Lecture10Procurement andOutsourcing Strategies（Chapter9)
Lecture 10 Procurement and Outsourcing Strategies (Chapter 9)
9.1.Introduction.What is outsourcing?. Outsourcing has been increased progressivelyover the yearsCompanies outsourced everything...* Fashion Industry (Nike) (all manufacturingoutsourced)* Electronics Industry* Cisco, Apple (over 7o% of components outsourced)Not Just Manufacturing but Product Design, Too
9.1 Introduction What is outsourcing? Outsourcing has been increased progressively over the years Companies outsourced everything. Fashion Industry (Nike) (all manufacturing outsourced) Electronics Industry Cisco, Apple (over 70% of components outsourced) Not Just Manufacturing but Product Design, Too
OutsourcingCaseWhere is the Boeing 787 Dreamliner Made?BOEINGAmerican companies make the front and back ofthe plane. The rest come from all over the world
Outsourcing Case Where is the Boeing 787 Dreamliner Made? American companies make the front and back of the plane. The rest come from all over the world
SelectedsystemsuppliersontheBoeing787DreamlinerFrance,UsJapan,FranceFrance.UsFrance,UsUK.France.UsIn-flightInside cockpit,Inside seating,InternalelectricalElectriccontrolsentertainmentsafetyavionicspowerandcomponentsBoeing787DreamlinerUSUSSelectedcomponentsandsystemsuppliersTail finCanadaKoreaItalyWingtipsAustraliaUKMovableFranceUStrailing edgeJapanSwedenAftfuselageItalyWingJapanCentrefuselageKoreaCanadaAustralia0ItalyEngineNacellesHorizontalstabilizerSwedenCargoaccessUSdoorsForward fuselageAircraftassemblersCurent-Airbus,JapanBoeingFuselagePotential -China,FranceUSUKRussia,JapanEntryFixedandLanding geardoorsLIKleadingEnginemovableedge
Comparison of Boeing'sstrategy for its737 and787 programsComponent737Program787ProgramSourcing strategyOutsource35-50%Outsourced70%Supplier relationshipTraditional supplierrelationshipStrategic partners with tier-1(purely contract based)suppliersSupplier responsibilitiesDeveloped and produced parts forDeveloped and produced sectionsBoeingforBoeingNumberof suppliersThousandsApproximately50 tier-1 strategicpartnersSupply contractsFixed-price contracts with delayRisk-sharing contractspenaltyAssemblyoperations30 days for Boeing to perform final3-day assembly of completeassemblysections
Comparison of Boeing's strategy for its 737 and 787 programs
9.2OutsourcingBenefitsand RisksBenefitsEconomiesofscaleRiskpoolingReduce capitalinvestmentFocus on core competencyIncreasedflexibility*openupopportunitiesforcompetitors*losetheirabilitytoOutsourcing Risksintroduce newdesigns1) Loss of Competitive Knowledge*preventinginnovations2)ConflictingObjectivesthat require cross-functionalteamwork
9.2 Outsourcing Benefits and Risks Benefits Economies of scale Risk pooling Reduce capital investment. Focus on core competency Increased flexibility Outsourcing Risks 1) Loss of Competitive Knowledge 2) Conflicting Objectives open up opportunities for competitors lose their ability to introduce new designs preventing innovations that require crossfunctional teamwork
IlsoutsourcingtoblameforBoeing's787Dreamlinerwoes?Boeingcontractedwithatoptierofabout 50 suppliers in all, handingthem complete control of the designof their piece of the plane, includingthe electrical system.BoeingcanshortenthedevelopmenttimeReducethedevelopmentcostAsBoeingoutsourcedmore,communicationandcoordinationbetweenBoeinganditssuppliersbecamecriticalformanagingtheprogressofthe787developmentprogram
Is outsourcing to blame for Boeing’s 787 Dreamliner woes? Boeing can shorten the development time Reduce the development cost. As Boeing outsourced more, communication and coordination between Boeing and its suppliers became critical for managing the progress of the 787 development program. Boeing contracted with a top tier of about 50 suppliers in all, handing them complete control of the design of their piece of the plane, including the electrical system
