Outsourcing is a major trend in the world today. Many organizations and companies are contracting work out to third parties. The contract can be executed by another company within the same country or by a different company from overseas. The Boeing is an example of an aircraft manufacturer company which has embraced outsourcing. Despite the fact that Boeing was not the first company to embrace outsourcing, it has largely benefited from the third party effort. Nevertheless, with the introduction of Boeing 787, this tendency of relying on outsourcing is poised to end for Boeing. The company has outsourced at least 70 per cent of the production and design for the Boeing 787. Conversely, there exist many impediments that have resulted to massive loss of billions of dollars and delays that are exceedingly costly.
The Boeing Company profile
The Boeing is a global company located in Washington, United States of America. It was founded in the year 1961 by Boeing E. William. Since then, the company has witnessed histrionic expansions and transformations. In 1997, the company merged with McDonnell Douglas. The corporate headquarters of Boeing are situated in the city of Chicago, Illinois State. The company has numerous units of business which include technology, operations, engineering, space and defense security and commercial airplanes. Besides, the company’s shared services group together with the company’s capital is part of its business units. In terms of delivers, orders and revenue, the company is one of the biggest aircraft manufactures in the globe. In addition, the Boeing Company is the USA’s largest exporter in relation to value and in terms of defense related revenue. Moreover, it is the third largest defense and aerospace contractor in the world. Pelletier (2010) observes that the Boeing Company’s stock is a component of the Dow Jones industrial average.
Employees, Products and Services
The Boeing Company is structured in terms of services and products it offers. It works in five critical departments. One of its chief departments is the department of commercial airline which creates, develops and trades commercial jet aircrafts. Besides, the department offers services linked to commercial airline globally. The company is the world leading manufacturer of commercial aircrafts. It provides a broad array of commercial jet aircrafts that is designed to take care of the cargo requirements of domestic airlines in various countries and fulfill passenger’s desires. The jet aircraft family consists of numerous distinct models of aircrafts which include the 767 wide body models, the 777 wide body models and the 737 narrow body models. Other new models that are being undertaken by the company include 787 wide body model and 747-8 wide body model. In addition to creating the jetliners, the department of commercial airline offers training, aircraft adjustment and aviation support services. According to Pelletier (2010), the commercial airline department also offers advices to government clients and commercial clients globally.
Another critical department of Boeing Company is the Boeing Space, Security and Defense department. The department provides a wide spectrum of services to clients such as investigating, progression and creation of numerous products. Some of the products produced by this department include network and tactical systems, global mobility systems and global strike systems. The chief customer of this department is the US department of defense which account for 82% of the entire revenues produced from this department in the year 2010. The main customer in the Boeing defense, space and security segment is the US department of defense. The department accounted 82% of all the revenues generated from this segment in 2010. Other departments of Boeing Company include technology, operations, engineering; the company’s shared group services and the company’s capital. Overall, the Boeing Company provides computer services, military crafts, commercial crafts and space systems. Pelletier (2010) affirms that total number of employees of this company according to report released by the company on April 28th, 2010 is 164495 employees.
History of Company
The company’s founder, Boeing E.William bought the airplane factory called The Health Shipyard in the year 1910. The factory was located in Seattle, Washington, USA. In 1916, he merged The Health Shipyard Company with Pacific Aero Product Company. Armed with knowledge acquired from Yale University, Boeing designed airplanes. Boeing initiated his own firm immediately after Westervelt Courade George developed The Maiden Flight. The two worked together to invent the B$W seaplanes and Boeing used the same design to build planes for his company. Boeing changed the name of Pacific Aero Product Company to Boeing Airplane Company in 1917. This company was instrumental in supplying the US navy with training – planes called Model Cs during World War I. However, after the World War II, the company was unable to trade more planes because of the availability of numerous low-priced planes in the market. As a result, the company diversified it activities and started trading products such as seal sleds, furniture and counters (Pelletier, 2010).
