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Boeing Cuts Both Risk & Costs

Spreading out engineering operations to minimize risk is one thing, but having them compete with one another for projects is something more.

According to this Reuters report, Boeing's new design centers (set up around the US) will compete with each other for projects, with a focus on how good they are at supplying skills at the lowest cost.

Boeing announced recently that it was establishing new centers in Washington, South Carolina, and Southern California for engineering design, propulsion, and out-of-production airplane support for its Commercial Airplanes business.

The new centers will add internal capability and capacity in both engineering and propulsion, aimed at meeting “unprecedented demand for commercial airplanes and services,” Boeing's news release said. The company is forecasting strong growth in commercial aviation over the next 20 years, with a market for 34,000 new airplanes estimated at $4.5 trillion. The services market is estimated at $2.4 trillion.

The Southern California site will consolidate all engineering support for out-of-production commercial planes, such as the 727 and 757, while the South Carolina engineering center will handle propulsion features of new jetliners.

“Our opportunity for future growth is unprecedented and this helps us be more competitive by building on our team's talent and capability — across Boeing, the United States, and around the world,” Mike Delaney, Boeing Commercial Airplanes vice president of Engineering, said in the statement. “With these changes, we are structuring Boeing's engineering operations to support that growth, reduce business risks, and to consistently provide the products and services our customers expect.”

It's all well and good to mitigate risks and build talent capacity in different regions, but there seems to be another side to the story that's not included in the press kit. What's this about each center competing for work?

As the Reuters report (which was posted on Crains' Chicago Business) points out, about 300 jobs will move from the Seattle area in about six to nine months. Reuters reports, quoting company spokesman Doug Alder, “Everything is on the table. It's up for grabs for any of these centers to compete for the work that's coming down the road.”

Labor costs
Forbes's Contributor Loren Thompson has an interesting take on this, and speculates that the latest engineering moves — which follow similar production strategy shifts — has more to do with union and non-union labor contract pricing and political lobbying to spread employment around the US.

I can buy into the risk-mitigation portion of this. It's not a bad idea to have pockets of people working in different places, especially as a plan to curb risks associated with natural disasters.

But from an industry perspective, making design centers compete against each other on a cost basis seems to go against the grain of the supply chain's current mantra about fostering collaboration and breaking down internal silos.

As many professionals on the procurement and supply chain side have seen, running with a “lowest cost” model — as opposed to a “total cost” model — doesn't always prove to have the greatest longer-term costs benefits.

23 comments on “Boeing Cuts Both Risk & Costs

  1. SP
    June 14, 2013

    Its difficult to understand the mileage Boeing will get to make its only centers compete against eah other. There is definitely a point that there would cost difference from one center to another. Like something manufactured or designed in CA would be costing different than in Atlanta. But within the same company this kind of competition, how it would give rise to intellectual competence is a question.

  2. Daniel
    June 14, 2013

    Jennifer, it's a good initiative from Boeing. Quiet sometimes back Sun Microsystems also had done similar task execution plans. They used to give the same design task to multiple teams and the best one is selected and reviewed by other teams for finalization. It's like a competition among the groups. In this way a better design can be done.

  3. Daniel
    June 14, 2013

    Jennifer, it's a good initiative from Boeing. Quiet sometimes back Sun Microsystems also had done similar task execution plans. They used to give the same design task to multiple teams and the best one is selected and reviewed by other teams for finalization. It's like a competition among the groups. In this way a better design can be done.

  4. FLYINGSCOT
    June 14, 2013

    Sometimes it is good to have multiple teams working the same problem and not talking to each other.  This is routinely done in the HDD industry and they are some of the most innovative projects going.

  5. SP
    June 14, 2013

    Its definitely useful when multiple teams work on the same issue, you get different perspective and solutions. But when different centers bid for the same project within the same company the scene is different.

  6. Tom Murphy
    June 14, 2013

    I agree SP.  Having centers compete would tend to work against the concept of collaboration, which can help to limit costs and improve quality.

  7. t.alex
    June 15, 2013

    This is insane of Boeing, considering the fact that it is an airline company. Imagine the centers will do whatever it takes to 'win' other centers, including cheating and hiding information. What woud happen to the airplanes that we take everyday? Are they still safe?

  8. _hm
    June 15, 2013

    I have seen similar approach in US department of defence. In this, same contract in stage A is given to two or three different centers. After year or two, centers have their own prototype ready and evalaution starts for technology, cost and other aspects.

