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Fri Feb 1, 2013, 10:56 AM

The Boeing Debacle: Seven Lessons Every CEO Must Learn (Offshoring Issues)

In December 2012, fellow Forbes contributor Jonathan Salem Baskin wrote: “The company was convinced by one or more management consulting firms to outsource design and production of the 787’s components. While this idea might make sense for sourcing coffeemakers, it was a nonsense approach to assembling perhaps the most complicated and potentially dangerous machines shy of nuclear reactors. I’m sure blather from Harvard Business Review supported the idea that distances between factories in Seattle and Outer Mongolia were no farther than a VOIP chat, but the reality was a mess. Parts didn’t fit together with others. Some suppliers subcontracted work to their suppliers and then shrugged at problems with assembly. When one part wasn’t available, the next one that depended on it couldn’t be attached and the global supply chain all but seized up. Boeing had to spend $1 billion in 2009 to buy one of the worst offenders and bring the work back in-house.”

“The grounding — an unusual action for a new plane — focuses on one of the more risky design choices made by Boeing, namely to make extensive use of lithium ion batteries aboard its airplanes for the first time,” write Christopher Drew, Jad Mouawad and Matthew Wald in the New York Times: “The 787’s problems could jeopardize one of its major features, its ability to fly long distances at a cheaper cost… The maker of the 787’s batteries, Japan’s GS Yuasa, has declined to comment on the problems so far. “

What was Boeing thinking when they opted to embrace such extensive offshoring? Moser believes the error lay in using the wrong measure of the impact of offshoring on earnings. “Many companies that offshored manufacturing didn’t really do the math,” Harry Moser, an MIT-trained engineer and founder of the Reshoring Initiative told me. “A study the consulting company, Archstone, showed that 60 percent of offshoring decisions used only rudimentary cost calculations, maybe just price or labor costs rather than something holistic like total cost. Most of the true risks and cost of offshoring were hidden.”




http://www.forbes.com/sites/stevedenning/2013/01/17/the-boeing-debacle-seven-lessons-every-ceo-must-learn/

In sum, Boeing management began licking their chops at the lower labor costs and totally ignored all other real and potential costs/risks that offshoring brings as well. Now, their planes are getting grounded and they are losing a ton of money all because they didn't want to pay their workers a decent wage.

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Response to Yavin4 (Original post)

Fri Feb 1, 2013, 11:06 AM

1. A great excerpt from the article

GE’s water heater as originally designed for manufacture in China had a tangle of copper tubing that was difficult to weld together. In the past, GE had been shipping the design to China and telling them to “make it”. Confronted with making the water heater themselves, they discovered that “in terms of manufacturability, it was terrible.” So GE’s designers got together with the welders and redesigned the heater so that it was easier and cheaper to make. They eliminated the tangle of tubing that couldn’t be easily welded. By having those workers right at the table with the designers, the work hours necessary to assemble the water heater went from 10 hours in China to two hours in Louisville.

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Response to Yavin4 (Original post)

Fri Feb 1, 2013, 11:11 AM

2. My experience in IT is it's mostly dialouge and lack of oversight, have to have a technical pm

...and outside of that people who are dedicated to the project for a while....that aint happening with off-shoring.

An airliner would be just if not more complicated than a large scale processing system.

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Response to Yavin4 (Original post)

Fri Feb 1, 2013, 11:13 AM

3. Japan makes parts, ANA buys 55 787s?

Did Boeing use the 'you scratch my back, I scratch yours' technique?

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Response to godai (Reply #3)

Fri Feb 1, 2013, 11:39 AM

7. I've read other articles that indicated that the choice of contractors

had a lot to do with commitments to purchase the finished airliner.

Stupid. Stupid. Stupid.

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Response to Yavin4 (Original post)

Fri Feb 1, 2013, 11:15 AM

4. To their small credit, Boeing did wise up a year or so ago

...realizing that they were creating far more problems than they were solving with their "distributed manufacturing" model. It takes a very long time to undo a bad decision of that scale!

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Response to bhikkhu (Reply #4)

Fri Feb 1, 2013, 11:28 AM

6. Well, the lack of supplier oversight was was borderline criminal

The real issue is the 787 is so technologically advanced -- There's literally nothing else like it, so outsourcing to a bunch of suppliers who only knew the 'conventional' paradigm was doomed to failure...

Boeing should have kept as much of the 787 in-house as possible...

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Response to Yavin4 (Original post)

Fri Feb 1, 2013, 11:18 AM

5. A certain amount of distribution of manufacturing is necessary to get plane orders

Civilian and military aircraft manufacturers often distribute parts of their manufacturing to other countries to get orders, not because it is necessarily cheaper.

It is much easier to get a country to spend billions on your aircraft if they know some of their citizens will be making parts of it.

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Response to JPZenger (Reply #5)

Fri Feb 1, 2013, 11:42 AM

8. Even if the aircraft is years late and still has problems?

That's what the article is about.

Maybe that's why some military aircraft have problems. Aren't there still problems with the latest AF and Navy planes? Are the parts for these planes being manufactured by every ally we have; i.e. half the world?

I hope that the DOD looks closely at what went wrong with the 787.

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Response to Yavin4 (Original post)

Fri Feb 1, 2013, 11:47 AM

9. In my experience, business owners/leaders/whatevers act as though ...

they are offended by payroll expenses. They can't see past the money that they are paying people to work for them and seem willing to do ANYTHING in order to lower that cost. They seem to forget that actually, no, good employees are not as interchangeable and disposable as they would like to believe and that their business actually DOES depend on the people doing the work. It's a good investment to treat your workers well. Maybe someday this idiots will figure it out.

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Response to Yavin4 (Original post)

Fri Feb 1, 2013, 12:10 PM

10. Wait, you mean the cheapest labor isn't necessarily the best idea???

Who knew!! It's not like someone figured that out 100 years ago....

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