With the recent surprising developments regarding the FAA grounding of the Boeing 787 Dreamliner, this is the perfect time to discuss what happens when outsourcing goes too far1. The “take-away” from the Dreamliner case is that although R&D outsourcing is often necessary in today’s R&D environment, it can backfire if taken too far.
Taking Outsourcing One Step too Far … The development of the Boeing 787 is an example of where the level of outsourcing was so excessive that it led to major delays in its development and safety problems with the delivered aircraft2.
The 787 Dreamliner was more than 3 years late when Boeing delivered the first aircraft in Sept 2011 instead of May of 2008 as originally planned. The 787 Dreamliner program was also several billion dollars over budget and analysts suggest it will take a long time, if ever, before the program is profitable. Although the Boeing 787 Dreamliner is a technological breakthrough and an example of disruptive innovation in the commercial aircraft industry, even Boeing’s management acknowledges missteps were taken during the 787’s development. Boeing CEO Jim McNerney said on Nov 11, 2010; “In retrospect, our 787 game plan may have been overly ambitious, incorporating too many firsts all at once – in the application of new technologies, in revolutionary design and build processes, and in increased global sourcing of engineering and manufacturing content”.
Boeing not only outsourced global subcontractors to build a very large percentage of the aircraft’s components (as opposed to far smaller amounts in the Boeing 737 or Boeing 777), but also had the sub-contractors assemble and deliver sub-assemblies to Boeing for the final assembly. The idea was that inventory would be reduced and that final assembly would be much quicker. Unfortunately this concept did not work well in practice with four of the seven major delays in the development program of the aircraft being attributed to supplier problems. Sub-contractors do not have the same skin in the game as the primary contractor which makes quality control issues inevitable unless they are managed tightly. In Boeing’s Dreamliner project, failure to understand the issues affecting the development of discreet components is likely to have contributed to the quality problems. Eventually, Boeing lost control of its component supply chain and ultimately had to buy some of its suppliers to ensure quality and consistency of supply. While some delays are inevitable for a program of this complexity, the over reliance of outsourcing probably cost Boeing 1-2 years delay with the concomitant loss of sales and marketing advantages over Airbus. Airbus’s answer to the Dreamliner is expected to be completed at the end of 2014, so Boeing’s first-to-market advantage over its competitor is slowly being eroded.
Since the delivery of the aircraft there have also been various malfunctions which have steadily raised safety concerns, the most serious of which is over the use of lithium ion batteries. The large number of outsourced manufacturers and developers of components involved will increase the complexity of solving these problems quickly.
Summary … No R&D group, no matter how large or well-funded the company, will have expertise in every functional area or in every technological area. This means, outsourcing of tasks during R&D projects is often necessary, inevitable and beneficial for innovation crescendo. However, outsourcing requires a heightened awareness and management of quality control issues and a deep understanding of the outsourced products/services.
As with everything, balance between outsourcing and in-sourcing is required and there is a tipping point at which innovation and new product development will be negatively impacted from too much outsourcing. A good rule of thumb: Never outsource to the level where you lose control of your NPD or quality processes.
- A later post will outline five scenarios where outsourcing definitely helps in accelerating innovation crescendo.
© Dennis Nelson 2013