Outsourcing of the Boeing 787 Dreamliner
Introduction
Outsourcing has become a major trend in recent years with more and more companies contracting work
out to third parties. This work can be done in the same country by another company or it can be
completed in countries thousands of miles away. The Boeing Company, aircraft manufacturer, is one
example of a company outsourcing. The Boeing Company was not the first company to outsource work to
other countries, but did utilize and profit from the use of 3rd party labor. However, this trend of successful
outsourcing would end for Boeing with the introduction of the Boeing 787 Dreamliner. Boeing has
outsourced more than 70% of the design and production of the plane (Seattle Times). However, there have
been many complications that have led to costly delays and billions of dollars being lost. If Boeing would
have done a more complete analysis of the project and its risks, the magnitude of what was being
outsourced might have been decreased. At the same time, if Boeing could utilize a model, such as the 24
hour knowledge factory, the Dreamliner project could have been much more efficient and cost effective.
History of Boeing
The Boeing Company was founded in 1916. They worked in several different areas of work from
commercial airplanes to launch and orbital systems. However, it was not until the 1950’s when the jet
aircraft was put into use for the first time that the Boeing Company started to control the commercial
airline market (Harvard Business School). Boeing would go unchallenged for roughly the next fifty-three
years. However, during this time the European company Airbus began to grow. Eventually, Airbus would
grow into Boeing’s only competition. In fact, in 2003 Airbus sold more airplanes than Boeing. Airbus has
had more deliveries ever since (Airbus). Boeing needed something to retake control of the aircraft market.
It was clear that Airbus was taking away from Boeing’s market share. During this time, Airbus introduced
five new designs of aircrafts with Boeing still stuck with their next plane design. This heavy competition
is what drove Boeing to create a new plane that would help them reclaim dominance of the industry.
However, they needed to complete the plane quickly and with minimum cost. This is what drove Boeing
to outsource a higher proportion of the new plane compared to any model before it.
Primary Reason for Outsourcing
There are several reasons why Boeing would choose to outsource the production of its new plane. The
first is because outsourcing was common practice in the Boeing Company. On several models, production
of parts was outsourced. Different companies would manufacture the parts and Boeing would assemble
them all in a single location. The second reason is the cost savings. If Boeing can outsource the work,
then they do not as many employees in-house. They can trim labor costs because of the lower labor rates
in other countries that are candidates to outsource work to. The third reason, maybe most important, is the
time factor. For example, Planes are not like automobiles that can be assembled quickly. Planes can take
up to years before it’s cleared to fly while a new automobile is much timelier. In comparison, an
automobile has roughly 15,000-20,000 parts while a plane has over 2,000,000 parts. If Boeing can shorten
the time it takes for the plane to be completed, it can lead to higher profits sooner. The sooner you can
introduce the plane, the sooner you can start receiving payments from companies and outsourcing was a
way that Boeing could cut the time needed to finish the project. As Airbus was taking over the market,
time was critical for Boeing.
Secondary Reasons
Researching Boeing’s decision to outsource a significant portion of the Dreamliner leads to reasons that
are beyond just cost savings. One of these reasons is the shrinking employment pool. Engineers are in
demand at Boeing. As of the December 2008, it was employing 12,428 people in its engineering
department (Boeing). However, engineers would also be needed in other departments, such as defense
systems and commercial airlines. At the same time, the supply of engineers in the United States has been
shrinking. National Academies reports that “China adds 600,000 new engineers a year; the US, only
70,000. Even India, with 350,000 new engineers a year, is outdoing the US” (Christian Science Monitor).
With the employment supply shrinking, Boeing looked to outsourcing as a way of tapping into resources
that were needed for the completion of its 787 project.
The remaining reasons for outsourcing the Dreamliner appear to be more politically oriented than the
other reasons. Boeing has been vulnerable to several engineer strikes over its history, with multiple strikes
occurring over the past fifteen years, “the machinists have walked out three times since 1995; the
engineers went on strike in2000″(Murphy paragraph 15). As of January 31st of 2008, Boeing was in
negotiations to end an on going strike. The reason for the numerous strikes is that Boeing cannot come to
an agreement with the unions who represent the engineers. This has led conclusions that one reason
Boeing outsourced such a huge portion of the 787 was to combat the unions. John Newhouse from CIO
reports that “[T]he 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.’” (Pg 2). The objective might
have been to have the unions back down on their demands if they see there are alternatives to having
workers that are members of the union. This would not generally be a consideration for outsourcing, but
Boeing looked at it as a confirming reason to outsource.
Another political reason for Boeing to outsource was the opportunity to do business in the different
countries. John Newhouse also reports that Boeing made a deal with several of the countries in East Asia
that they contracted to perform work. The deal was that if the countries agreed to buy aircraft from
Boeing, Boeing would send design and manufacturing work to those countries. From this, it is clear that
Boeing had several interests in contracting the work out to different countries. Not only were the time
savings available but also close-to-guaranteed sales from the governments of the countries performing the
work. In a time when Boeing was losing its dominance in the commercial aircraft, it needed to make
alliances if it meant that it would produce more revenue for the company. This strategic decision could
have the potential to reclaim the market share that Boeing has lost.
The final political reason for Boeing was that they needed to show the public that they still could compete
with other aircraft manufacturers legally. In 2004, the same year the Dreamliner project was made public,
an ex-CFO of Boeing pled guilty to conflict-of-interest charges. He approved the hiring of a woman who
was working with the Air Force as she was being reviewed for a position at Boeing. She was in charge of
the defense contracts at Boeing. She supervised and approved a no-bid auction that granted Boeing a $23
billion dollar tanker contract with the government. She also states that she “she said she had committed
the Air Force to buying 100 airplanes from Boeing at an inflated price of about $20 billion as a “parting
gift” before her Pentagon retirement.” (Markon paragraph 19). In 1998 a similar situation happened were
Boeing was left out of a contract decision after it was found they had been illegally using the other
competitors software. This left Boeing’s reputation tainted, and by outsourcing the plane it could compete
with its competitors on price in a legal way. Instead of trying to find out what the competition was going
to bid on a contract, or trying to prevent competitors to enter the bidding wars, Boeing appeared to try to
cut costs by outsourcing. They would compete with their competitors head to head in price and quality
and outsourcing was one of the few, if not only, ways Boeing could accomplish this. Boeing had two
goals it needed to achieve with outsourcing—produce a new plane unlike any other before it and do it the
most efficiently possible.
Dreamliner Announcement
The announcement came on April 26, 2004—Boeing would introduce a new line of jet liners called the
7E7 (later called the 787) Dreamliner. Boeing would invest $6 billion of the reported $10 billion to
develop the Dreamliner. The rest of the investment would come from partners involved in the creation of
the Dreamliner. The plane would then be sold to companies at a price of $6 billion dollars (Harvard
Business School). There were four reasons for why Boeing believed the 787 would help to overtake
Airbus. The first was that it would use 20% less fuel than planes of similar size. This meant that airlines
would have lower fuel costs—making the 787 more attractive than Airbus. The second was increased
cargo space. This means more items can be taken from one location to the other. The cargo for the 787
