The Boeing 787 Dreamliner' BACKGROUND In 2002 the basic design and plans for Boeing's 787 Dreamliner were accepted and given the charter to \"Go." The Dreamliner boasted the latest design and revolutionary technology in the history of commercial air travel. But the project met bumpy weather. The first 787 aircraft, scheduled to be tested in July 2007, was delayed until December 2009. Orders for the advanced 787 grew quickly to over 800 planes. This rosy picture presented Boeing with a giant sized headache. For various reasons (such as design, outsourcing, and labor issues) delivery dates slipped behind three years or more and costs ballooned to several billion dollars. Many analysts blame outsourcing work to foreign suppliers for a majority of the cost and schedule overruns. KEY FACTORS INFLUENCING OUTSOURCING DECISION The Dreamliner outsourcing decision that gave 70 percent of plane content to outside suppliers included 30 percent to foreign suppliers. These percentages were greater than any previous commercial plane built by Boeing. Boeing's outsourcing rationale was based on typical economic considerations of cost, sales, and risk. In Boeing's case this meant Cost. Establishing partnerships with suppliers to lower risks and development costs, along with gaining some valuable expertise and process innovation. Sales. Farming out numerous designs and components to foreign countries {e.g., Sweden, Italy, South Korea, and China} with the expectation that these countries will buy planes from Boeing in the future. Risk. Recognizing the need to balance risk of outsourcing at the organizational and operational levels is crucial. The different levels are codependent. 3 MUIbl: mar",- tic-C4 Pr'cic- Clearly the outsourcing decision ricocheted. Costs are over budget, some sales have been rescinded. customers are seeking compensation for delays. and potential ROI is reduced. IMPACTS Boeing's brand has been seriously tarnished by delays and mismanagement. The process to manage the logistics of outsourcing was not able to handle the volume of logistical problems and change management issues. Chronic delays ofa few nonperforming partners induced Boeing to buy out or support partners and consumed cash. Wall Street estimates cost overruns range between 12 and18 billion dollars overthe original planned investment of $5 billion. Lessons learned from outsourcing ofthe 78? Dreamliner can point the way to bring back the shine to Boeing's reputation as the leader in design, technology. and integration. LESSONS LEARN ED The lessons learned in the Dreamliner launch have been well documented. A few obvious relevant lessons are noted in suggestion form here: - Identify and analyze all risks of outsourcing at organization andcomponent levels. For example. assess the risks and implications offarming out large portions {30 percent] ofthe design and manufacture ofcrucial components to foreign suppliers. Outsourcing tends to work better in noncore areas. - Thoroughly investigate partnership capabilities and resources. Due diligence reduces problems. . Develop processes for quickly addressing issues and problems. Increase liaison and supervision of supply chain logistics with outsource partners. . Reconsider seriously the implications offarming out key expertise. This runs the risk of becoming fully reliant on suppliers and transferring unique intellectual property. Partners get riskfree technical knowhow, high margin markets for component parts over the life of the plane. and perhaps the ability to become a future competitor. . The risk of outsourcing complex hightechnology components carries the burden of careful coordination and liaison. Boeing executives have acknowledged the problems associated with outsourcing large portions of the 787 Dreamliner. For example. Boeing's commercial airplanes chief, Jim Albaugh, expressed to students at Seattle University. "We spent a lot more money in trying to recover [the project] than we ever would have spent if we'd tried to keep the key technologies closer to home. The pendulum swung too far." He added that, in part. chasing the financial measure of return on assets led Boeing astray. Boeing CEO Jim McNerney noted that the "8? game plan may have been overly ambitious, incorporating too many firsts all at once. THE FUTURE Although Boeing's 78? outsourcing experience was very costly, outsourcing will continue and evolve. Lessons learned will prompt aircra builders to reevaluate future outsourcing and move on. Expect to see emphasis on risk- and costsharing partnerships. The major short-term challenge for Boeing is to ramp up production to satisfy the hundreds of waiting orders. Boeing can recoup by adjusting their integrative outsourcing and logistics model as a top priority