A Product Co-development Cautionary Tale

By John K. Borchardt

In many ways, the development of the Boeing 787 Dreamliner jet plane serves as an object lesson about the hazards of globalization of new product codevelopment and manufacturing. Over many years, Boeing had built its own aircraft design facilities, aircraft manufacturing plants and suppliers in Everett, Washington, near Seattle. Suppliers such as precision machine shops gradually built facilities nearby and new companies were also started to meet Boeing’s needs.

With the Dreamliner, Boeing departed from its long-standing practices for two reasons. First, Boeing used a very ambitious design involving extensive use of composite materials to replace steel. Over half of the aircraft weight would comprise lightweight composite materials, resulting in an airplane that would be 17 percent more fuel efficient than the metal B767 it was intended to replace. Boeing had to take on partners to provide the technology it needed for the Dreamliner.

For example, Toray Industries of Japan developed new carbon fibers and increased its carbon manufacturing capacity by almost 40 percent. It will be manufacturing almost $6 billion of carbon fiber impregnated with resin for the Dreamliner. Its major role in the Dreamliner project has made Japan a leading national partner; its project share is 35 percent, the same as Boeing’s share. Besides providing advanced materials, Japanese firms are manufacturing the aircraft wings and central wing box.

According to a Harvard Business Review article written by the University of Washington’s Boeing Philip M. Condit Professor of Business Administration Dick Nolan, one rationale for the global supply network was to secure financing for Dreamliner development global orders. For example, the involvement of Japanese firms in the project made Japanese airlines more willing to buy Dreamliners rather than the competitive 380 Airbus under development by a European consortium. Japan’s All Nippon Airways became the first airline to sign contracts agreeing to purchase 50 Boeing Dreamliner aircraft.

Second, the cost of the product development and manufacturing project is huge. Boeing decided to take on partners to share the costs and thus share in the profits generated by the plane. In addition to the design risks associated with the extensive use of composite materials, particularly in the fuselage, Boeing designed a process that would manufacture the plane in sections that would then be assembled at its Everett plant. This decreased Boeing’s reliance on its traditional contract manufacturers. In all, Boeing has 50 supplier contracts with 28 of the suppliers located outside the U.S.

Its global supply process has reduced Boeing’s control over the manufacturing process. Quality control issues and other delays have pushed customer deliveries of the advanced aircraft three years behind the original schedule and have cost Boeing billions of dollars in penalty fees for failure to meet contracted plane delivery dates. Close working relationships that were developed over the years with its Everett suppliers have been weakened by dispersal of the manufacturing and assembly process to 28 countries.

Outsourcing partners in Japan, China and Europe have gained access to an unprecedented amount of proprietary Boeing technology. By sharing its technology with outsourcing partners, Boeing may be creating dangerous competitors.

The scale of Boeing’s Dreamliner R&D and manufacturing is huge compared to new product development projects in the chemical and pharmaceutical industries. However, the Dreamliner is still a codevelopment cautionary tale for these and other industries.

Categories: Business Management

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Go, Go Gadgets

Published: July 5, 2011

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