Boeing’s outsourcing fiasco
Dear Kate,
Greetings from India.
The recent Boeing 737 MAX 9 mid-air episode, the resultant temporary grounding of these aircraft, and the fingers pointing at the “unmanaged” outsourcing partner Spirit Aerosystems helped me pull back your 2010 classic Vested Outsourcing: Five Rules That Will Transform Outsourcing, a gift from you soon after the release.
The commentary in the financial press is scathing, and outsourcing is hogging the limelight. Peggy Hollinger, in the Financial Times, a long read in early January 2024, writes that based on her feedback, points to the shortage of experienced workforce (contributed by the layoff and retirements) may have led to quality lapse. Boeing was hit hard after it halted MAX production after the 2019 grounding and the onset of Covid 19.
Observers believe that the “shift in priorities from engineering to financial performance” may have led Boeing, a product-focused company, to lose that DNA.
The New York Times, equally, does not mince words. Sharon Terlep and Andrew Tangel write, “Boeing, like many other American manufacturers, was outsourcing more and more of the components that went into its complex machines.”
John Hart-Smith, a Boeing engineer, warned of the dangers that lie because of the subcontracting strategy. There is too much outsourcing with too little onsite quality and tech support to its suppliers, he cautioned in 2001.
The latest lapses, courtesy of outsourced parts through vendors, are not the first time this has happened. Such incidents are a regular phenomenon warranting frequent shutdowns or grounding of costly mechanical birds of Boeing.
The same NYT piece quotes the president of the Machinists Association representing Spirit Aerosystems, whose faulty door plug blowout hit Boeing badly, saying, “We have planes all over the world that have issues that nobody has found because of the pressure Spirit has put on employees to get the job done so fast.” Scary scenario, indeed.
The entire world has embraced outsourcing, and there is no going back. Correct me if I am wrong. But for this phenomenon, China — the world’s bete noire — would not have attained the ubiquitous title of the World’s Manufacturing Hub. Right?
Under the garb of operational efficiency, occupants of corner suites of the global business world are giving off more and more components or subassemblies to third parties. Such an exercise demands an army of top-notch quality assurance hands and brains, plus a good number of chief security officers to give the final go-ahead before the flights or products take off the ground to reach the skies or the market shelves/showrooms.
To err is human. Multiple eyes can reduce any flip-flops. Don’t we have the Six Sigma concept, which negates zero fallibility by conceding at least six faulty things in a million?
Kate, you open Chapter 10 (Manage Performance) with an Albert Einstein quote, “The significant problems we face cannot be solved at the same level of thinking we were at when we created them,” and counsel outsourcing professionals to “take Einstein’s advice and think beyond the conventonal transaction-based outsourcing businss models in search of a better way to outsource.”
Then, you conclude with a few riveting questions, viz.,
> Will the company outsourcing reduce the overall cost of the entire solution?
> Will the service levels improve or stay the same?
> Will the service provider improve its margin if it can achieve service level and cost objectives?
Once again, outsourcing is more about cost reduction than hiving off non-core activities.
Kate, I would love to hear from you because the Boeing 737 MAX outsourcing hiccups are not a one-off incident or one specific vertical or product. So long as a 7 billion global population survives, its various needs must be met. It will be. There are bound to be goof-ups somewhere sometime. So, how to?
Over to you,
Cheers
Ramesh
