Friday, July 17, 2009

Outsourcing Woes for Boeing

Boeing has been beset with labor issues in the past. Boeing's strategy to deal with this going forward is to outsource more of the work. About 30% of the 777 is manufactured by Boeing's partners and assembled by Boeing. The 787 plan was to outsource even more. This could have three effects. First, more technical jobs in manufacturing, where workers have more bargaining power, go to suppliers while the less technical "snap together" assembly jobs remain with Boeing. Second, multiple production lines make Boeing less vulnerable to disruptions. Third, by being more focused on what they do best, suppliers may eke out efficiencies in production.

Alas, it is not so easy to change production methods in this industry. Delivery of the 787 Dreamliner has been delayed again. A main culprit has been coordinating the various elements of the expanded supply chain. Manufacture of fuselage sections by Vought seems to have been especially plagued. Enough so that the Vought executive in charge was fired. It seems as though problems of incentives, hold up, and monitoring of arm-length operations were not fully appreciated. In the end, Boeing had to take an ownership stake in the operation earlier this year and buy out the Vought operations altogether earlier this month. Perhaps the experience with other suppliers was more positive, but this indicates that the supply chain is only as strong as its weakest link.

No comments:

Post a Comment