Frequentaccidents-Delay delivery time-Afireinelectrical system,failure inbrake equipment,fuelleakage...-Boeing787Dreamliner battery problemsBoeing787DreamlinerbatteryproblemsFrom Wikipedia, the free encyclopediaThetemplateinfoboxaviationisbeingconsideredfoIntheBoeing787Dreamliner'sfirstyearofservice,at leastfouraircraftsufferedfromelectricalsystemproblemsstemmingfromdeletion,its lithium-ionbatteries.Althoughteethingproblemsarecommonwithinthefirstyearofanewaircraftdesign's life,afteraBoeing787batteryproblemsnumberofincidentsincludinganelectricalfireaboardanAllNipponAinwavs787andasimilarfirefoundbymaintenanceworkersonalandedJapanAirlines787atBoston'sLoqanInternationalAirporttheUnitedStatesFederalAviationAdministration(FAA)orderedareviewintothedesignandmanufactureoftheBoeing.787Dreamlinerfollowingfiveincidentsinfivedaysinvolvingtheaircraft,mostlyinvolvedwithproblemswiththebatteriesandelectricalsystems.Thiswasfollowedwithafull groundingoftheentireBoeing787fleet,the firstsuchgroundingsincethatofMcDonnell DougiasDC-10in1979.l1Theplanehashadtwomajorbatterythermalrunawayeventsin52.o00flighthours,whichwassubstantially.belowthe10millionflight hours predicted by Boeing,and both werenot contained ina safe manner.[2]TheNationalTransportationSafetyBoardreleasedareportonDecember1.2014.andassignedblametoseveralgroups3]Gs Yuasa of Japan,for battery manufacturing methods that could introduce defects not caught by inspectionTheheavilyburnedbatteryfromJA829Jafteritsufferedthermal runaway.Boeing'sengineers,whofailedtoconsiderandtestforworst-casebatteryfailures.TheFederalAviationAdministration,whofailedtorecognizethepotentialhazardanddidnotrequirepropertestsaspartofMitscertificationprocess
Frequent accidents - Delay delivery time -A fire in electrical system, failure in brake equipment, fuel leakage . - Boeing 787 Dreamliner battery problems
A traditional supply chain for airplanemanufacturingSupplierSC structure forairplane mfgSupplierSupplierBoeingFinalCustomersBoeing's strategy for its 787AssemblySupplierprogramsSupplierSupplierRedesigned supply chain for the Dreamliner programTier3:SupplierTier3SupplierTier2:SystempartnerTier 1:Tier3:SupplierPre-integrationBoeing:Tier3:SupplierFinalAssemblyTier 2:Tier3:SupplierStructurabartnerCUSTOMERSTier3:Supplier
SC structure for airplane mfg. Boeing's strategy for its 787 programs
IsoutsourcingtoblameforBoeing's787Dreamlinerwoes?Very different on the 787 is the structure of the outsourcing- A top tier of about 5O suppliers. who control the design oftheirpieceoftheplane.- Those major partners had to make the upfront investment,share the risk and own their design. Each was responsible formanaging its own subcontractors."You only know what's going on with your tier 1 supplier.You have no visibility, no coordination, no real understanding ofhowallthepiecesfittogether."Canthemanagementteamtrace all theway down thetreeto every single supplier and unit? That's really difficult
Is outsourcing to blame for Boeing’s 787 Dreamliner woes? Very different on the 787 is the structure of the outsourcing. - A top tier of about 50 suppliers, who control the design of their piece of the plane. - Those major partners had to make the upfront investment, share the risk and own their design. Each was responsible for managing its own subcontractors. “You only know what’s going on with your tier 1 supplier. You have no visibility, no coordination, no real understanding of how all the pieces fit together. “Can the management team trace all the way down the tree to every single supplier and unit? That’s really difficult