Sep 9, 2009

Boeing: Don’t Give Up on Giving Up Control

Boeing and its CEO, James McNerney, have recently received high-profile coverage; both plus and minus.

Point: The relevant portion from my distribution angle concerns the apparent breakdown in Boeing’s partnership arrangement. I say, accent the positives.
Briefly, the world’s biggest aviation company has come out way ahead of archrival Airbus in the orders department for its latest commercial craft, the Dreamliner 787. That’s the plus side.
The minus is that Boeing has run into turbulence in its supply system and is having big trouble fulfilling the first of those orders booked. Part of the reason is that the 787 is the first major aircraft built with carbon-fiber plastics that are high strength but new technology; new technologies always have break-in challenges.  The other reason is that Boeing outsourced the design and fabrication of large component assemblies, such as the entire wing structure. At the same time, it coaxed (if that is the word) these ‘Tier I’ integrated solution vendors into waiting for payback and a share of profits when Boeing itself started receiving checks from end-customer airlines as they took delivery of their planes.
Suppliers can do handsomely for themselves in a Boeing-like arrangement . . . if they can deliver.  Unfortunately with the 787, some could not, at least initially. Boeing itself has since backed off from the integrated solution amd partner-dependent arrangement that was its own idea in the first place. The Times reports that “the company is retaking control.”
Counterpoint: Given the stakes and what’s happened, you can’t fault Boeing for retreating into command mode. But we shouldn’t generalize. Boeing was not unwise to attempt heavy reliance on lead suppliers.
I favor relationships of the kind Boeing bet on initially. When enterprising upstream distributors or suppliers package multiple products and helpful services into unified platform solutions, that’s terrific – especially in cases like Boeing’s. Management was trying to get to market fast, years ahead of Airbus. Could Boeing have hit that market-driven deadline if it insisted on owning  all the design, testing, and integration tasks itself? I don’t think so, and neither did Boeing. They were justified in taking the risk. That they have pulled out of the production dive before crashing proves my point.
More generally, should downstream OE assemblers like Boeing never surrender design supervision and close control over production quality? No, that would be the wrong conclusion to draw. The right conclusion is this: Partnerships aren’t easy. They absolutely demand good communication, fair dealings, rational division of labor, and most of all trust. Earned trust.
The Times article implies that Boeing made a good faith effort to put those elements in place.  If so, we should be optimistic for Boeing. Its problems will sort out and production will coalesce.  The planes will get built, and when they do the money will start flowing in. Ultimately Boeing and its Tier One vendors will be happy, very happy.

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