The Boeing Company faced stiff competition from other companies such as Curtiss in developing jet fighters for the US Army Air Services. However, Curtiss overpowered Boeing Company and won the government contract. Despite this big blow, the Boeing Company continued to produce the PW-9 fighter and P-12/F4B fighter which played a significant role in the growth and development of the company. This development made Boeing Company the leading manufacturers of jet fighters globally. Later, the company built the Boeing Air Transport which amalgamated with Pacific Air Transport. However, the Boeing Air Transport was changed to United Aircraft and Transport Corporation in 1929. After this development, the company purchased numerous companies such as Hamilton Standard Company, Pratt & Whitney Company, Chance Bought Company and the National Air Transport. The first passenger plane called Boeing 80 was built by the company in the year 1929. This plane had the capacity to accommodate twelve commuters (Pelletier, 2010).
The Boeing Company went unchallenged for approximately the next 53 years. Nonetheless, the company faced stiff competition after the introduction of the airbus by the European Airbus Company. As a matter of fact, the European company sold more airplanes than the Boeing Company in the year 2003. Besides, the European Airbus Company has been delivering more airplanes than the Boeing Company since 2003. It was now becoming evident that the European Airbus was gradually monopolizing the aircraft market. As a result, the Boeing Company needed to do something in order to reclaim the aircraft market. While the Boeing Company was still figuring out the design of their next plane, the European Airbus initiated five fresh designs of aircrafts. The mounting competition from European Airbus Company coupled with the desire to reclaim the aircraft market share made the Boeing Company to initiate a new plane called the Boeing 787. Nevertheless, the company needed to construct the plane hastily and with the lowest cost possible. This is what compelled the Boeing Company to outsource 70% of the plane (a significantly higher proportion as compared to other models before the Boeing 787).
The Boeing Company, just like other companies in the airline industry, promotes its services and products via advertisements. This is aimed at attracting clients and customers and ultimately, increasing sales. The company uses a broad array of medium to promote its services and products. For instance the company utilizes print media and electronic media to advertise its services and products. Example of electronic media employed by the company includes the Television which targets a wide spectrum of customers. Newspapers, brochures and newsletters are examples of print media utilized by the company to promote its services and products. Besides, the company uses internet in marketing its services and products (Yenne, 2005). The benefits accrued from advertisements include retaining present customers and luring new customers. In addition, the company has a steady and well-built customers’ base. It targets a variety of clients and customers from various segments such as governments and airline companies situated in other countries. The chief customer of the company is the government of the United States. The government purchases military items and array of services from the company. As of a result of the company’s aggressive advertisements and promotion of its services and products, the company has managed to perform excellently even during hard times. For example, the company’s revenue in the year 2010 was estimated to be around 64.306 billion US dollars. Amazingly, the company attained an exceedingly high profit in the same year which was estimated to be around 3.307 billion US dollars (Yenne, 2005).
Key Issues Facing the Company
Boeing Company, just like other companies, experienced some difficulties in developing the Boeing 787. As a result, the company decided to outsource its activities to overseas companies. The core reason of outsourcing was to lower the cost of developing the 787 airliner. The Boeing Company opted to have various suppliers which develop distinct parts of the Boeing 787. These suppliers were situated in various parts of the globe such as Canada, Japan, Israel and Italy. The chief role of the supplier was to develop distinct parts of the Boeing 787 and ship them back to the Boeing Company for assembling process. The Onex Corporation which is located in Toronto, Canada, developed the nose part of the Boeing 787.A company located in South Carina developed the rear fuse part of 787 airliner while the middle fuse part was developed by a company from Italy. The wing of the Boeing 787 was developed by a company from Japan. There are various reasons why the Boeing Company opted to outsource its activities abroad. One of the chief reasons was because outsourcing was a popular practice in the company. A good number of parts of the models developed by the company prior to the Boeing 787 were outsourced. The company also hoped to save cost. By outsourcing, the company will avoid the cost of hiring many employees. Besides, most of foreign countries had a lower labor rates than the USA. Time was also a major factor. The assembling of planes is a complex process that cannot be assembled quickly like automobiles. It can take up to many years before the plane is assembled and given a permission to fly. A plane has approximately two million parts compared to fifteen to twenty thousand parts of the automobile. Shortening the time needed to complete a plane was seen as critical in attaining greater profits within a short period of time.
