The Boeing Debacle: Seven Lessons Every CEO Must Learn (Offshoring Issues) [View all]

[Yavin4]

In December 2012, fellow Forbes contributor Jonathan Salem Baskin wrote: “The company was convinced by one or more management consulting firms to outsource design and production of the 787’s components. While this idea might make sense for sourcing coffeemakers, it was a nonsense approach to assembling perhaps the most complicated and potentially dangerous machines shy of nuclear reactors. I’m sure blather from Harvard Business Review supported the idea that distances between factories in Seattle and Outer Mongolia were no farther than a VOIP chat, but the reality was a mess. Parts didn’t fit together with others. Some suppliers subcontracted work to their suppliers and then shrugged at problems with assembly. When one part wasn’t available, the next one that depended on it couldn’t be attached and the global supply chain all but seized up. Boeing had to spend $1 billion in 2009 to buy one of the worst offenders and bring the work back in-house.”

“The grounding — an unusual action for a new plane — focuses on one of the more risky design choices made by Boeing, namely to make extensive use of lithium ion batteries aboard its airplanes for the first time,” write Christopher Drew, Jad Mouawad and Matthew Wald in the New York Times: “The 787’s problems could jeopardize one of its major features, its ability to fly long distances at a cheaper cost… The maker of the 787’s batteries, Japan’s GS Yuasa, has declined to comment on the problems so far. “

What was Boeing thinking when they opted to embrace such extensive offshoring? Moser believes the error lay in using the wrong measure of the impact of offshoring on earnings. “Many companies that offshored manufacturing didn’t really do the math,” Harry Moser, an MIT-trained engineer and founder of the Reshoring Initiative told me. “A study the consulting company, Archstone, showed that 60 percent of offshoring decisions used only rudimentary cost calculations, maybe just price or labor costs rather than something holistic like total cost. Most of the true risks and cost of offshoring were hidden.”

http://www.forbes.com/sites/stevedenning/2013/01/17/the-boeing-debacle-seven-lessons-every-ceo-must-learn/

In sum, Boeing management began licking their chops at the lower labor costs and totally ignored all other real and potential costs/risks that offshoring brings as well. Now, their planes are getting grounded and they are losing a ton of money all because they didn't want to pay their workers a decent wage.