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Lessons From Boeing’s Dreamliner Supply Chain Missteps

Next week, the federal government is expected to announce whether it will accept Boeing's plan to fix the troubled 787 Dreamliner, which has suffered from lithium-ion battery problems. (See Blame the Supply Chain for Boeing Dreamliner Problems?)

At some point, the battery issue will be resolved, Boeing will resume production, and an unpleasant chapter in Boeing history will enter business-school text books.

But what's the big lesson here?

To hear one key academic tell it — one who co-wrote a 2009 paper on Boeing's Dreamliner supply chain — it's all about management. Not management with a capital “M” but operational management.

Christopher Tang, who UCLA colleague Joshua Zimmerman wrote the case study of the risks in Boeing's 787 Dreamliner multitiered supply chain, said Boeing took on a radical process change with the wrong managers.

Lack of experience In a podcast interview with IEEE Spectrum this week, Tang said he believes Boeing had no one with much experience managing a multitiered supply chain:

In this particular case, based on what I observed, I have doubts about their capability. You look at the original team that was leading their efforts to deal with the 787 program, most of the folks on the team, they were focusing on marketing and finance. So there were no really key members who truly had the expertise in supply-chain management.

To build the Dreamliner, Boeing (Nasdaq: BA) instituted a radically new chain, moving from a system of 1,000 suppliers building Boeing-spec'd parts that Boeing assembled into subsystems and then planes, to a multitiered structure.

Managing complexity: A UCLA professor suggests Boeing didn't have enough  supply-chain experts overseeing the Dreamliner  787 program.

Managing complexity: A UCLA professor suggests Boeing didn't have enough
supply-chain experts overseeing the Dreamliner 787 program.

In that structure, Tier 3 suppliers fed Tier 2 systems and structure partners, which fed into a Tier 1 pre-integration step which fed into Boeing's final assembly. In two cases, Boeing ended up having to buy two suppliers for $2.4 billion because the units were underperforming in the chain.

In the interview (here’s the transcription), Tang also said the multitiered approach differed from Toyota's in that Toyota has proven supplier relationships from Tier 1 to Tier 3 suppliers and relies on face-to-face meetings among them.

In Boeing's case, “they delegate to the tier 1 strategic partners, they really don't know who the tier 2 or the tier 3 suppliers were,” Tang said.

Maybe the lesson here is even in a sophisticated, highly automated supply chain, the human factor matters immensely, and experience is worth every penny.

What do you think?

14 comments on “Lessons From Boeing’s Dreamliner Supply Chain Missteps

  1. elctrnx_lyf
    February 28, 2013

    I think the Boeing approach probably didn't work perfectly as they expected it to be. It is definitely not a lesson Boeing wanted to learn. Hopefully they solve this problem soon and there will be more importance given to the operational excellence. Even a bit of negative thing could just bring the complete company down.

  2. Brian Fuller
    February 28, 2013

    Indeed! It's a nerve-wracking time for Boeing.

    An old colleague of mine used to say “nothing beats knowing,” and the way to get that done is to communicate relentlessly. That's a key to operational excellence.

     

  3. Mr. Roques
    February 28, 2013

    So it wasnt a design flaw? The batteries were simply badly constructed? Should they reinvent everything? Why couldnt they use conventional supplies?

  4. Brian Fuller
    March 1, 2013

    The last I read, one or more of the LiOn battery cells had shorted, but how the short occurred is unknown right now. 

     

  5. ottova
    March 1, 2013

     

    While I'm sure Mr. Tang and Mr. Zimmerman wrote a wonderful case study, these problems were readily apparent much earlier than that.  In 2005 as a graduate student at USC, with many then current Boeing managers also students, I pilloried the notion that Boeing would be capable of executing both a revolutionary step forward in technological application AND a revolutionary step forward in the management processes of building a completely new airframe design.  It bore all the hallmarks of 'groupthink' among the Boeing employees; they could all parrot the marketing mantras they were being fed without using any form of common sense.  Almost the entire USC engineering faculty involved in the discussion along with several non-Boeing students privately agreed.  When I proffered huge odds and real money to see if Boeing employees were that delusional, not a one was willing to bet any portion of their paychecks on the ability of their company to then meet its ludicrous development milestones that existed at that date.  It spoke volumes.

    Boeing planned to introduce dozens, if not more, of new variables into their production timelines with the assumption they would ALL collapse to zero.  Had they, it would've been akin to the odds of winning the lottery and Airbus would today be on life support.  Only the most self-delusional marketing or engineering hack could think that subcontracting a key section of the airframe, tail components, to an Italian company whose production labor force was controlled by the Communist Party of Italy, was not going to run into development problems given Boeing's largest customer is the US military.  This was just one, albeit a big one, of dozens of poorly thought out supply chain questions that Boeing just assumed would solve themselves like in the Hollywood entertainment production system they were trying to emulate.

    Boeing's goal of diminishing the hub-and-spoke system is more than laudable and the 787 may still do that.  However, the supply chain problems and uncertain timelines were completely predictable and have and will continue to inflict damage on Boeing's stakeholders, its balance sheet and its competence reputation.