Supply Chain Management
The company partnered with foreign companies to develop the Boeing 787. It also adopted a completely new manufacturing model in order to develop the plane. The company was to leverage its extended supply chain and the resources of the foreign companies as a competitive advantage to enhance market time and minimize the entire costs. Most sections of the plane will be developed by overseas companies and later delivered as major subassemblies to the Boeing Company for final assembling. While the company acted as the final assembler, coordinating the numerous systems and structural foreign companies’ locations stretched across the world was critical to the manufacturing success. The company had to coordinate logistics information, supply and demand across many foreign companies ties so that major sections of the Boeing 787 arrive at the Boeing Company within the shortest time possible.
Benefits of Outsourcing
Outsourcing encompasses contracting work out to a developer, self-regulating company or any third party. Outsourcing has turned out to a popular practice in majority of companies and industries because of its many advantages. Outsourcing assists industries in putting more attention to important activities rather than paying attention to secondary works. Boeing Company was on the fore front to take advantage of outsourcing. Just like any other similar company, the Boeing Company avoided manufacturing the 787 airliner from the scratch and instead, put more emphasis on the nucleus activities of the company. Besides, outsourcing was to play a central role in assisting the company to minimize the cost of developing the sections of the 787 airliner. The Boeing Company was to share the cost of creating the major parts of the plane with foreign suppliers, hence lowering the total cost of developing the Boeing 787. The company as well wanted to avoid the cost of recruiting employees within USA to carry out the project. The labor rates in some foreign countries are considerably lower than in USA and therefore, the company felt the need to take full advantage of lower labor rates to minimize the overall costs of developing the plane. In addition, the company aimed at utilizing outsourcing as a critical tool in making use of technology skills from foreign countries. Hill (2010) reveals that outsourcing assist industries to utilize technological competencies derived from different parts of the world. Majority of the companies that lacks advanced technology depends on other countries to produce their products. The Boeing Company outsourced its activities out to foreign suppliers in order to develop excellent and high quality products. Hill indicates that outsourcing assists industries to produce quality goods and services. Besides, companies or industries are able to utilize human resource and advanced technologies available in the foreign countries. Boeing Company outsourced the new 787 airline with an aim of taking advantage of diverse technologies and human resources available in different countries across the globe. The company also wanted to utilize or fully exploit the suppliers’ innovation and specialist potentials. McIvor (2010) argue that outsourcing assist companies to make use of foreign knowledge and skills to complement their ability to innovate fresh products. Besides, the Boeing wanted to minimize time to market. Through outsourcing, the company could develop the 787 airliner within the shortest time possible and avail it to the market. As mention above, assembling the plane is an intricate process that consumes time and resources. By having different suppliers to develop different sections of the Boeing 787, the company hoped to develop the plane quickly within the stipulated time frame. The company opted to outsource its activities out to foreign suppliers because of the shrinking employment pool. Outsourcing enables countries with shrinking employment pool to obtain services from other countries that does not experience shrinking employment pool. For example, engineers at the Boeing Company were in high demand. The company was employing approximately 12, 428 engineers in engineering department as of December 2008. Nevertheless, engineers are high required in other critical departments of the company such as commercial airliner department and the department of defense system. Harvard Business School (2005) reveals that a report from National Academies affirms that each year, China adds about 600,000 fresh engineers while the United States only adds 70,000 new engineers per year. Since the employment supply was shrinking in the United States as of that time, the Boeing Company opted to outsource its activities out to foreign suppliers so as to tap the resources needed to complete the 787 airliner.
Outsourcing also enables companies to develop and open up business opportunities in other countries. Several business deals between the local companies and foreign countries have the capacity to generate additional profit for both countries as a result of exchange of services and goods. The Boeing Company had made several business deals with other countries before. By outsourcing the development of the 787 airliner, the company hoped to expand its business opportunities with an aim of minimizing production cost and ripping more profit from the deal. Besides, it also wanted to reclaim its market share. Stiff competition from European Airbus made the Boeing Company to loss its market share. To reclaim its part in the global market, the company initiated the development of the Boeing 787 to counter the stiff competition for the European airbus corporation. Instead of developing the parts within the USA, it opted to outsource its activities to foreign companies with an aim of expanding its market and business opportunities.
