Names: Yoke Mian, Chia (42129974), Shan Di, Tan (41866003)

Title: Building the Boeing 787

IBUS2301 Group Report

Boeing's new commercial jet aircraft 787 was designed to save jet fuel consumption
and cost while flying long-haul point-to-point. It's objective was also to outsource
most of its components to manufacturers from around the world, to tap on their
expertise and efficiency to bring the cost down. This in turn, would create a higher
value to the customers at a lower cost.
There were several main benefits that Boeing 787 derived from outsourcing to foreign
suppliers. According to Cohan, 2011, in the past, although Boeing had only
outsourced its manufacturing, however it still took over all the control on the design
on its aircrafts. The control action mainly focuses on offering detailed specifications
of individual components. In terms of building Boeing 787, Boeing believes that
outsourcing most of the work could lower the cost and reduce their development time
on its design and manufacturing. Lower wage rates and cost of living in many other
countries such as the Asia, outsourcing would reduce the cost and save more money
instead of paying high labor rate in the home country to accomplish the same amount
of workload. Boeing also found it is more cost-effective to outsource their work to
third parties who are specialised in the field, so that Boeing could focus more on its
management in the whole process of designing the plane, marketing, undertaking the
final assembly in U.S. and eventually selling it. Boeing also believed that outsourcing
in other countries would help increase their sales from those particular countries.
India had become one of Boeing 787s potential international clients since 2009, in
return, Boeing chose India as its latest research institution outside the United States
for all of Boeings development process and further activities (Downey 2010). On the
other hand, there were also some potential risks that Boeing had to take into account.
Firstly, to let foreign suppliers took over the design of 787 might lower the quality of
production as Boeing might confront crucial risks if the design twist out or the actual

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Names: Yoke Mian, Chia (42129974), Shan Di, Tan (41866003)

Title: Building the Boeing 787

IBUS2301 Group Report

products did not align with the code of conduct. Secondly, supplier may not able to
meet the deadlines and delay the delivery of their goods and services. Boeing had
announced that Boeing 787 would delay at least three years upon delivery from the
originally planned date. Boeing may face penalties for late delivery and extra $2
billion in development costs (Cohan 2011). The risk-share contract of 787 do not
issue any late penalty to its suppliers so this may cause suppliers did not have proper
incentives to complete their task and it will slow down the whole development
procedure (Tang and Zimmerman, 2009, p82). As well as Boeing did not have strong
control over the workmanship of the suppliers which includes time efficiency and
work effectiveness. Furthermore, Boeing may lose its competitive advantages due to
share its proprietary product technology with their suppliers. It is fatal risk when there
is confidentiality concern, for instance, those companies understood the design and
engineer skills of Boeing 787 which could possibly in result of trading essential skills
and knowledge for rewards, the confidential information might leak to competitors.
In this case, we found there are some consequences and problems when Boeing
outsourced to other countries. Boeing always has an advantage in its engineering and
designing, they should be able to do better as they have done well in the previous
aircraft instead of largely outsourcing to others in 787. If so, the risks of outsource
outweigh the benefits. However, if Boeing controls well their supply chain and has a
tight control over the suppliers quality, the benefits may outweigh the risks. Boeing
should take an in-depth investigation in strategic management which would benefit
them before outsourcing so much to foreign suppliers .With better arrangement and
strategies, it could help Boeing avoid the penalty from late delivery and would not
lose their credit upon customers.

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Names: Yoke Mian, Chia (42129974), Shan Di, Tan (41866003)

Title: Building the Boeing 787

IBUS2301 Group Report

In 2007 and 2008, Boeing 787 encountered several issues that affected its supply
chain. The problems eventually lead to delay in delivery of goods, thus also incurring
penalty which lead to higher production cost. Boeing 787 outsourced most of it parts
to the other manufacturers from around the world, and several key partners were
unable to meet its delivery schedule. One of the company was Italys Alenia, which
they had to build a new factory in order to produce the horizontal stabiliser and the
central and rear sections of the fuselage for about 14% of Boeing 787s whole
structure (Boeing787-Alenia Aeramcchi 2014). Alenia chose a site which was a 300year-old olive grove, which they company spent months haggling with the local
authorities to get their approval to replant the trees elsewhere before they could even
build their site. Furthermore, the first fuselage they produced were unable to meet the
quality standards of Boeing. (Hill 2010) Alenia struggled to build the innovative new
plastic tubes. Alenia also had to use parts that are not per spec instead of scrapping the
whole barrel. In, early stages of the production, they also had to scrape 5 percent of
what was made (Jordan 2014). Eventually, when the parts arrived at their Everett
plant for assembling, Boeing realised that many components were not installed in the
fuselages as required, and to add on, the assembly instructions were available only in
Italian (Hill 2010), which the Americans would face much difficulty in trying
understand it. Several partners also outsourced the critical designs to other enterprises
which in turn, delay the production. Vought, for example, was company which was
responsible of Boeing 787s design and building of floor pieces, outsourced it to an
Israeli company. Later on, the Israeli company had problems meeting Boeings
quality standards. To make matters worse, Boeing did not realise what was happening
as the Israeli company was reporting to Vought, and it was too late when Boeing
came to know about it. Eventually, Boeing had to send their engineers to Israel to

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Names: Yoke Mian, Chia (42129974), Shan Di, Tan (41866003)

