Conflicts at Boeing Company - Case Study Example

The Boeing Company has issues with the outsourcing and offshoring practices. The company depends on outsourcing as one of its strategies to lower the cost of operations and hasten development. Whereas the company used to outsource about 30 to 35 of its aircraft development for all of its aircraft, the outsourcing for Boeing 787 rose to 70% (Denning, 2013). Outsourcing was a great idea for such a complicated project because the company lacks the adequate expertise to deliver the project internally and through outsourcing the management expected to reduce the cost of the project and speed up its delivery. However, there was a considerable weakness with the way it carried out the outsourcing. This study aims to provide a detailed analysis of the conflicts facing Boeing Company regarding the outsourcing of products and services. The outsourcing practices designed to reduce the time of developing Boeing 787 Dreamliner project from six years to four years while the cost was expected to reduce from $10 billion to $6 billion (Gates, 2013). However, the plan backfired, and the results were devastating. The project lagged behind the schedule by three years while the cost exceeded the budget by several billions of dollars because of outsourcing than what they expected if the project was carried out at home. The situation at Boeing 787 presents a conflict of financial and efficiency goals mainly contributed by the inadequate managerial capacity to manage suppliers to achieve production efficiency.

a. What are the roots causes of the conflict?

In the late 1990s, Boeing Company lost most of its market share to EADS’s Airbus. To regain its status as the global leader in aircraft manufacturer and trader, Boeing Company decided to invest heavily in innovation and develop new aircraft that would revolutionize the industry by adding new value to the customers and generate more revenue for the company (Gates, 2013). The first step involved replacing the aluminum materials with composite materials comprising of aluminum, carbon fiber and titanium used in the manufacture of aircraft aimed at improving customer’s travel experiences by providing room for maintenance of more humidity and pressure in the passenger cabin (Denning, 2013). Since the composite materials weighed less than the traditional aluminum materials, the airliners would be able to fly directly between various cities across the globe thus offering customer more convenience and satisfaction.

Additionally, the company expected to reduce the cost of travels to the customers because the composite used in the project was sturdy hence it, and light save the flight cost due to low fuel consumption and low maintenance expenses, and the low cost would be transferred to the passengers to increase customer travel experiences (Gates, 2013). With all these great promises the airlines rushed to order the 787 Dreamliners which made the model the fastest moving airplane. Consequently, the Boeing share prices in the New York Stock market escalated rapidly, and investors earned huge bonuses. Unfortunately, this situation did the last long because when the reality of the performance of the 787 set in everything starting started moving in the reverse. The project turned risky as the cost and cost of completing the project exceeded the budget resulting in plummeting of the company’s stock prices in the market (Denning, 2013). This undesirable scenario was blamed on the Boeing failure to manage the outsourcing services efficiently. The experts observed that Boeing did not take measures to alleviate risks and costs of its outsourcing activities.

The outsourcing and offshoring decisions coupled with poor supplier management contributed to series of issues in the company. Boeing Company operated with three tiers of suppliers (tier-1, tier-2, and tier-3) from across the globe (Denning, 2013). Unfortunately, the contractor delegated the responsibility of on-site support to the sub-contractors who failed to manage the supply chain effectively forcing the contractor (Boeing Company) to chip in and provide a technical solution to various suppliers located in different parts of the globe. Also, the process of redesigning the 787 airplanes had to be restarted in order to incorporate the missing technology in the earlier design (Gates, 2013). These methods resulted in delays and the additional cost of the project than earlier planned.

b. What are the symptoms of the conflict?

The Boeing Company failed to offer the promised value to the customers. The 787 Dreamliner was expected to surpass all other airplanes in quality by providing the customers with a great experience during the flights (Gates, 2013). The components used in developing the projects the projects were of high quality, but the faults of the power panels and overheating of the lithium-ion battery did not meet the standards prescribed by the company.

Also, the subcontractors have been supplying components of poor quality which in turn have increased the cost and risk of the project to the customers. To be more precise, the lithium-ion battery is overheating thus exposing the airplanes to the danger of bursting into flames (Denning, 2013). Additionally, the electrical engineers have noted more issues with electrical systems that have been responsible for the grounding issues with the Boeing 787 Dreamliner (Gaba & Geve, 2015). These problems should be blamed on Boeing Company’s lack of supervision of the supply chain that has resulted in the supply of substandard components by the subcontractors.

