Looking Back: Boeing Repeatedly Burned By Outsourcing

From aircraft components and fuselage sections to software coding, Boeing's outsourcing strategy might be producing more problems than solutions.

This past week, Boeing stated that it was likely to reduce delivery of its 737 MAX in the near future due to quality discrepancies with a part made by supplier Spirit AeroSystems. The issue had to do with a 'non-standard' manufacturing process for two fittings to be applied in the aft fuselage. This latest issue is just one of many stories that link Boeing output issues with flawed parts and challenging relations with suppliers. Is it time to start brining things in house?

For those unaware, outsourcing is when certain work is assigned to external companies. Reporting on aviation news, Simple Flying regularly encounters airlines that have outsourced their communications and public relations duties to external firms. As an extremely simple and common example for aircraft manufacturing, nearly all planemakers outsource development and production of engines. After all, you don't see Boeing aircraft with Boeing engines, and Airbus aircraft with Airbus engines (well, not yet at least). Of course, commercial aircraft these days have many more components coming from external companies.

Large portions of many commercial aircraft produced by Boeing are made up of components procured from outside sources. A 2004 article by SME noted that it was as much as 60-70% at the time. Speaking with SME, Chuck Agne, a director of supplier management for Boeing's Integrated Defense Systems (IDS) business, was quoted as saying:

"Our strategy is to become an integrator. It comes down to this: we take big pieces and assemble them, and build an airplane. We get anything from small to large subassemblies from suppliers. We expect suppliers to do more of the work."

Agne added that this strategy would help the company to be cost-competitive. "There are a lot of small, very competitive, very talented shops out there that can do that work faster, cheaper, and better than we ever did," he said.

Granted, the article and quotes are now nearly two decades old, but the act of outsourcing - and the reasons for doing so - seem to remain the same. By offloading work to external firms, planemakers let others focus on and specialize in whatever they're supplying. This seems to be the main rationale among firms who choose to offload work to external suppliers.

Cost-savings from outsourcing is another common reason. However, it's less clear and likely depends on the specifics of each situation. A 2007 article by CIO, largely discussing Boeing's outsourcing of 787 components, noted that "there is no evidence that Boeing is saving much money by outsourcing." The article added, however, that,

"...outsourcing does send a message to the unions that Boeing deals with. It says: 'If you mess too hard with us, we can always outsource your job to another place.'"

We're more than certain that this is something Boeing would publicly disagree with. But broadly speaking, outsourcing is sure to send a subtle signal to any company's workers that they can be replaced.

Finally, the pandemic highlighted the benefit of agility that outsourcing offers. Rather than layoff or furlough its own workers, it's a little easier to reduce orders from a supplier or terminate a contract altogether.

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Over the last 15 years or so, stories have emerged that demonstrate failures from Boeing suppliers. In addition to the latest 737 MAX news regarding Spirit AeroSystems, examples include:

"We did have our challenges with the India team...They met the requirements, per se, but you could do it better." - Charles LoveJoy, former Boeing flight-test instrumentation design engineer

While this article connects Boeing's latest output-issue with one of its key suppliers, it should be noted that Airbus also outsources work for its commercial aircraft. As an academic paper by HAL noted, "Airbus has been multisourcing production since the first rollouts in the late 1970s." The paper adds that "Outsourcing amounts to 70% of equipment costs and 50% of airframe costs of an A380."

Quite interestingly, however, a piece by Cargo Forwarder titled "Airbus: Insourcing beats Outsourcing," notes that the European planemaker had been reorganizing its supply chain. This has been done to "secure the seamless flow of components, tools and equipment to its production site in Hamburg at all times." Speaking with local media, Sebastian Peters, Head of Global Logistics for Airbus Civil Aircraft Programs noted that the move gives "control of all data relating to the flow of materials and enables us to closely monitor the chain from the door of the supplier to our Hamburg plant."

The same article points to the Boeing 787's development and heavy reliance on outsourcing as a prime example of the major limits associated with outsourcing.

This piece shouldn't be construed as an argument against outsourcing, nor should it be considered an anti-Boeing rant. Rather, the goal is to highlight the pitfalls and risks of relying on external suppliers. After all, some outsourcing is unavoidable. Additionally, the same issues Boeing is facing with its suppliers could theoretically happen with in-house teams too.

However, increased integration and better communication between various teams might just be reason enough to consider returning work to the core company. Barring this, ensuring proper supplier vetting and selection are key, while regular communication with and oversight of suppliers are clearly necessary as well.

What do you think of outsourcing as a strategy for aircraft production - particularly in light of suppliers failing Boeing in recent years? Share your thoughts by leaving a comment.

Sources: Cargo Forwarder, Forbes, CIO, SME, Reuters, HAL

Deputy Editor - An experienced photographer and video producer, Chris is a journalistic natural. Degree educated with a wealth of traveling history, Chris’ insight into routes, networks, and alliances brings a depth of quality to his work that is hard to beat. His strong relationships with Middle Eastern and Canadian airlines make him an asset to the team. Currently based in Vilnius, Lithuania.