Boeing is facing an unprecedented ramp up of production for its 737 Max aircraft. According to an article in the Wall Street Journal (August 21, 2015 p. B1 – Boeing Scrambles to Get Key Part), Boeing has the opportunity to go from less than one aircraft per month to over 50 by 2020, the fastest ever increase in jetliner production.
But there’s a problem. It seems the supplier of a key engine part may not be able to respond to that level of growth. While Boeing is confident in its own processes and their ability to ramp up, one part in their supply chain could hold them back. This is the essence of Benjamin Franklin’s proverb, “for want of a nail the shoe was lost.” Many companies fall into the trap of certifying suppliers at current demand levels without exploring their capability to ramp-up rapidly in response to new market demand.
Being ready to ramp-up and ramp-down can prevent excess inventory and lost sales. Is your supply chain ready for a fast ramp-up? Can your suppliers (who have performed well in the past) respond to a significant change in demand?
© – 2015 – Rick Pay – All Rights Reserved
Last week the Seattle Times reported that due to two cases of battery malfunction, Boeing has indefinitely grounded the 787 Dreamliner. The Dreamliner has made the news many times before this, and not for the right reasons: its construction has been plagued by delays and technical challenges.
Some blame outsourcing as the cause of the battery issues, but doesn’t every manufacturer outsource at least some of its components, especially for a product as vast and complex as an airplane? What could Boeing have done differently?
While Boeing worked closely with its top 50 suppliers, those suppliers in turn outsourced to others, and Boeing lacked the capacity to oversee so many factories, or to even create detailed specifications for the outsourced products, according to the author of a paper presented to Boeing back in 2001. While Boeing beefed up supplier oversight in recent years, it may have already been too late.
While it costs time and money to work closely with suppliers, and overseeing their suppliers is often difficult, we can learn a great deal from Boeing’s very public experiences with the Dreamliner. Managing your entire supply chain including providing your suppliers with guidelines and expectations about managing their suppliers is critical for success. Is it worth the risk of long-term reputation damage to save money by outsourcing without proper oversight?
© Rick Pay 2013 – All rights reserved
Authors: Paige McKinney, Rick Pay
When companies consider moving production off-shore, there are many factors to take into account. Here are just a few:
- Core competency. If what you’re doing is a core competency in your country, don’t take it offshore. Boeing made the mistake of off-shoring 80% of their 787 Dreamliner to factories in the Far East. While they were investigating the move, one of their engineers spoke out against it, citing inadequate vetting of suppliers and no plan to protect Boeing’s core competencies. A senior manager disagreed, and it has cost Boeing $12-18 billion to recover from their decision to move production of just the tail section offshore.
- Access to technology. Right now you can’t buy a pearlescent black Toyota because the factory that makes that particular paint is within the area of the Fukushima nuclear plant in Japan. The microchip industry has also lost access to the technology it requires – there are two plants in the entire world that make the coating for silicon wafers, both of which were affected by the tsunami in Japan.
- Clock speed. Clock speed is the speed at which a product becomes obsolete, so laptop computers, for example, have a very high clock speed. Fire hydrants have a low clock speed. If your product goes obsolete quickly, you’ll need engineers and supply chain professionals at your suppliers’ location to continuously check products coming off the line. Dell, who has been successful off-shoring, has a significant supply chain management team on the ground in Taiwan to keep track of things. It takes significant resources to support that effort.
- Variability of demand. Older, more established products are better candidates for off-shoring because you can more accurately predict demand. Making the effort to move off-shore for a new product may be risky if the demand fluctuates or drops within two years.
© Rick Pay, 2011 – All rights reserved