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Boeing Outsourcing Issue

In: Business and Management

Submitted By kulwantd
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Boeing 787’s problems blamed on outsourcing, lack of oversight

Issue
Boeing 787’s problems including the battery issue blamed on excessive outsourcing and a lack of oversight which introduced the quality issue. Boeing contracted with 50 top tier-1 suppliers, which is a totally different approach than it used in the past.
Rule
When a company outsources most of its operations, they need to have a proper oversight in place to monitor their partners. In Boeing’s case they needed to vet their tier-2 and 3 subcontractors from quality and capability perspective. The oversight team should have been composed of multidisciplinary experts, especially the supply chain manager. Also when you outsource, you need to work with your internal employees proactively to assure their job security. Finally, be open and transparent with your customers and discuss the impact of the outsourcing.
Analysis
Boeing took very different approach with 787 program than its 737 program. They almost doubled the outsourcing strategy with 787 program. Supplier relationship was purely contract based in 737 program while in 787 program they made them strategic partners with tier-1 suppliers and their responsibility was to develop and produced a section of airplane while in 737 program they developed only parts. In 787 program they have only 50 tier-1 suppliers while in 737 program they have around thousand. Also the supplier contract is fixed price and penalty for delays in 737 program and in 787 it is risk-sharing meaning they don’t get paid until the plane is delivered to the customer. With 787 program they can finish the assembly in 3 days whereas with 737 program it takes around 30 days to finish the assembly. Bottom line is that the way they structured the outsourcing contract they did not have insight into their tier-2 and tier-3 subcontractors and that introduced the quality issue including…...

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