliner Outsourcing

Raskal

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Wow, I can't believe an American business is actually acknowledging that outsourcing might not be the savior of all things stock-related. I would think this is great news for the Boeing folks.

Top News January 16, 2009, 5:26PM EST text size: TT
Boeing to Rein in Dreamliner Outsourcing

After two years of delays caused in part by a far-flung supply chain, Boeing plans to do more work on its new 787 in-house

By Joseph Weber
Boeing (BA), beset by repeated snarls that have delayed commercial deliveries of its 787 Dreamliner into early 2010, is rethinking the global outsourcing model that critics say has caused much of the nearly two-year holdup. The company is making plans to bring more work back in-house.
Frustrated by production and design snafus that Boeing engineers say have led the company repeatedly to send staffers out to suppliers to iron out difficulties, the company's top executives are suggesting they will rely less on their outside suppliers. While the forthcoming version of the Dreamliner, the 787-8, may be affected by the plans over time, efforts to scale back on outsourcing are expected to be more aggressive on future versions of the plane, especially the 787-9, scheduled for delivery in 2012.
Boeing, which had originally planned to put its first 787 into the air in August 2007, now expects the initial test flight by this coming June. Customers, many of them irked by the delays, should take delivery on the first version in the spring of 2010. Boeing's stock, which topped 106 a share in the fall of 2007 as record orders for the new plane rushed in, now hovers around 42.
Putting Suppliers on Notice

Because of political and commercial sensitivities, Boeing executives are playing their cards close to the vest on just how far they will go in backing away from outsourcing. Changes could unsettle suppliers who are believed to account for some 70% of the 787-8 in dollar terms, a far larger share than Boeing has outsourced on other planes. Chicago-based Boeing has outsourced much of the work on the new plane in a bid to contain costs and because foreign purchasers and their governments like to see work on the planes done in their countries.
Boeing's legion of partners span the globe. Mitsubishi, Kawasaki, and Fuji in Japan, for instance, produce the wings, forward fuselage, and center wing box, respectively. Sweden's Saab makes cargo doors and Italy's Alenia Aeronautica produces a horizontal stabilizer and central fuselage. Companies in Britain, France, Germany, and South Korea make other parts. And at least 10 U.S. companies, ranging from General Electric (GE) to Moog (MOGA) chip in on various parts.
However, high-level managers in the commercial planes division have been hinting for weeks that changes in this supply chain are in the works. Scott Carson, who heads Boeing Commercial Airplanes, in late November told editors at Aviation Week (like BusinessWeek, a publication of The McGraw-Hill Companies (MHP)) that Boeing is determined to fix its supply chain woes. "We fully recognize that we made some mistakes in that regard," Carson said. "On the 787-9, we are pulling more of the engineering back inside to try and alleviate some of the issues we've had on the 787-8."
And the executives, chastened by the missteps, appear to be readying suppliers for the likelihood they will lose some work, perhaps in production as well as in engineering design. Engineering Vice-President Mike Denton has suggested that the company is hammering out details about the changes with suppliers, whose contracts would likely have to be recast if changes are extensive. "Our engineers and production workers are basically correcting the problems that should have never come to us in the first place—problems that are the result of the partners really not being done," Denton said in a company podcast in the fall, as reported by the Web site Air Transport Intelligence. "We will probably do more of the design and even some of the major production for the next new airplanes ourselves as opposed to having it all out with the partners."
Boeing may also want to "dual-source" some work, relying both on Boeing staffers and on suppliers to provide parts. But spokesman Russ Young said nothing has been disclosed on how the work may be parceled out.
More Jobs for U.S. Unions?

Perhaps wary of unsettling suppliers or of raising hopes among Boeing workers that more work will be coming their way, company spokesmen declined to make any executives available to BusinessWeek to provide further details. Taking more work in-house could lead to more hiring over time, potentially totaling thousands of workers, say outside consultants and officials at Boeing's engineering union. In mounting its outsourcing effort, Boeing "might have gone a couple thousand engineers too far," says Richard Aboulafia, vice-president at the Teal Group, an aviation consulting firm in Fairfax, Va.
But now is a tough time for the company to be tipping its hand on prospective expansion. Boeing, whose workforce tends to rise and fall with production demands, is now cutting jobs to contain costs in the global economic crunch. The company on Jan. 9 announced it would cut its workforce by 4,500 jobs this year, amounting to some 6.7% of the workers in the commercial planes unit. The company expects to cut mostly in administrative areas, as opposed to design and production.
Boeing's unions, worried about losing jobs for their members, have been fiercely critical of outsourcing. It was a major issue in the 58-day strike last fall by the International Association of Machinists & Aerospace Workers and more recently was a hot topic when the company bargained on a new contract with the Society of Professional Engineering Employees in Aerospace (SPEEA).
The Failed "Hollywood" Model

