787: Outsourcing and Coordination
[Photo from Boeing]
For years, my best insights on (mis)management at Boeing have come during Stan and Judy’s Passover Seders. Stan, a physicist, worked at Boeing for twenty years and was part of the bargaining team for SPEEA (Society of Professional Engineering Employees in Aerospace) during the 1999-2000 negotiations that led to a strike. Soon after, he joined SPEEA full-time.
No longer do you need to attend Stan’s seder to find out what’s going on at Boeing. You can read Stan’s column, which appears in the Huffington Post. Stan has omitted his characteristic humor and you-are-there anecdotes, but in their place are deeper truths about business, labor, and management.
For instance, a few days ago, Stan wrote about what went wrong with the development of Boeing’s 787. The context is the FAA’s grounding of all US carrier 787 flights two Wednesdays ago, followed a day later by grounding of 787s around the world. From the NYT coverage:
The decisions are a result of incidents involving a 787 that was parked in Boston on Jan. 7 and another in Japan that had to make an emergency landing Wednesday morning after an alarm warning of smoke in the cockpit.
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.
Until now, much of the attention on the 787 was focused on its lighter composite materials and more efficient engines, meant to usher in a new era of more fuel-efficient travel, particularly over long distances. The batteries are part of an electrical system that replaces many mechanical and hydraulic ones that are common in previous jets.
The 787’s problems could jeopardize one of its major features, its ability to fly long distances at a lower cost. The plane is certified to fly 180 minutes from an airport. The U.S. government is unlikely to extend that to 330 minutes, as Boeing has promised, until all problems with the plane have been resolved.
For Boeing, “it’s crucial to get it right,” said Richard L. Aboulafia, an aviation analyst at Teal Group in Fairfax, Virginia. “They’ve got a brief and closing window in which they can convince the public and their flying customers that this is not a problem child.”
What went wrong? Some have raised the issue of outsourcing.
From the same article: “Boeing has said that it outsourced too much of the work on the 787 to suppliers who were willing, collectively, to cover billions of dollars of the development costs, and that many parts needed reworking.” See also Brad Plumer in the Washington Post, or Mark Lacter:
Still no word on what caused the battery fires that grounded the next-generation plane – and no indication when it might start flying again. But did you know that more than 30 percent of the components came from overseas suppliers, compared with 5 percent with the Boeing 747?
Stan’s latest piece offers a more thoughtful analysis, beginning with the observation that substantial outsourcing isn’t new to the 787, after which he identifies the key issue: coordination.
True, the 787 is heavily outsourced. However, Boeing’s previous airplane, the 777, was also heavily outsourced.
The lesson I learn starts with the large investment Boeing made on the 777 program to integrate all the key stakeholders into design and manufacturing teams, so we could react promptly when problems came up. In business school, that’s known as a coordination cost.
The 777 program leaders built in, from the beginning, the engineering problem-solving culture we used successfully on decades of previous programs. Technical leaders could capitalize on trust built through teamwork to allocate sacrifice to some stakeholders, and focus extra resources elsewhere, optimizing on the program overall. This is best done upstream in the course of a program — assuming you have the decision-making authority, which was intrinsic to the 777 business model.
It’s much harder to solve problems downstream, and harder still, if, like on the 787, you have weak decision-making authority and poor understanding of what other stakeholders are doing.
The 777 was built on schedule and delivered on time; it qualified for long-range operations over water at entry into service; it had great dispatch reliability from the beginning; it is currently making customers happy; and is making money for shareholders.
In contrast, the business culture on the 787 program was structured, from the beginning, to skip all those coordination costs. The 787 business model relies much more on suppliers for design and manufacturing. Coordination and problem-solving are relatively weak. Program leaders seem paralyzed when problems come up, because authority for fixing problems is also diffused into the supply chain.
Have a look at Stan’s article in full. And follow him. He’s worth reading.