.excelsior.edu/webapps/assignment/uploadAssignment?content_id=_1904954_1&course_id=_46636_1&assign_group_id=&mode=view”>2 Case Analysis: Building the Boeing 787
If viewing this through the Assignment tool, click the title above to go to the Submissions area.
How does a major international company adapt production strategy to enjoy the benefits of globalized production and outsourcing?
When it comes to production strategy, the choice of an optimal manufacturing location must consider country factors, technological factors, and product factors. Foreign factories can improve their capabilities over time, and this can be of immense strategic benefit to the firm. Managers need to view foreign factories as potential centers of excellence and encourage and foster attempts by local managers to upgrade factory capabilities.
An essential issue in many international businesses is determining which component parts should be manufactured in-house and which should be outsourced to independent suppliers.
In doing this Case Analysis, you will analyze the challenges faced by Boeing’s management, and come to appreciate them.
As the basis for the Case Study analysis:
ReadChapter 17 of the text.
Reflect on the Closing Case on page 668 in the Part 6 Cases segment.
The closing case explores Boeing’s strategy for its new 787 aircraft. As Boeing made the decision to outsource much of the production of the 787 in the hopes of significantly reducing the time to get the product to market, it also anticipated that its outsourcing strategy would allow it to generate additional sales from the countries that were partners in the process, and reduce its costs and risks. While Boeing’s strategy worked for some components, for other parts, the strategy was a disaster. Suppliers· .excelsior.edu/webapps/assignment/uploadAssignment?content_id=_1904954_1&course_id=_46636_1&assign_group_id=&mode=view”>M6A2 Case Analysis: Building the Boeing 787
If viewing this through the Assignment tool, click the title above to go to the Submissions area.
How does a major international company adapt production strategy to enjoy the benefits of globalized production and outsourcing?
When it comes to production strategy, the choice of an optimal manufacturing location must consider country factors, technological factors, and product factors. Foreign factories can improve their capabilities over time, and this can be of immense strategic benefit to the firm. Managers need to view foreign factories as potential centers of excellence and encourage and foster attempts by local managers to upgrade factory capabilities.
An essential issue in many international businesses is determining which component parts should be manufactured in-house and which should be outsourced to independent suppliers.
In doing this Case Analysis, you will analyze the challenges faced by Boeing’s management, and come to appreciate them.
As the basis for the Case Study analysis:
ReadChapter 17 of the text.
Reflect on the Closing Case on page 668 in the Part 6 Cases segment.
The closing case explores Boeing’s strategy for its new 787 aircraft. As Boeing made the decision to outsource much of the production of the 787 in the hopes of significantly reducing the time to get the product to market, it also anticipated that its outsourcing strategy would allow it to generate additional sales from the countries that were partners in the process, and reduce its costs and risks. While Boeing’s strategy worked for some components, for other parts, the strategy was a disaster. Suppliers were late and some produced poor quality parts forcing Boeing to commit additional resources to the project.
Answer Questions 1, 2, and 3 at the end of the Closing Case on page 668. In addition, answer the following question:
Boeing received a lot of negative press regarding battery-related fires. This issue is now resolved, but to what extent were these problems the result of Boeings out-sourcing strategy?
You may also wish to visit the Boeing website: .boeing.com/”>The Boeing Company .
late and some produced poor quality parts forcing Boeing to commit additional resources to the project.
Answer Questions 1, 2, and 3 at the end of the Closing Case on page 668. In addition, answer the following question:
Boeing received a lot of negative press regarding battery-related fires. This issue is now resolved, but to what extent were these problems the result of Boeings out-sourcing strategy?
You may also wish to visit the Boeing website: .boeing.com/”>The Boeing Company .
Building the Boeing 787
Boeings newest commercial jet aircraft, the wide-body 787 jet, is a bold bet on the future of both airline travel and plane making. Designed to fly long-haul point-to- point routes, the 250-seat 787 is made largely of com- posite materials, such as carbon fibers, rather than traditional materials such as aluminum. Some 80 per- cent of the 787 by volume is composite materials, mak- ing the plane 20 percent lighter than a traditional aircraft of the same size, which translates into a big sav- ing in jet fuel consumption and costs. The 787 is also packed full of other design innovations, including larger windows, greater headroom, and state-of-the-art elec- tronics on the flight deck and in the passenger compartment.