Union officials say past executives at Boeing used Hollywood as a model as they developed their plans to outsource production on the 787. Moviemakers bring together independent contractors—actors, camera operators, publicists—on a project basis for many films, avoiding the expenses of having all such staffers constantly on the payroll. By treating planes as such projects, advocates of outsourcing figured they could do the same in producing aircraft.
"It turns out that we're not the motion picture industry," quips Stan Sorscher, legislative director of the SPEEA. He says staffers and project teams are not easily interchangeable in manufacturing products as complex as jets.
Some critics of outsourcing say the problems are not a matter of suppliers falling down on the job, but rather of communication glitches and routine design adjustments required in any major production effort. Suppliers can produce parts precisely to order, for instance, but then when the parts are put into place they may not fit correctly or may require adjustments. When a project is all done under one roof, such changes can be made quickly. But when the supplier is halfway across the globe, changes can take weeks.
Chief Executive W. James McNerney Jr., who took the helm at Boeing in mid-2005, inherited the aggressive outsourcing approach from prior CEOs. He appears to be amenable to dialing it back, if needed. McNerney would not be available to discuss his plans, a company spokesman said. However, in his interview with Aviation Week, commercial planes unit chief Carson said the CEO had "concerns" about "the deals we had done in the supply chain." Added Carson: "The fact that we're struggling with it now verifies that his concern was valid."
Joseph Weber is BusinessWeek's chief of correspondents, based in Chicago.
 

d.fitz

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It's a good thing they sold the Wichita facility to Spirit. :( They had all the experience in nacelle and fuselage design and they gave it away. Now Spirit is working on so many projects for other companies, their work for Boeing has suffered. They wanted to become an airplane assembly company and they were successful! This is the result. Now they want to get back into the design business..... Hello!
 

ACL65PILOT

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About time.
Proves that outsourcing can be your down fall. Many companies in this industry are finding this out the hard way!
 

habubuaza

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About time.
Proves that outsourcing can be your down fall. Many companies in this industry are finding this out the hard way!
But we are a global economy. This is the way of the future. Stop thinking about America and American products, it's the world's products. Boeing belongs to the world. Also, if you want countries like France or Sweden or Japan to be long term customers, you should invest in manufacturing in those countries. Forget that the American worker is the most productive worker in the history of the world. We must be concerned about our fellow man wherever he may be. I mean, aren't we much better off now that we moved most of our manufacturing to China? Think about how China has made our lives so much better. Who cares that they are a Military Industrial machine whose main concern is to eventually be able to thwart any other military power most specifically the US. You must open your minds, isn't it great that we are the biggest importer of seafood from China? Why should we be selfish and consume only our own fresh Maine Lobsters, or Dolphin off the West Coast of Florida, or Alaskan King Crab? I mean I don't know about you, but I said the hell with Mahi Mahi, the minute I tasted some sweet a$$ Chinese farmed catfish. You guys are just closed minded. Boeing did the right thing, outsourcing now and forever!
 

ACL65PILOT

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Trust me I am all for globalization, but not a that this kid of cost to a company. The needed to be a little more careful with how they did this. This all at once approach has shown how it can truly hurt a company. They will recover, but at a great loss of face, and money!
 

Amish RakeFight

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About time.
Proves that outsourcing can be your down fall. Many companies in this industry are finding this out the hard way!
For years DELL computers had a great reputation, due mainly to their stellar technical support.

At some point, DELL began to outsource their technical support overseas to 5 different countries. including India.

Complaints began to roll in from their business customers about the quality of tech support they were receving from DELL's overseas tech support staff. The usual complaints of incompetantcy, scripts, accents, etc., were being made by both business and consumer customers.

In response, DELL began to handle all of the business tech support insidethe U.S. and continued to provide inferior, overseas support for their retail consumer devision.
 

grinder

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I've noticed that Boeing also plans for success with very little time in the schedule for any sort of hiccups. A more realistic schedule to start with might have cost a couple initial orders, but would have saved a lot of face and shareholder value. Like other businesses, the focus is on the short term future, and good results for the quarter. I'm sure there is going to be further delays once the flight test phase gets into gear.
 

AA717driver

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The best thing about this story is that the reporter actually used the proper spelling of "rein".

I get surprised every day...TC
 
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