The Boeing Dreamliner battery issue that is still grounding its planes is being dissected from many angles, even as the root cause is still unknown and corrective action cannot be taken yet. Many have been delving into the battery issue and speculating on whether a lithium-ion battery was too risky a technology to have been approved in the first place. But instead of discussing technical issues that are probably being addressed by the best minds in aerospace, I’d like to discuss a favorite whipping boy: outsourcing. Are Boeing’s Dreamliner issues the fault of outsourcing?
In a recent issue of the New Yorker, the article, Requiem for a Dreamliner, claims that in outsourcing so much of the Dreamliner (60% of it, as claimed by this article, but I have seen other percentages such as 70% and 30% ), Boeing lost control of the process and technology. However, given the complexity of the some of the technology, it is increasingly difficult to be all things to all people in product development, even in-house and all under one roof. Can one company, even a big one, be the expert both in battery technology and breakthrough composite materials? The answer is not a simple one.
The Dreamliner wasn’t the first time Boeing was outsourcing a good percentage of the airplane to suppliers. What about its other planes? What was the last airplane whose components were built mostly in-house? Using suppliers to build an airplane and collaborate on new technology is not news for Boeing. Boeing has long been a systems integrator.
The article also mentions the difference in the McDonnell-Douglas and legacy Boeing cultures. When I worked with the St. Louis side of the business, they did have a rigorous supplier evaluation and management process. Supplier management is critical enough to merit a Senior VP of Supplier Management (not just a CPO or VP Supply Chain). Was this rigor was applied to supplier selection and management on the commercial side? And how well was the process managed? Were requirements properly flowed down to Boeing suppliers and then to their suppliers? How well was supply chain risk managed? The New Yorker piece seems to be implying not well enough.
But the question is, would keeping everything in-house have been more successful and less costly? In-house product development is not a no-brainer low-cost option. Nor is it a guarantee of on-time delivery and problem-free new product launches. If new technology and expertise have to be hired or developed in-house, there are still major challenges and costs. Just the facilities and equipment for testing and development of a product can cost as much or more compared with outsourcing. And we’re not talking just one monolithic product or technology called the Dreamliner. We’re talking multiple subsystems that make up that product, all requiring different types of expertise. Another potential challenge for Boeing is its unionized engineers who, at this writing, are looking to go on strike. This is one potential risk that must be considered when weighing insourcing vs. outsourcing. Supply chain risk is always a factor when outsourcing. Much can go wrong. The complexities multiply with the size of the supply chain and the number of tiers. And, it’s still not clear yet whether the battery issue is due to supplier-induced problems, Boeing design issues or something else. Blaming outsourcing and blaming the suppliers are the knee-jerk reactions when things go wrong.
In my experience, the majority of supplier problems are typically customer-induced. If a customer’s business processes are causing challenges to suppliers, it’s likely they’re causing problems internally as well. In Boeing’s case, how well were all the plane’s systems envisioned and designed to plug and play together? Ultimately, the company had the vision and design authority. Whether or not it was properly executed, either internally or through suppliers is the question. Were the vision and ultimate design flawed in the first place? If so, then outsourcing would magnify these problems.
Another aspect of outsourcing is political. To some, it implies low-cost country outsourcing, chasing cheap labor, and loss of American jobs. According to this diagram, key components of the Dreamliner come from major, experienced European and Asian manufacturers who are experts in the systems that they develop and make. We’re not talking deadbeat, risky suppliers here.
Developing a next generation product as complex and breakthrough as the Dreamliner was going to be fraught with risks, challenges, delays and cost overruns whether it was internally or externally sourced. It’s easy to blame outsourcing, as the failures are more visible and political than internal ones. Outsourcing does not mean washing one’s hands of the whole process and leaving it to the supplier. It is still a closely collaborative effort, with a supplier working as an extension of the customer’s operation. The issue is: how robust was the customer’s operation in this case?
Do you think outsourcing was to blame for the Dreamliner’s problems? I welcome your views on the subject.