Boeing is rethinking their global outsourcing model.

[Ghanz]

Stumbled upon this article about Boeing on MSN. Article by Business Week:

Big changes for Boeing's Dreamliner

Frustrated by production and design glitches, the aerospace giant appears likely to shrink the role of outside suppliers on its much-delayed, next-generation jetliner.
By BusinessWeek

Boeing beset by repeated snarls that have delayed commercial deliveries of its 787 Dreamliner into early 2010, is rethinking the global outsourcing model that critics say has caused much of the nearly two-year holdup. The company is making plans to bring more work back in-house.

Frustrated by production and design snafus that Boeing engineers say have led the company repeatedly to send staffers out to suppliers to iron out difficulties, the company's top executives are suggesting they will rely less on their outside suppliers.

While the forthcoming version of the Dreamliner, the 787-8, may be affected by the plans over time, efforts to scale back on outsourcing are expected to be more aggressive on future versions of the plane, especially the 787-9, scheduled for delivery in 2012.

Boeing, which had originally planned to put its first 787 into the air in August 2007, now expects the initial test flight by June.

Customers, many of them irked by the delays, should take delivery on the first version in the spring of 2010. Boeing's stock, which topped $106 a share in the fall of 2007 as record orders for the new plane rushed in, now hovers around $42.

Because of political and commercial sensitivities, Boeing executives are playing their cards close to the vest on just how far they will go in backing away from outsourcing.

Changes could unsettle suppliers who are believed to account for some 70% of the 787-8 in dollar terms, a far larger share than Boeing has outsourced on other planes. Boeing has outsourced much of the work on the new plane in a bid to contain costs and because foreign purchasers and their governments like to see work on the planes done in their countries.

Boeing's legion of partners span the globe. Mitsubishi, Kawasaki and Fuji in Japan, for instance, produce the wings, forward fuselage and center wing box, respectively. Sweden's Saab makes cargo doors and Italy's Alenia Aeronautica produces a horizontal stabilizer and central fuselage. Companies in Britain, France, Germany and South Korea make other parts. And at least 10 U.S. companies, ranging from General Electric to Moog chip in on various parts.

However, high-level managers in the commercial planes division have been hinting for weeks that changes in this supply chain are in the works.

Scott Carson, who heads Boeing Commercial Airplanes, recently told editors at Aviation Week that Boeing is determined to fix its supply chain woes. "We fully recognize that we made some mistakes in that regard," Carson said at the November meeting. "On the 787-9, we are pulling more of the engineering back inside to try and alleviate some of the issues we've had on the 787-8."

And the executives, chastened by the missteps, appear to be readying suppliers for the likelihood they will lose some work, perhaps in production as well as in engineering design.

Making more work in-house could lead to more hiring over time, potentially totaling thousands of workers, say outside consultants and officials at Boeing's engineering union.

In mounting its outsourcing effort, Boeing "might have gone a couple thousand engineers too far," says Richard Aboulafia, vice president at the Teal Group, an aviation consulting company in Fairfax, Va.

But now is a tough time for the company to be tipping its hand on prospective expansion. Boeing, whose work force tends to rise and fall with production demands, is now cutting jobs to contain costs in the global economic crunch.

The company on Jan. 9 announced it would cut its work force by 4,500 jobs this year, amounting to 6.7% of the workers in the commercial planes unit. The company expects to cut mostly in administrative areas, as opposed to design and production.

Boeing's unions, worried about losing jobs for their members, have been fiercely critical of outsourcing. It was a major issue in the 58-day strike last fall by the International Association of Machinists & Aerospace Workers and more recently was a hot topic when the company bargained on a new contract with the Society of Professional Engineering Employees in Aerospace.

Union officials say past executives at Boeing used Hollywood as a model as they developed their plans to outsource production on the 787. Moviemakers bring together independent contractors -- actors, camera operators, publicists -- on a project basis for many films, avoiding the expenses of having all such staffers constantly on the payroll.

By treating planes as such projects, advocates of outsourcing figured they could do the same in producing aircraft.

"It turns out that we're not the motion-picture industry," quips Stan Sorscher, legislative director of the SPEEA. He says staffers and project teams are not easily interchangeable in manufacturing products as complex as jets.

Some critics of outsourcing say the problems are not a matter of suppliers falling down on the job, but rather of communication glitches and routine design adjustments required in any major production effort.

Suppliers can produce parts precisely to order, for instance, but parts may require adjustment or may not fit correctly when they are put into place. When a project is done under one roof, such changes can be made quickly. But when the supplier is halfway across the globe, changes can take weeks.

Chief Executive W. James McNerney Jr., who took the helm at Boeing in mid-2005, inherited the aggressive outsourcing approach from prior CEOs. He appears to be amenable to dialing it back, if needed.

McNerney would not be available to discuss his plans, a company spokesman said. However, in his interview with Aviation Week, commercial planes unit chief Carson said the CEO had "concerns" about "the deals we had done in the supply chain." Added Carson: "The fact that we're struggling with it now verifies that his concern was valid."

This article was reported and written by Joseph Weber for BusinessWeek.


Greetz,
Hans