Title: Building the Boeing 787

IBUS2301 Group Report

work with the company (Hill, 2010).This in turn delay the production by many
months. Given these problems, Boeing had to better manage their outsourcing by
closely managing, overseeing and coordinating. Since Boeing 787 is a new product,
having product integration will help put many under one roof. However, it is
important to keep the elements of design under your control (Allworth 2013).
Company like Boeing, can put engineers of disciplines to get them to anticipate any
problems before the getting other suppliers to build the components. It will certainly
help rather than having to firefight the problems later after being outsourced. The
company can also consider to take more time to research and locate trustworthy and
reliable partners that will be responsible of the tasks assigned to them. The partners
must have relevant experiences in handling or producing the components that they are
assigned. The goodwill of the company is also very important. Lastly, the company
must be able to do on-site visits to the manufacturing plants so that they can monitor
their quality checks as well as ensuring that there are no defects in the samples that
they produced. All these measures would definitely prevent time wastage and cost
incurred to do any corrections.
The company should respond to the criticisms by stating what the people and country
will benefit. First, there will be a creation of demand for exports of the Boeing 787.
Since it was assembled in America, the country will be able to make revenues from
the exports which will benefit the country. Adding on, with the demand of exports,
new jobs will be generated to manage it, which will provide the Americans with more
value-added jobs. The Americans can also benefit from the knowledge gained when
outsourcing its components to foreign countries. They can acquire new knowledge
from the expertise and be more efficient in their own production next time. Lastly, the
Americans, as one of the consumers for the jet, can also benefit from the low prices

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Names: Yoke Mian, Chia (42129974), Shan Di, Tan (41866003)

Title: Building the Boeing 787

IBUS2301 Group Report

when taking flights. However, it might bring a side effect if outsourcing so much to
foreign supplies. This will create a negative employment effects toward American that
it would increase the domestic unemployment rate. According to figure of U.S
manufacturing jobs (Meyers 2013), it shows that the unemployment rate is
significantly increasing since 2000. Meyers (2013) states that since launching 787
program back in 2003, 1200 engineers lost their jobs in electronic unit in Texas. It
further proves that the Dreamliner program did have a negative impact on
unemployment rate.

Unemployment rate in U.S (Meyers 2013)

Therefore, to respond to the criticism, Boeing should balance their outsourced work
and keep certain amount of jobs to U.S industries and local citizens. Some of
industries in U.S are well known to manufacture certain parts of the plane, there is no
necessary to export so much jobs to overseas. This would reduce the negative impact
of unfair criticism.
In conclusion, there were both risks and benefits in outsourcing by Boeing. The risks
were home country people losing jobs as well as not gaining enough control to
manage the production. It also led to extra costs incurred and time wastage. These
problems can be tackled by having more control of its production and having
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Names: Yoke Mian, Chia (42129974), Shan Di, Tan (41866003)

Title: Building the Boeing 787

IBUS2301 Group Report

partnerships with reliable companies. However, Boeing also benefitted from

outsourcing. There was knowledge gained from the other countries and value-added
jobs were created when the Dreamliners were ready for exports. It was also more cost
effective to outsource to the countries who were leading in manufacturing certain
parts of the jet, at the same time paying lower wages for them to fix it. Eventually, the
outcome must able to value-add to the customers.

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Names: Yoke Mian, Chia (42129974), Shan Di, Tan (41866003)

Title: Building the Boeing 787

IBUS2301 Group Report

References
Allworth, J 2013, The 787's Problems Run Deeper Than Outsourcing, HBR Blog
Network, viewed 20 October 2014, <http://blogs.hbr.org/ 2013/01/the-787s-problemsrun-deeper-t/ >.
Boeing 787-Alenia Aermacchi 2014, Viewed 20 October 2014,<http://www.
finmeccanica.com/ en/-/boeing787#> .
Cohan, P 2011, Boeing's Dreamliner Delays: Outsourcing Goes Too Far, Daily
Finance, 21 January, viewed 19 October 2014, <http://www.dailyfinance.com/20
11/01/21/boeing-dreamliner-delays-outsourcing-goes-too-far/>.
Downey, T 2010, Frontiers, Boeing, pp. 28, viewed 20 October 2014
<http://www.boeing.com/news/frontiers/archive/2010/february/Feb10Frontiers_sprea
d.pdf>.
Hill, CWL 2011, Global Business Today, 7th edn, McGraw-Hill/Irwin, New York.
Jordan, W 2014, Boeing's battle between quality and schedule, Aljazeera, 10
September 2014, viewed 19 October 2014,
<http://www.aljazeera.com/investigations/boeing787/2014/09/boeing-battle-betweenquality-schedule-201491114110291678.html >.
Meyers, B 2013, U.S. Manufacturing: Off-shoring (1979) to Re-shoring (2013), Daily
Kos, 13 June, viewed 22 October 2014,
<http://www.dailykos.com/story/2013/06/13/1216104/-U-S-ManufacturingOffshoring-1979-to-Re-shoring-2013>.
Tang, CS & Zimmerman, JD 2009 Managing New Product Development and Supply
Chain Risks: The Boeing 787 Case Supply Chain Forum, Vol. 10, No 2, pp. 82
< http://bus545-boeing.wikispaces.com/file/view/Boeing+787+Case.pdf>.

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