The Wall Street Journal reports that Boeing (NYSE: BA)'s 787 Dreamliner is being delayed due to its global value chain. This suggests that despite the best efforts of globalization proponents to extol the virtues of a flat world, there are still some mighty big rocks in its path.
Boeing encountered much bigger challenges than anticipated in its efforts to lower the $10 billion cost of developing the 787 by shifting the job to other companies. It mistakenly thought that it would be easy to snap together at its Seattle-area factory a collection of parts designed and built by worldwide suppliers. The resulting delays have affected 19 of the 52 airlines that have ordered the 787, some of which were counting on using their planes during the 2008 Summer Olympics. Boeing could end up paying millions in penalty payments to customers.
The basic problem Boeing faces is that its suppliers -- instead of using their own engineers to do the design work -- outsourced that work to even smaller companies. And in their eagerness to profit from the 787 windfall, overloaded themselves with work from multiple 787 suppliers. In effect, Boeing is now learning that it did not provide strict enough performance goals to its suppliers. And now it's at their mercy.
This gap between expectations and reality suggests that Boeing has a long way to go to get its delivery schedule under control. And it also highlights the dangers of blithely assuming that globalization is the solution to the problem of high costs.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Boeing.
Entrepreneur's Journal: Putting together a solid sales contract
The week in preview: Earnings from Walmart, Macy's, and other retailers
Six top trades for the rest of 2009
Reader Comments (Page 1 of 1)
12-10-2007 @ 4:20PM
ADDAM BONGG said...
CENSOR ME IF YOU WILL WHILE YOU TRY TO IMPOSE YOUR OPINIONS ON THE PEOPLE... I WILL NOT CHANGE MY OPINIONS TO SUIT YOU... THANKS
12-10-2007 @ 3:49PM
jpdr1100 said...
Odd, but I can read every one of your rantings.
12-07-2007 @ 5:27PM
ADDAM BONGG said...
IT'S OBVIOUS BLOGGING STOCKS WON'T POST MY COMMENTS UNLESS I APPROVE OF THE STOCKS... WELL, I DISAPPROVE.
2-04-2008 @ 2:44PM
Alexander Levit said...
Addam its Alex from Hunter, you did the short for me and I've finsihed..I need you to email me your addresse for me to send you a copy...
12-07-2007 @ 5:31PM
ADDAM BONGG said...
MAYBE NOW YOU BELIEVE ME THAT IT'S ALL A RIPOFF AND YOU'VE BEEN SCAMMED BY THE STOCK MARKET PARASITES. A FOOL AND HIS MONEY SOON GO SEPARATE WAYS.
12-07-2007 @ 5:34PM
ADDAM BONGG said...
THE DREAMLINER IS NOTHING MORE THAN THE NEXT GENERATION OF POLLUTION AT 30,000 FEET
12-07-2007 @ 6:32PM
Brockage said...
Why do I feel that I have entered the twilight zone?
12-07-2007 @ 9:47PM
Chris said...
I read the WSJ article this morning. It was a very good article.
To say that Boeing's failure to properly manage their suppliers is an indictment on globalization is borderline funny. Their largest supplier problems are with Vought -- a US company.
12-09-2007 @ 2:32PM
Jack said...
I used to smile about the quip about the Saturn IVB that put a man on the moon. It was a rocket consisting of 1M parts all manufactured by the lowest bidder.
My hat is off to those early astronauts but when one of these 787s shows up at the gate I'm leaving. I'll wait for the bugs to cook off for two years before I strap one of these puppies on.
12-11-2007 @ 2:37PM
G-man said...
I am one of those lower-tier suppliers and agree with this assessment. I can only add that Boeing's claim that most problems stem from fasteners/supply chain/etc. issues is an attempt to simplify the problems into terms that the business community can understand/quantify so that the get-well-plan can be readily understood and accepted.
Imagine if Boeing had to explain to the investment community that critical flight control systems weren't passing conductive EMI requirements or that DO-178B avionics software requirements were miscommunicated.
Fastener shortages seem so much easier to fix.