Reference no: EM131715373

In the year 2006, Boeing planned to introduced the Dreamliner 787. Their aim was to revolutionise the Aviation Industry with an innovative production line and a much more fuel-efficient aircraft. However, what actually happened is a different story.

Boeing thought that the world needed planes as big as the A380, since it was convinced that airlines really wanted more efficient aircraft offering better mileage and greater passenger comfort. So, the company made two major design changes. First, the plane would be made from carbon fiber composites instead of aluminum. Second, its braking, pressurization, and air-conditioning systems would be run not by hydraulics, but by electricity from lithium-ion batteries. Both choices represented major risks—a third bet-the-company gambled was the development of the 707 and 747.

First, the Carbon fiber is much lighter than aluminum, allowing for better mileage. Carbon fiber is also stronger than aluminum, permitting bigger windows. And carbon fiber doesn’t corrode like aluminum, so cabin humidity could be roughly doubled to reduce the dryness passengers experience during flight. However, there was no prior experience in dealing with carbon fiber bodies. Hence, introducing the carbon fiber bodies is a big risk to the airlines.

Second, Lithium-ion battery power also involved significant risks. Traditional jets use some engine air power to run some functions. The 787 aircraft would be entirely electrical, with all the power coming from the advanced technology batteries. Airlines loved the concept, and almost eight-hundred 787’s were ordered long before design was completed. But Boeing’s new management team was worried about the numbers and ultimately the new management could not handle the big gamble.

The board agreed to put up half the development cost, $10 billion on suggestion of Alan Mulally, then head of Boeing’s commercial aircraft division. The other half of the development cost would be laid off on an international collection of more than 50 suppliers. So, Boeing didn’t just outsource the manufacturing of parts, but it turned over the design, the engineering, and the manufacture of entire sections of the plane to some fifty strategic partners. Boeing ended up building less than forty per cent of the plane by itself. Boeing, which had traditionally fabricated and assembled most parts aside from engines and some electronics, became married to a supply chain. And, because the supply chain members were investors too, Boeing didn’t have the clout to which it was accustomed.

The end result is a failure. The experiment has been a biggest failure. There were many issues. Most of the fasteners were not installed correctly, and parts did not always mate. In one case, a 0.3-inch gap has been created when the nose-and-cockpit assembly was attached to the cabin. Deliveries were also late. Technology proved much more challenging for the supplier as some of them could handle it. Boeing engineers feared the suppliers were stealing Boeing’s intellectual crown jewels and ultimately the first plane was delivered three-and-a-half years late. And the worst part is the battery fire and smoke incidents which resulted in the grounding of the entire fleet and Boeing’s inability to deliver more.

Boeing is actively encouraging its suppliers to outsource work to Mexico. Several of their suppliers have successfully set up factories in Mexico because of the numerous advantages that Mexico offers to aerospace suppliers. So, the bottomline is - Outsourcing is risky and it becomes riskier when suppliers are not local.