IBUS 618
Building the Boeing
6/24/2013
Boeing was in the process of taking a huge technology gamble by building the 787 for long routes. The change in methodology was to build parts of the plane by leveraging their global supply chain to build the aircraft’s components with its partners across the globe (70% of the total content of the aircraft). Boeing was hoping to capture cost savings by leveraging their partnerships for the building and development, so they wouldn’t have to carry the corresponding infrastructure and operational costs for the components. The working assumption was that their partners would contribute an estimated $8 billion in development cost for the 787, part of which Boeing would not have to spend. Also by having the parts built in various countries, there was an opportunity to have an indirect presence in developing nations via their partnerships which could lead to sales in those countries. Boeing also hoped to reduce manufacturing time for the full development of the aircraft from six years to four years of total time from concept to delivery, so that sales would occur quicker and two years of production costs would be avoided.
Boeing is gambling on the upside of this updated supply chain model, because there are risks associated with their new methodology. This is effectively a decentralized model where Boeing communicates the specifications for the parts of the aircraft, but they have to trust that their partners will deliver to those specs on time. The autonomy and trust given to their partners did not pay off, because Boeing discovered that much more partner oversight was necessary when delivery delays occurred during production. Boeing eventually occurred an additional $2 billion in development costs and delivery delays of up to 12 months, so they found out first-hand the risks of delegating to partners as they outsourced their development as well.
To offset the global supply chain risks,...