Introduction
Denning (2013) had written “What Went Wrong At Boeing?” news article and reported about the failure of Boeing in its outsourcing and offshoring when the company outsourced some parts for the manufacturing and development of Boeing 787. The purpose of the article was to explore and explain the more focused and specific mistakes and errors made by Boeing in outsourcing and offshoring handling and strategic decision making. The company aimed to control and reduce the cost of in-house production of those parts for that the company lacks the required efficiencies and skills for such products. In the results of errors and mistakes in the outsourcing, the company had to face the highest cost of development and the delay in the production of 787 that directly impacts on the overall product development and the customer satisfaction negatively.
It means that the company’s operations and supply chain management were failed to generate the expected outcomes and results. The following paper is intended to analyze and interpret the news to understand and evaluate the impacts of the improper strategy on the failure of the supply chain and operations of the company. The paper is aimed to reveal the facts from the news about Boeing and its mistakes that caused it to face the serious challenges and issues in the outsourcing and offshoring and failure of the successful production and operations.
Analysis and Interpretation
Boeing planned to develop 787 to enhance the customer experience offering the best plane and aviation services to the customers in the industry. However, the actual outcomes were completely gone opposite to what were expected by the company in the development of 787 based on the outsourcing. The major issues faced in the failure of the operations of 787 include the overheated batteries, lack of coordination, innovative risks, coordination risk, the risk of outsourcing, poor implementation of Toyota’s model of outsourcing and offshore risk, computer communication risks, labor relation risk, and project management risks (Denning, 2013).
The news article stated that the Boeing had adopted the outsourcing models of Toyota. The study has found that there are many risks associated and involved in the outsourcing service that can impact on the overall operations of the company. Boeing was failed in the efficient development of 787 because it was aimed to satisfy the customers, however, the level of customer satisfaction is directly being affected by the on time delivery of the project, and the company was failed to complete the project on time (Denning, 2013).
According to the O’Keeffe & Vanlandingham (2004), the delays are the major threats and risks from the third party to the outsourcing company. The risks are forced and aggravated based on the outsourced product or service. The reasons behind the delays in the outsourced product are various external factors that are not in control of the outsourcing company. Other than the delay in the product, the quality of the product can also be suffered that can directly impact on the satisfaction of the customer. The same issue was faced by Boeing when it outsourced the products for the developed of 787 Boeing.
According to the O’Keeffe & Vanlandingham (2004), it is the company that is responsible for the outsourcing outcomes in the context of their ability and strategy to select the partners for outsourcing. In line with this statement, it can be said that the outsourcing of Boeing was failed because of the strategy of the company. The outsourcing is a part of the production of Boeing as the company is not able to produce many parts such as avionic and engines. However, the company decided to increase its outsourcing from 30% to 70%. The increase in outsourcing means the high dependency on the outsourcing partners for the quality and time of the product completion. However, it was not the worrying need of the company, but it was only aimed to reduce the cost of the production. The company’s strategy was to work at a low cost of the product making the suppliers face the financial risks. Although, various studies have found that the outsourcing is the best way to reduce cost and cost reduction is the driver of outsourcing but still many researchers, and experts have argued that the large amount of outsourcing makes the company face high cost and low profit rather than decrease in the cost (Hila & Dumitrascu, 2014).
Another cause of the failure of the quality in outsourcing is the negligence of various other factors other than the cost reduction as the development of the strong relationship between buyers and sellers, cross training and transition period. The insufficient planning and managing resources can also make the transition period to be failed. In line with this argument, it would not be wrong to say that Boeing was failed because of the lack of planning. It is mentioned and discussed in the news article that Boeing Company was failed to conduct proper planning before outsourcing mainly for identifying all the relevant costs to the outsourcing. The news article has argued that the outsourcing for Boeing 787 was not done based on the well established plan for the relative cost (Denning, 2013).
According to O’Keeffe & Vanlandingham (2004), the same planning and system discipline is needed for the outsourcing as required for the implementation of large systems. As outsourcing is the replacement of the in-source product and the same functions, therefore, it requires the same ability to meet the commitment of the company to customer satisfaction as well the profitability for the shareholders. It means Boeing was required to take the same amount of time for the planning of outsourcing as it usually takes for the in-house production of different parts to identify all fixed, direct and indirect cost of outsourcing products and the cost to the company. The company must be able to identify the related costs apart from the fixed cost of the product.
Along with these issues, the offshore is another risk in the outsourcing as many of the work can only be done outside the country. Boeing for its new 787 planes needed to outsource various products such as Lithium-ion batteries, and its offshore outsourcing was increased to 30% from 5% in the previous product development (Denning, 2013). O’Keeffe & Vanlandingham (2004) have found offshore outsourcing as the major strategy of the international companies these days, on the same side, various risks have also found associated with the offshore outsourcing. The chances of delay in product delivery are high in offshore outsourcing because of the distant relation of suppliers and buyers.
Apart from this, it is difficult to develop the strong and effective relationship between buyers and sellers because of the differences in culture, language, values, and physical distance. The offshore outsourcing is itself is considered as the biggest risk in the supply chain because of the distance. The communication is not perfect and effective in offshore outsourcing. It directly impacts on the proper planning because of the lack of face to face communication. It is already discussed above that proper planning is very important for the successful outsourcing. It means, in general; it can be said that the strategies of Boeing were not effective in terms of proper planning, communication in offshoring, deciding on the best suppliers and partners and strategy for the amount of outsourcing. It means that outsourcing was itself was not the issue for Boeing, but the strategies and actions for implementation were not significant to make the operations and supply chain efficient and effective for the successful production.
Denning (2013) also reported in the news article that the resistance between the management and employees is another reason behind the failure of the outsourcing of Boeing. The company didn’t consider it as important to involve employees in the outsourcing decision making.
O’Keeffe & Vanlandingham (2004) have argued in their study that it is very important to manage the resistance from employees for the effectiveness of the process. According to them, the resistance from employees is one of the major risks and challenges in the outsourcing. Therefore, it is very important to develop an innovative culture in the company to make the employees participate in the decision making as it increases the efficiency of the company by bringing up the new ideas from the employee side for better strategy and decision for outsourcing. The employees resist outsourcing because of the fear of job security and turnover. Therefore, it is important for the companies to think of the strategies to develop a relationship with employees and to make decision making their involvement ensure.
Conclusion
List of References
Denning, S. (2013). What Went Wrong At Boeing? Available from http://www.forbes.com/sites/stevedenning/2013/01/21/what-went-wrong-at-boeing/#2b1e98c85aad [Accessed 20 May 2016]
Hila, C. M., & Dumitraşcu, O. (2014). Outsourcing Within A Supply Chain Management Framework. In Proceedings of the INTERNATIONAL MANAGEMENT CONFERENCE (Vol. 8, No. 1, pp. 328-336). Faculty of Management, Academy of Economic Studies, Bucharest, Romania. Available from http://conferinta.management.ase.ro/archives/2014/pdf/31.pdf [Accessed 20 May 2016]
O’Keeffe, P., & Vanlandingham, S. (2004). Managing the risks of outsourcing: A Survey of Current Practices and their Effectiveness. Protiviti Inc, pp. 17. Available from https://www.protiviti.com/en-US/Documents/Surveys/ManagingOutsourcingRisks.pdf [Accessed 20 May 2016]
