Sunday, January 20, 2013

Lessons from Dreamliner's troubles

The blame game for Dreamliner's latest fiasco has started. Outsourcing is the culprit. Has outsourcing gone too far? Predictably, the political machinery that opposes outsourcing see this as the latest evidence of the evils of outsourcing.

The latest trouble to hit Boeing's ambitious Dreamliner 787 project was the ignition and sparking of its Li-ion batteries in two accidents in Boston and Tokyo. The Li-ion batteries, which can be charged quickly, without loss of power, and can pack in a higher energy density (energy per unit weight) and therefore help reduce weight, has always been vulnerable to overheating and igniting. There have been a number of cases of planes catching fire due to problems related with Li-ion batteries. Even with multiple firewalls to ensure that the problem is contained even if the battery ignites, airline firms have not been able to completely reduce the danger. But recent technical advances have made fires, even when the battery fails, an extreme rarity. The plane has been grounded by US, India, and others.

In recent years, riding the global outsourcing wave, Boeing has embraced outsourcing with great gusto. It has transformed itself from being a primary manufacturer to a systems integrator who outsources 80% of its production requirements.

Its components and parts are manufactured across the globe, in four continents.
















In any case, amidst all the populist rhetoric, we are likely to gloss over critical questions. The debate raises two questions.

1. Like all other such ideas, outsourcing works effectively under certain conditions. The most important requirement is rigorous enough contracting principles and its management. If you can't do that effectively, don't outsource. Or develop strong capability before you move aggressively into contracting. Did Boeing rush headlong into outsourcing contracts, even before it had built adequate company-wide contract management capabilities?

2. Again, as with all other ideas, there is an extent to which we can pursue it. In technologically sophisticated industries like aviation, there may be a case for keeping the overall design and certain core manufacturing activities within the firm. Although, it may be straining credulity to believe that Li-ion batteries may one such core activity. But managing the thin-line between outsourcing and keeping activities within the firm is not easy. Did Boeing slip up here? Or does complex modern manufacturing make these decisions impossible to make with any degree of certainty?

Either ways, one cannot but help feel that Boeing failed to effectively manage its outsourcing processes. The fact that Boeing's problems are with Li-ion batteries which have a history of catching fires in other electronic equipment's  lends further credence to the belief that Boeing and its suppliers got it wrong. I am inclined to believe that it is a failure of outsourcing as Boeing did, rather than of outsourcing itself.

Update 1 (30/1/2013)

James Surowiecki has this nice article in New Yorker that examines Boeing's troubles. He writes

Boeing didn’t outsource just the manufacturing of parts; it turned over the design, the engineering, and the manufacture of entire sections of the plane to some fifty “strategic partners.” Boeing itself ended up building less than forty per cent of the plane... it was a huge headache for the engineers. In a fascinating study of the process, two U.C.L.A. researchers, Christopher Tang and Joshua Zimmerman, show how challenging it was for Boeing to work with fifty different partners. The more complex a supply chain, the more chances there are for something to go wrong, and Boeing had far less control than it would have if more of the operation had been in-house. Delays became endemic, and, instead of costing less, the project went billions over budget... And the missed deadlines created other issues. Determined to get the Dreamliners to customers quickly, Boeing built many of them while still waiting for the F.A.A. to certify the plane to fly; then it had to go back and retrofit the planes in line with the F.A.A.’s requirements.

2 comments:

Srikar said...

Gulzar,

An example of the outsourcing debate being played out here - http://www.tradereform.org/2013/01/787-grounding-puts-boeings-outsourcing-in-focus/?utm_source=rss&utm_medium=rss&utm_campaign=787-grounding-puts-boeings-outsourcing-in-focus.

gulzar said...

Thanks srikar