Back in 2001 Hart-Smith, an aeronautical engineer at Boeing Company had presented his concern about the flaws in the outsourcing of engineering and construction works by the company. In his written report he claimed that it was inappropriate for the company to estimate the cost of the project to the clients with first assessing the entire cost of making the airplane because the cost of outsourcing was subject to radical changes (Gaba & Geve, 2015). Hart-Smith had also warned of possible inconsistency with the procurement system adopted by the company because not all suppliers had equal know-how required for the 787 (Gates, 2013). However, the company did not concern itself with the arguments raised by Hart-Smith until when the reality dawned on them after the tier-1 suppliers failed to manage the tier-2 suppliers effectively. This compelled Boeing to purchase Vought Aircraft Industries - one of the key tier-1 and spread their expertise to other suppliers.

There was another issue with Boeing Company that involved poor employee’s relations. The company made off-shoring and outsourcing decisions without involving employees, and that agitated the employees resulting in costly industrial strikes (Gaba & Geve, 2015).

Also, although Boeing Company wanted to adopt the agile model of Toyota Company their plans failed in many ways. For instance, there was communication breakdown as the company opted for a computer communication system branded Exostar instead of using face to face communication (Denning, 2013). While the Exostar was expected to increase the presence of suppliers and ease of supplier management lack of face-to-face resulted in a lack of effective communication between the parties. Even when there was something wrong with the system it took Boeing and tier-1 suppliers much time to detect the problem and this contributed to the overall increase in project time and cost.

c. What, if anything, has been done to resolve the conflict?

Although Boeing did not take the warning given by Hart-Smith in advance, several measures have been put in place since the discovery of issues with the implementation of the project. After realizing the mistakes, Boeing Company has implemented various measures to rectify the situation. For instance, after realizing the company did not have adequate capacity to manage the suppliers they decided to purchase of tier-1 supplier to manage other vendors (Gates, 2013). The company has also tried to increase its visibility down the supply chain and increase the management of its suppliers to improve the quality of products and services by reducing the delivery time and cost. The company has also increased the test flights from two to nine or ten to check for minor faults before delivering the airplane to the clients (Gaba & Geve, 2015). Finally, the company has dealt with individual complaints to correct the faults of the aircraft they had sold to the clients to avert more accidents from the overheating batteries and faulty power planes.

d. What would happen if nothing was done to resolve the conflict?

The Boeing Company depends on the loyalty of its customers to raise revenue from the sales of its products. The faults with 787 Dreamliner was a major blow to the company especially considering it was striving to overcome the competition posed by EADS Airbus (Denning, 2013). If the company could not work to reduce the conflicts, it would lose the loyalty of its customers and consequently lose the market to its competitors (Gaba & Geve, 2015). Also, if the company did not address individual complaints, there would be an increase in some accidents from the airplanes they had already sold.

Analyze the conflict and address the following in your analysis:a. Develop a strategy to resolve the conflict. Identify and explain specific steps you would take and timeframe for the accomplishment of the steps.

The conflict involves the Boeing Company and its employees as well as its suppliers. First, I would engage the employees in the project and listen to their views on how we could go about outsourcing and offshoring of products and services. It would take about a month to consult all employees and seek to obtain their views. Secondly, I would evaluate all suppliers to ensure they have the capacity to deliver the requirements. This would take about six months to establish supplier capability. Lastly, I would establish a quality management team that would ensure the suppliers meets our expectations. This would also take a month to come up with a team of competent quality monitoring and evaluation team.

b. What needs to happen for your resolution to succeed?

For the solution to succeed the quality of the Lithium-ion battery should be improved to reduce overheating. Also, the outsourced functions should be delivered within the budgeted time in the right quality and without additional cost. This will require improvement of supplier management and engagement of all employees in the outsourcing process to avoid conflicts with the employees and enhance the efficiency of suppliers.

c. How will you measure results?

Measuring the results would involve evaluating the time of delivering the requirements and the quality of the products that have been delivered. Both time and quality must meet the company’s specifications. Secondly, the project should be delivered within the budget constraints. This will ensure the company attains the expected profits from the project. Finally, evaluating the customer satisfaction from the reduced accidents, increased efficiency and passenger experience implies the achievement if company’s goals.

d. What adjustments will you make if your solution is not working?

In case the solution did not work, I would drop the suppliers who are less competent and look for vendors who have been tested for their capability to achieve the expectations of the contractor. Additionally, I would focus on strengthening the company’s internal capacity to manage the suppliers and handle more manufacturing activities to reduce the offshoring and outsourcing functions.

Conclusion

Outsourcing of organizational functions is crucial to ensure the company is competitive because it is not possible for one company to have all necessary technological competence in the market. This requires effective supply chain management to avoid an increase in cost and time of the outsourced functions. However, for effective outsourcing and offshoring of functions the company should involve all employees and other relevant stakeholders. They should ensure there is adequate capacity to manage the suppliers or else they will not achieve their expectations as was the case with Boeing Company. Furthermore, the company should manage its conflicts as soon as they arise to avoid irreparable damages to the company’s image.