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Risks Associated with Outsourcing
Despite the fact that there are various benefits associated with outsourcing, there are also potential risks. First, outsourcing influence the length of time an industry or an organization take to avail its products to the market. If the supplier fails to avail critical sections needed to develop a product, then the company will not be able to assemble the parts within the required time. The Boeing Company was not able to avail the 787 airline on the market on time due to delays caused by outsourcing. The suppliers failed to deliver the essential sections of the Boeing 787 in the correct quantity and on time. Some suppliers delivered to the Boeing company parts that were of less quantity and incomplete. Consequently, the Boeing Company was compelled to modify the sections so as to attain the required quantity. Moreover, outsourcing influences the standard of the product. Some supplier may fail to match the company requirement. Outsourcing negatively affected the quality of parts that were developed by suppliers. A good number of suppliers supplied low standard sections of the Boeing 787. In addition, some suppliers had inexperienced unqualified employees who made low quality parts for the project. The Boeing Company had high qualified technicians who were more than capable of developing distinct parts of the 787 airliner. It was a big mistake on the part of the company to outsource its activities out to foreign countries when it actually had its own expertise (Hill, 2007).
The Boeing Company experienced increases in expenses as a result of delays caused by outsourcing. The delays made the company lose billions of dollars through penalties for failing to meet the requirement of customers. For example, outsourcing negatively impacted on the reputation of the Boeing Company because majority of customers lost trust for the company due to its delay in delivering the 787 airliner. Consequently, the company experienced low sales as more customers left the company. It is clear crystal that the risks associated with outsourcing by far outweigh its benefits. The company needed to perform risk analysis first before outsourcing its activities out to foreign countries.
Outsourcing enabled the Boeing Company to lose its competitive advantage to foreign companies. According to Harvard Business School, both Japan and China wanted to strengthen their aircraft industry. If the two countries use the knowledge acquired from Boeing Company, they might use it to develop an airliners that would have the potential to compete favorably with the ones produced by Boeing Company. McIvor (2010) argues that in an outsourcing climate, the supplier benefit from the entire possible learning curve advantages and the integrator chases the contractor for cost compromises.
The Boeing Company could have performed risks analysis of outsourcing. To carry out this analysis, a company must recognize the two types of risks namely operational risk and structural risk. The idea behind operational risk is that majority of third party suppliers may not be capable of carrying out the assigned work just like its employees. There two causes of operational risk. The first cause is that majorities of companies are unable to codify their work or write a clear procedure to be following by third party in developing the product outsourced to them. The other cause is that many companies have no authentic way of assessing the standard of the activity performed by the third party. The Boeing Company did not codify its work. For example, the company initially blamed the company that made fasteners for the 787 airliner for developing the product that failed to meet the specified standard. However, it was later found that the Boeing Company was the one to be blamed because it did not give a clear specification for the fasteners. As a result, the company incurred extra costs in redeveloping the fasteners to meet the required quality. If the company could have performed the operational, it could have clearly codified its work and avoid the risk losing a lot of money as a result of redeveloping the sections of the plane to meet the required standard.
To avoid these risks, the Boeing Company could have adopted a model to facilitate the outsourcing process. One of such models is the 24 Hour Knowledge Factory model. This model stipulates that a company can outsource it activities out to various countries, but each country should be in a different time zone-approximately eight hours apart. This imply that when one country has just finished developing particular section of the 787 airliner, the other country is waking up and ready to continue working on another section of the plane. This model could have had numerous benefits for the company. For instance, by working 24 hours a day, the company could save time and hence facilitate faster development of the 787 airliner. Besides, the company could have saved billions of dollars that it incurred through penalties. This model can also be utilized in another way. Instead of each company developing and completing a particular part of the plane, one company can develop a certain part of 787 airliner; then send it to another country for testing. When the first country wake up the following morning, the results of the testing are already done from the second country and it can immediately start modifying the part of the plane according to recommendations of the results.
The Boeing Supply chain management
The Boeing supply chain management was largely criticized in 2007 and 2008. Most people linked the delays caused by suppliers to poor management of its supply chain. The company failed to effectively manage the world supply chain and this impacted negatively the successful completion of the 787 airliner. Hooper and Newlands (2009) contend that the company’s management opted to alter the supply chain and assembly process simultaneously. The company’s supply chain management did not take into consideration the risk associated with altering the two processes simultaneously. Instead, the company set up innovation in the supply systems. Its attempt to outsource its activities out to foreign countries without a clear guideline of how to manage the supply chain and it was disastrous. This development of events caused considerable delays because the foreign countries involved in developing the sections of the Boeing 787 wanted to share both the profits and risks associated with developing the 787 airliner. The company also experienced heavy loses via penalties for not meeting the requirements of customers in time. Majority of the customers petitioned the company to compensate them for not delivering the products on time as agreed before (Hill, 2007).