  6. Brian Fuller
    March 1, 2013

    @Ottova, that's great insight and thank you for sharing. Have you ever seen any company try to do what Boeing did with success? 

    I'd be interested to hear, whether you've seen that or whether this is just biting off WAY too much.

  7. ottova
    March 1, 2013

    Never anything at this level of cost and complexity.

  8. Brian Fuller
    March 2, 2013

    @ottova, this may be off base, but let me throw this out there:

    At its heart, supply chain is about process and organization. Companies such as Amazon and Netflix created completely new businesses by thinking about process and organization in radically different ways. In other words they bit off more than most people would have chewed at the time. 

    It may not be an Apples-to-apples comparison, but I'd argue that big leaps can occur. 

    BTW, this is not to soft-pedal Boeing's challenges, because I agree with your take. 

     

     

  9. ottova
    March 3, 2013

    Neither Amazon or Netflix had an established customer base that flew tens, if not hundreds of millions of customers, that had to be continually served nor were those organizations pushing off that much technology development on to others.  Those organizations basically came up with new software structures and used already existent logistics optimization networks to base their business plans.

    Neither of these companies were faced with the immense burden of qualifying their new technologies with the FAA or global regulatory bodies around the planet.  Failure within their business model, a missed order or lost delivery, isn't remotely comparable to an airplane falling out of the air and killing its occupants.  The risk management scenarios were orders of magnitude in difference.  The analogy is poor.

    Hardware and software are different things.  Boeing and its subcontractors needed to build all manner of complex interdependent hardware systems that had never been built in the past, certify them for functionality and safety (an open question at this point as to whether the regulators were even qualified to do it since they lacked as much knowledge as Boeing), and then deploy and maintain them globally in a timeline defined by people who were hoping/wishing these technological breakthroughs would happen according to a schedule they created.  You're own people later acknowledged that these weren't people capable of making such assessments accurately.

    Big leaps can occur.  They just can't occur within the constraints/environment Boeing was and still is operating within.  The assumptions the model were built on were false and/or invalid.  The process couldn't be in control because no one knew what the process was or what the control limits were.

  10. Brian Fuller
    March 3, 2013

    Sure, I understand the Boeing constraints. Let me ask the question more directly: given that big leaps can occur, have you seen any that are worth sharing? 

     

  11. ottova
    March 4, 2013

    The Bakken oil shale play: there hasn't been an industrial and technological boom on this scale within the US since WWII.  Fracking more generally.  NW North Dakota today looks like coastal China did 15 years ago.  Every technologist should see it to believe it.

    In 2005, enormous academic resources were being devoted to trying to figure out how the natural gas infrastructure could be built fast enough to accommodate the given massive natural gas shortages and consequent power outages that were going to become the norm by 2013.  It was considered a national emergency that needed intevention by the executive branch to clear the obstacles necessary to import the supply that would be missing from all the depleted NG fields.

    Had you said that the issue wouldn't exist by today because of a technological revolution that would seriously endanger the continued financial existence of the companies that created it (XTO and Chesapeake), you would've been expelled as unqualified, delusional and in serious need of medical intervention.

    It's clear that XTO took Exxon to the cleaners and got them to grossly overpay for the technological revolution that is tight oil and gas.  The Bakken is single-handedly destroying the oil sands by making that area the marginal global producer.  It's also questionable whether the economics will be viable for further development in Siberia, the Orinoco basin or the deepwater offshore fields in Brazil for another decade.

  12. Mohanp
    March 5, 2013

    Though I agree with your assessment that Boeing lost control of their tier 2-x suppliers, this is something Boeing had to do. Dreamliner is not a revolutionary aircraft by design, manufacturing or performance. 20% less operating costs, built with materials that was not tried in large structures, systems that are more electric (thus inefficiencies from the power plant are removed ie bleed air) and they had to do all this while maintaining cash outlay for R&D and manage risk. If all had worked out, Boeing would have been touted as a trailblazer and airbus would have followed. Where Boeing fell short is risk management – they retired the supply chain risk too soon..by handing the control directly to tier 1 suppliers they lost touch or control of the downstream supply chain. And blame has to go to FAA as well for not going deeper as part of the certification process. There was also risk taken by Boeing, while financial burden is spread out to the risk sharing partners, for having the work farmed out to the tier 1 suppliers who had no technological know how.. Ex: large cfrp structures, pre-stuffed large assemblies, risk management and steep learning curve. Boeing ended up buying some suppliers out as part of risk mitigation(Vought, Alenia/Global Aeronautical, etc). Hopefully, this will come to pass and 787 would again show it's true colors. There has been a huge learning not just by Boeing but by the entire industrial base..

  13. Brian Fuller
    March 6, 2013

    While the FAA was supposed to come out with a statement this week, it doesn't appear that's the case yet (FAA faces obstacles in approving Boeing Dreamliner fix).

    Cost of the grounding to Boeing so far? About $350 million.  

  14. Mr. Roques
    March 24, 2013

    So does it prove Boing's approach completely wrong? Should we go back to the previous process? The easy answer is to say its somewhere in the middle but as you mentioned, if the damn batteries had worked, t would have been a homerun for Boing and the entire airplane industry.

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