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Outsourcing is great, except when it doesn't work
In past lives, I was responsible from time to time for bringing a new product together. After having experienced the trials of making that happen with something very simple, I find a large scale project like a new office building or aircraft to be mind boggling. So it's oddly reassuring when I see that people working on those projects also experience similar headaches. It's all a matter of scale.
Consider that according to a Chicago Tribune article, Boeing's 787 Dreamliner project is falling months behind due to problems with the host of suppliers that are each providing their bits to the larger assembly. One cited in the article is Advanced Integration Technology, which supplies (apparently from the description) fixturing to Vought Aircraft Industries to fabricate and assemble fuselage sections. As a result of the delays, three major suppliers are expecting a cash shortfall of $1.2 billion because Boeing has had to delay shipments of final planes. Boeing itself anticipates a cash hit of $2.5 billion from having to pay penalties to airlines and propping up suppliers during the delays.
Boeing is having to deal with the uncertainties of having so many critical suppliers and being at the mercy of each while trying to operate under very tight deadlines and public scrutiny. That's not a good combination. The company says it will still reach its aggressive production timetables (or some revision thereof) but financial analysts aren't so sure, particularly since the plane has not yet entered flight tests. In the jargon of the aerospace industry, suppliers have to deal with "unk-unks," or "unknown unknowns." (That's their way of life. Now you know.)
Far too much is at stake for this project to fail, but some of the smaller suppliers could be hurt or even killed either as victims of another company's problems or through their own inability to ride out this stormy period. One way or another, this experience will have a major influence and make many companies think twice when approached with a risk sharing proposal.
Outsourcing is great, except when it doesn't work
December 10, 2007
In past lives, I was responsible from time to time for bringing a new product together. After having experienced the trials of making that happen with something very simple, I find a large scale project like a new office building or aircraft to be mind boggling. So it's oddly reassuring when I see that people working on those projects also experience similar headaches. It's all a matter of scale.Consider that according to a Chicago Tribune article, Boeing's 787 Dreamliner project is falling months behind due to problems with the host of suppliers that are each providing their bits to the larger assembly. One cited in the article is Advanced Integration Technology, which supplies (apparently from the description) fixturing to Vought Aircraft Industries to fabricate and assemble fuselage sections. As a result of the delays, three major suppliers are expecting a cash shortfall of $1.2 billion because Boeing has had to delay shipments of final planes. Boeing itself anticipates a cash hit of $2.5 billion from having to pay penalties to airlines and propping up suppliers during the delays.
Boeing is having to deal with the uncertainties of having so many critical suppliers and being at the mercy of each while trying to operate under very tight deadlines and public scrutiny. That's not a good combination. The company says it will still reach its aggressive production timetables (or some revision thereof) but financial analysts aren't so sure, particularly since the plane has not yet entered flight tests. In the jargon of the aerospace industry, suppliers have to deal with "unk-unks," or "unknown unknowns." (That's their way of life. Now you know.)
Far too much is at stake for this project to fail, but some of the smaller suppliers could be hurt or even killed either as victims of another company's problems or through their own inability to ride out this stormy period. One way or another, this experience will have a major influence and make many companies think twice when approached with a risk sharing proposal.
Posted by Peter Welander on December 10, 2007 | Comments (0)
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