Friday Rant: Boeing's Bad Outsourcing Dream

Boeing has again delayed the debut of its Dreamliner. The critics are busy laying blame. Boeing has too many MBAs and not enough engineers. Or, the priority of making money for the shareholders got out of hand. But the reason that is at the top of many minds is: outsourcing. Two-thirds of the plane was outsourced to suppliers, resulting in a nightmarish scenario of supplier glitches. Some feel that if Boeing hadn't outsourced so much of the plane, then the Dreamliner would probably be in the air right now. But it may not be just the fact of outsourcing that got Boeing into trouble. How the outsourcing was done is the real issue. In an excellent article in the May 2009 issue of, "Bumpy Ride", Mike Denton, VP of Engineering for Boeing Commercial Aircraft (BCA) was quoted as saying, "So we erred on the side of giving them [suppliers] more free rein than in retrospect we should have".

The Dreamliner delays illustrate the complexities of developing new technology, using suppliers for new product development to reduce internal costs, and the challenges that a huge company that has acquired other businesses can face. The cultural differences between the old McDonnell Douglas (now known as IDS or Integrated Defense Systems) and BCA (Boeing Commercial Aircraft) still remain. Supplier management reports at a high level at Boeing and is run by a senior vice president (although both IDS and BCA each had its own senior vice president of supply management). My opinions about Boeing, by the way, come from years of being a supplier to them and involvement with the supplier management people on their processes. Assimilating new acquisitions is always a bumpy process. And Boeing is no exception. I was told a story of the merger in 1967 of Douglas Aircraft and McDonnell Aircraft. It was the war of the pencils. After the merger, the McDonnell folks printed "McDonnell-Douglas" on their pencils with "McDonnell" nearest to the eraser. The former Douglas Aircraft contingent printed the logo so that "Douglas" was nearest the eraser. Now sharpen each pencil and think about which name disappears first!

When Boeing acquired McDonnell Douglas, MD was counter culture -- a bean counter culture. Their former CEO, Harry Stonecipher, was always looking at reducing costs, some say at the cost of innovation. Another characteristic of MD was its core competency in supplier management. It had a world-class supplier certification program -- the Preferred Supplier Certification (PSC) process, whose details are a topic for another time. The PSC required suppliers to undergo a very rigorous evaluation process to become certified and maintain certification. And, by the way, how suppliers managed their suppliers and handled risk management were part of that evaluation. The BCA supplier evaluation processes were not as rigorous as the legacy MD's processes, and BCA resisted adopting the PSC, partly due to a NIH mentality. Each division had its own supplier evaluation processes. Many suppliers had to host Boeing visits from the two different divisions. In the end, BCA won and the excellent PSC process from MD was shelved.

Boeing is always working on new, improved supplier management processes and was working on a less intensive process to replace the PSC. But when it came to the Dreamliner, I believe that not using the more rigorous PSC process hurt Boeing and was a contributing factor to the outsourcing process getting out of control.

- Sherry Gordon

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