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.
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.
Post continues after video:
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."
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!
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
'We're not exactly in a uniformly strong market,' says the notably pessimistic newsletter publisher.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.