When good outsourcing goes bad

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It goes without saying that the economic benefits of outsourcing can be significant for large and small manufacturers alike. However, unless well-managed systems and processes are in place, the promise of outsourcing can quickly turn into a costly nightmare. Aviation giant Boeing is learning this lesson the hard way. A recent blog post in Supply Chain Expert Community suggests some ways that manufacturers can avoid similar problems.

Boeing’s 787 Dreamliner was designed to take advantage of new technology. By outsourcing the design and manufacture of key systems, Boeing was initially able to reduce development costs. But that financial victory was short-lived, as complications with parts and assemblies began to arise. A recent setback involving the failure of a Rolls-Royce engine has caused further delays to a project whose original delivery date was set for more than two years ago.

Boeing executives have admitted to poor oversight. Engineers say problems were “slow to be addressed by senior officials who often didn’t want to hear bad news.” Further disruptions derived from complications and spec changes that weren’t quickly and accurately communicated between Boeing and its suppliers and partners.

In response to these outsourcing dilemmas, Boeing is taking direct control of key partners. (Admittedly such acquisitions are not an option for most companies.) “Insourcing” of future work is also rumored. To address organizational deficiencies, Boeing has even hired a consulting firm to improve culture and communication. The goal of this, presumably, is for senior management to be better able to receive “bad news” and respond more quickly to any disruptions in development or manufacture.

Boeing’s story is a reminder that outsourcing needs to be viewed as an ongoing process, not just something that can be started and then forgotten. The benefits of outsourcing can only be realized if there exists good information, good lines of communication, active management of relationships, recognition of the complexities involved and a willingness to work at making the partnership succeed.

As far as insourcing goes, what do you think? Is Boeing an isolated case or is insourcing part of a new trend?

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