Boeing's billion-dollar outsourcing problem

The company has farmed nearly a third of its new plane to other countries, and that's created some headaches.

By Kim Peterson Feb 18, 2011 5:21PM
Credit: (©Chris Ratcliffe/Bloomberg via Getty Images)
Caption: Boeing 787Boeing's (BA) next new plane, the 787 Dreamliner, is three years late. It's also become extraordinarily costly for the company, coming in billions of dollars over budget.

Could Boeing's excessive reliance on outsourcing be to blame? That's the topic explored by Michael Hiltzik of The Los Angeles Times this week. About 30% of the Dreamliner is made in other countries -- far more than the 5% in Boeing's well-known 747 airplane.

Now, if Boeing outsourced well and saved money in the process, that would be one thing. But it didn't, and the list of mistakes it made in enlisting offshore help serves as a warning to other companies hoping to cut costs.

Some pieces made by foreign suppliers didn't fit together, Hiltzik writes. Vendors couldn't provide enough parts on time, contributing to delays. Boeing began asking subcontractors to do some of the engineering, and one supplier didn't even have an engineering staff.

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Too many of Boeing's outsourcing partners needed hand-holding, which drained time and money. The company pretty much admits this now.

"In hindsight, we spent a lot more money in trying to recover than we ever would have spent if we tried to keep many of the key technologies closer to Boeing," the company's commercial aviation chief said last month, according to Hiltzik. "The pendulum swung too far."

Boeing chief executive, Jim McNerney, has also expressed regret.

"In retrospect, our 787 game plan may have been overly ambitious, incorporating too many firsts all at once -- in the application of new technologies, in revolutionary design-and-build processes, and in increased global sourcing of engineering and manufacturing content," he said in a November speech, Reuters reports.

How bad did it get? One Boeing employee told Reuters that he ran out of a washer for a screw on a plane. He said he had to fill out paperwork to order a single washer, and then waited a day to get it from an outside supplier.

"Everyone knows that vendoring has killed this program," the employee said. "You have contractor agreements that have slowed the whole process down."

Felix Salmon at Reuters
says it's sad that this lesson has to be learned the hard way so often. "Boeing executives, just like most of the rest of corporate and political America, were incredibly bad at pricing moral hazard and tail risk," Salmon writes. "Boeing was picking up pennies in front of a steamroller, and ended up getting crushed."

Feb 21, 2011 10:13AM

Boeing should have made jigs for each part that has to fit something else and then sent them to their suppliers.  If the part fits the jig, then they should fit the plane!  Really simple!  Drawings can only take the process so far!


This simple mistake has cost the company billions!  Heads should rolll!

Feb 21, 2011 8:36PM
Boeing deserves everything that results from this fatal error. This is a tough lesson to learn, they should have kept the jobs in the US and taken care of many unemployed people. Shame on you Boeing.
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