Designing and Managing the Supply ChainLecture 11 (Chapter 9)Procurement and OutsourcingStrategies王长琼WHUT,2017
Lecture 11 (Chapter 9) Procurement and Outsourcing Strategies 王长琼 WHUT, 2017 Designing and Managing the Supply Chain
9.1 Introduction. Outsourcing components have increasedprogressively over the years Some industries have been outsourcing for anextended time* Fashion Industry (Nike) (all manufacturingoutsourced)* Electronics Industry* Cisco (major suppliers across the world)* Apple (over 70% of components outsourced)Not Just Manufacturing but Product Design, Too
9.1 Introduction Outsourcing components have increased progressively over the years Some industries have been outsourcing for an extended time Fashion Industry (Nike) (all manufacturing outsourced) Electronics Industry Cisco (major suppliers across the world) Apple (over 70% of components outsourced) Not Just Manufacturing but Product Design, Too
OutsourcingCaseWhere is the Boeing 787 Dreamliner Made?FBOEINGAmerican 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
Atraditional supply chainforairplanemanufacturingSupplierScstructureforairplanemfgSupplierSupplierBoeingFinalCustomersAssemblySupplierSupplierRedesigned supply chain for the Dreamliner programSupplierTier3:SupplierTier3SupplierTier 2:SystempartnerTier1:Tier3:SupplierPre-integrationBoeing:Tier3:SupplierFinalAssemblyTier2:Tier3:SupplierStructurabartnerCUSTOMERSTier3:Supplier
SC structure for airplane mfg
Comparison of Boeing's strategy for its 737 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
Is outsourcing to blame forBoeing's 787Dreamliner woes?Boeing contracted with a top tier ofabout 50 suppliers in all, handing themcomplete control of the design of theirpiece of the plane, including theelectrical systemBoeing can shortenthedevelopmenttime Reduce the development cost. As Boeing outsourced more, communication andcoordination between Boeing and its suppliers becamecritical for managing the progress of the 787developmentprogram
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
Is outsourcing to blame for Boeing's 787 Dreamliner woes?Very different on the 787 is the structure of the outsourcingOn the Dreamliner, Boeing contracted with a top tier of about 50suppliers, handing them complete control of the design of their pieceof the plane.Those major partners had to make the upfront investment, sharethe risk and own their design. Each was responsible for managing itsownsubcontractors.You only know what's going on with your tier 1 supplier. Youhave no visibility,no coordination, no real understanding of howall thepieces fittogether“Can the management team trace all the way down the tree toevery 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. On the Dreamliner, Boeing contracted with a top tier of about 50 suppliers, handing them complete control of 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
Questions/lssueswithOutsourcing*Why do many technology companiesoutsource manufacturing, and eveninnovation, to Asian manufacturers?What are the risks involved?* Should outsourcing strategies depend onproduct characteristics, such as productclock-speed, and if so how?
Questions/Issues with Outsourcing Why do many technology companies outsource manufacturing, and even innovation, to Asian manufacturers? What are the risks involved? Should outsourcing strategies depend on product characteristics, such as product clock-speed, and if so how?
DiscussionPoints* Buy/make decision process* Advantages and the risks with outsourcing* Framework for optimizing buy/make decisions.*Effective procurement strategies* Framework for identifying the appropriate procurementstrategy* Linkage of procurement strategy to outsourcing strategy.*The procurement process* New developments mean higher opportunities and greaterchallenges faced by many buyers
Discussion Points Buy/make decision process Advantages and the risks with outsourcing Framework for optimizing buy/make decisions. Effective procurement strategies Framework for identifying the appropriate procurement strategy Linkage of procurement strategy to outsourcing strategy. The procurement process New developments mean higher opportunities and greater challenges faced by many buyers