To mitigate this problem, the Boeing Company could have effectively managed its supply chain. For instance, the company should have held the entire suppliers taking part in developing the major sections of the 787 airliner close to its assembly line. This could have boosted collaboration between the company and its suppliers from foreign countries. As a result, the company could have minimized delays, improve products quality and assemble the 787 airline within the stipulated time framework. Besides, holding its suppliers and systems in the close proximity of the company assembly line could have increased its capacity to monitor the development of the sections of the airliner which were being developed by the suppliers from foreign countries. In addition, the company could have ensured that the suppliers meet the expected standards of developing the sections of the 787 airliner. The biggest mistake the company did was to allow the suppliers locating in foreign countries to develop the sections of the plane independently and then availing them to the company for the final assembling. Another important factor was to apprehend the nature of supply chain in those companies contracted to develop the parts of the 787 airliner. Therefore, understanding the chain supply in diverse markets the company operates is critical in avoiding the problems like the one experienced by the Boeing Company. Surveying the supply chain of other countries helps in understanding the potentials, weaknesses and anticipations of the market for better and effective management of the supply and timely delivery of products to the market (Blanchard, 2010).
The Boeing Criticism for Outsourcing
The company faced a lot of criticism for outsourcing its activities out to foreign companies in the course of developing the Boeing 787. Most critics affirmed that the company exporting jobs overseas. Their argument is true. By outsourcing its activities to foreign suppliers, the company gave out the work that could have been done by the local people. Besides, the company had qualified personnel that could have developed the sections of the 787 airliner without the assist from foreign suppliers. Despite the fact that the company had highly experienced and qualified employees, it did not give them a chance to develop the parts of the 787 airliner. As a matter of fact, outsourcing of the new plane model dispossessed local people’s jobs.
Outsourcing services and products from foreign countries has the capacity to impact negatively on the local people. Outsourcing results to increase in employment rate in the local country and minimizes employment rate in foreign countries. Instead of outsourcing its activities out to foreign suppliers, the company could have outsourced the development of the sections of the 787 airliner within USA. There are numerous competent companies in the United States that could have developed and supplied the essential parts of the plane. This alternative could have created a good number of jobs for the local citizens. To avoid such criticism, the Boeing Company should internalize its entire work. For example, ought to internalize it manufacturing work by permitting its employees to develop the major sections of the 787 airliner instead of outsourcing. Thus, the company should request less assistance from foreign countries in order to avoid to massive jobs exportation. In addition, the company should make sure that its employees liaise with foreign employees in the factory to facilitate knowledge exchange (Hill, 2010).
To sum up, the Boeing Company is one of the leading aircraft developers in the globe. Since its foundation, the company has manufactured numerous military aircrafts and commercial planes. For example, the company has developed the plane models namely 707, 747, 737 and 787 airliners. One of the chief customers of the company is the government of the United States which has purchased numerous military aircrafts. Despite the fact that the company is considerably large, it has experienced a wide range of problems ranging from economic crisis and project cancelation. Faced with stiff competition from the European Airbus Corporation, the company initiated the famous 787 airliner in order to reclaim its competitive edge and market share. The company decided to outsource its activities out to foreign suppliers. As a result, low quality products were developed and the company was unable to deliver the products to its customers in time. Besides, the company lost billions of dollars through penalties for failing to deliver the products to customers within the agreed time. The relationship between the company and customers worsened as more customers deserted the company. In addition, the total cost of production skyrocketed because the company had to incur a lot of cost in redeveloping the sections of the 787 airliner to meet the required quantity and standard. In fact, the risk associated with outsourcing outweighed it benefits. If the company would have performed a comprehensive scrutiny of the project and the risks associated with the project, the degree of outsourcing may have declined. On the other hand, if the company could have made use of 24 hours knowledge model, the Boeing 787 project could have with no doubt, successful.
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