    Stage B contract is awarded to one or two centers for further technology enhancements. At the end of stage B higher command selects final design center or contractor for Stage C.

    So same technology may be developed by two different centers. They will have their advantages and short comings. But they may suit for different aircraft.

    As mentioned, Boeing is looking for such huge market potential that cost of multiple center working on same project may be not that significant. Boeing needs to explore different possible technology approches.

    Eventually, Boeing needs to be leader and do not let Airbus take lead.

     

  9. ahdand
    June 16, 2013

    @SP: I think working with multiple teams is a good thing. It allows you to gain more inputs and definitely the output of it will be good.       

  10. elctrnx_lyf
    June 17, 2013

    The distributed engineering centers are a mandatory requirement for a huge company like Boeing. This is not only provides risk mitigation during natural disasters but mainly encourages internal competition to come out with the best solutions. In the end all it matters is safe, high quality and low cost solutions for any company.

  11. Tom Murphy
    June 17, 2013

    T.Alex: I think you're right.  It is natural within any large company to have a rivalry between divisions, but it can easily get out of hand. It's one thing for Group A to try to “beat” Group B. But when they actively work against one another, there are no winners — certainly not the parent company.

  12. Tom Murphy
    June 17, 2013

    _hm:  In your example, I think those prototypes actually come from three different contractors, not three divisions of a single contractor, right?  It would be counterproductive for one large company to pay three of its divisions to create prototypes tocompete with one another, knowing that two of them would lose — and lose all that investment at the same time.

  13. _hm
    June 17, 2013

    @tom: I consider this to be very prudent strategy. Boeing end product is unique and technology solution is of paramount. They have very limited time to develop this highly complex technology.

    Organization like Boeing may not like to share its technology in public and hence they will create internal centers of iinovation. These center will take different approach to solve same problem. IBM may also be following similar approach.

  14. Mr. Roques
    June 17, 2013

    Is creating internal competition the key towards mitigating risk? I wouldn't have thought so. They pay the price of having people work for nothing (when the other project is selected).

  15. Anand
    June 18, 2013

    Its definitely useful when multiple teams work on the same issue, you get different perspective and solutions.

    @SP, I totally agree with you. But I think instead of full team working on the same issue  they can distribute the work to different teams so that they can collaborate and create optimal solution.

  16. Anand
    June 18, 2013

    This is not only provides risk mitigation during natural disasters but mainly encourages internal competition to come out with the best solutions.

    @electrnx_lyf, good point. Having multiple teams definitely helps companies to mitigate such challenges because they have backup team to work on the solution when the other team cannot. But only disadvantage of such strategy is that it increases the cost factor.

  17. Anand
    June 18, 2013

    It's like a competition among the groups. In this way a better design can be done.

    @Jacob, ture competition among groups will definitely lead to better design. But company needs to make sure that its a healthy competition. Because many times such competitions makes team hide lot of things which eventually reduces the productivity of the company.

  18. Clairvoyant
    June 18, 2013

    Good point, Anandvy. However, if there is management overseeing how things are handled, I think this is a great idea to lower design costs and improve designs within a company.

  19. Ashu001
    June 19, 2013

    Electric,

    That makes sense in the case of a Large Conglomerate like Boeing today.

    What about the Smaller Firms?

    How can they achieve this level of resilience and Risk Tolerance?

    I have a strong feeling we can do that effectively in the Cloud(atleast on the IT Systems side).

    But what about the people involved?

    How do we cut risks there as well as Motivate Employees to perform to the best of their abilities???

  20. Ashu001
    June 19, 2013

    Anand,

    Great points!

    Costs,Productivity and risk are all fundamental questions which every company has to answer effectively if it wants to achieve the best results for all concerned parties.

    Are we closer to achieving that for most firms?

    I don't think so today.

  21. Daniel
    June 24, 2013

    “ture competition among groups will definitely lead to better design. But company needs to make sure that its a healthy competition. Because many times such competitions makes team hide lot of things which eventually reduces the productivity of the company”

    Anandy, normally it's a healthy design competition. Team which has the best design will get the project design and execution.

  22. t.alex
    June 24, 2013

    Tom, definitely. I hope there is some really serious study/theory behind this decision from Boeing. If the management is implementing this for the sake of 'change' I do not know what they are trying to achieve here. I guess they are doing this for a short period of time to identify the 'weak' ones and eliminate these.

     

  23. ahdand
    June 29, 2013

    @electrnx: Yes true, the end factor is something most companies do bother about. As long as those 3 factors are met they will be less bothered about the backend happenings.         

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