To reduce the risks associated with this technological gamble, Boeing decided to outsource an unprecedented 70 percent of the content of the 787 to other manufac- turers, most of them based in other nations. In contrast, 50 percent of the Boeing 777 was outsourced, 30 percent of the 767, and only 5 percent of the 707. The idea was that in return for a share of the work, partners would contribute to the estimated $8 billion in development costs for the 787. In addition, by outsourcing, Boeing believed it could tap into the expertise of the most effi- cient producers, wherever in the world they might be located, thereby driving down the costs of making the plane. Furthermore, Boeing believed that outsourcing some work to foreign countries would help it to garner sales in those countries. Boeings role in the entire process was to design the plane, market and sell it, and undertake final assembly in its plant in Everett, Washington. Boeing also believed that by outsourcing the design of so many components, it could cut down the time to develop this aircraft to four years from the six that is normal in the industry.
Some 17 partners in 10 countries were selected to pro- duce major parts of the aircraft. The rear fuselage was to be made by Vought Aircraft Industries in South Carolina; Alenia Aeronautical of Italy was to make the middle fu- selage sections and horizontal tailpieces. Three Japanese companies, Fuji, Kawasaki, and Mitsubishi, were to pro- duce the wings. The nose section was to be made by Toronto-based Onex Corporation. All of these bulky pieces were to be shipped to Everett for final assembly aboard a fleet of three modified Boeing 747 freighters called Dreamlifters.
Until late 2007, the strategy seemed to be working re- markably well. Boeing had booked orders for over 770 aircraft, worth more than $100 billion, making the 787 the most successful aircraft launch in the history of commercial aviation. But behind the scenes, cracks were appearing in Boeings globally dispersed supply chain. In mid-2007, Boeing admitted the 787 might be a few
months late due to problems with the supply of special fasteners for the fuselage. As it turned out, the problems were much more serious. By early 2008 Boeing was admit- ting to a delay of up to 12 months in the delivery of the first 787, an additional $2 billion in development costs, and the possibility of having to pay millions in penalty clause payments for late delivery to its leading customers.
The core issue was that several key partners had not been able to meet Boeings delivery schedules. To make composite parts, for example, Italys Alenia had to build a new factory, but the site that it chose was a 300-year- old olive grove, and it faced months of haggling with local authorities and had to agree to replant the trees elsewhere before it could break ground. To compound problems, its first fuselage sections delivered to Boeing did not meet the required quality standards. Then when parts did arrive at Everett, Boeing found that many com- ponents had not been installed in the fuselages (as required), and that assembly instructions were available only in Italian. Other problems arose because several partners outsourced mission-critical design work to other enterprises. Vought, for example, outsourced the design and building of floor pieces for which it was responsible to an Israeli company. In turn, the Israeli company had trouble meeting Boeings exacting quality standards. However, because it was reporting to Vought, not Boeing, executives at Boeing did not learn of this until it had already become a serious bottleneck. Upon learning of the issue, Boeing rapidly dispatched engi- neers to Israel to work with the company, but by now several months had been lost. Boeing also subsequently acquired Vought in 2009, bringing the supplier in-house.
Despite all of these issues, Boeing remains committed to its outsourcing program. However, the company has learned that if it is going to outsource work to foreign suppliers, much closer management oversight and coordi- nation is required to make it work. The company has also indicated that as valuable as outsourcing can be, it prob- ably went too far with the 787. Going forward, Boeing has signaled that it will not outsource key components that are seen as a source of Boeings competitive advantage (wings, in particular, are often mentioned as a component that may not be outsourced for future aircraft model
(Hill 668)
Hill, Charles W. L. International Business, 9th Edition. McGraw-Hill Higher Education, 2013. VitalBook file.
The citation provided is a guideline. Please check each citation for accuracy before use.
Case Discussion Questions
1. What are the benefits to Boeing of outsourcing so much work on the 787 to foreign suppliers? What are the potential risks? Do the benefits outweigh the risk?
2. In 2007 and 2008 Boeing ran into several publicized issues with regard to its management of a globally dispersed supply chain. What are the causes of these problems? What can a company like Boeing do to make sure such problems do not occur in the future?
3. Some critics have claimed that by outsourcing so much work, Boeing has been exporting American jobs overseas. Is this criticism fair? How should the company respond to such criticisms?
Sources
1. J.L.Lunsford,JetBlues,TheWallStreetJournal,December 7, 2007, p. A1; J. Gapper, A Cleverer Way to Build a Boe- ing, Financial Times, July 9, 2007, p. 11; J. Teresko, The Boeing 787: A Matter of Materials, Industry Week, Decem- ber 2007, pp. 3439; and P. Sanders, Boeing Takes Control of Plants, The Wall Street Journal, December 23, 2009, p. B2.
(Hill 669)
Hill, Charles W. L. International Business, 9th Edition. McGraw-Hill Higher Education, 2013. VitalBook file.
The citation provided is a guideline. Please check each citation for accuracy before use.
(Hill 668)
