Caselet: The 787 Dreamliner – When Outsourcing Becomes an Obstacle

 

In the early 2000s, Boeing embarked on a revolutionary journey with the 787 Dreamliner. To reduce development costs and accelerate time-to-market, Boeing pivoted from its traditional role as a primary manufacturer to a "systems integrator." 

Traditionally, Boeing designed and built about 70% of its aircraft in-house. For the 787, they flipped the script: 70% of the aircraft was outsourced to over 50 "Tier-1" strategic partners worldwide. These partners weren't just building parts; they were responsible for the engineering, sub-assembly, and financial risk of major sections (like the wings or fuselage). Boeing’s role was simplified to "final assembly," which was expected to take only three days.

The Reality: A Fragmented Supply Chain

The "hands-off" approach quickly unraveled. While Boeing had outsourced the work, they hadn't maintained the oversight infrastructure needed to manage such a complex web.

Tier-2 Blindness: Tier-1 suppliers outsourced their own components to Tier-2 and Tier-3 vendors. Boeing often had no visibility into these lower tiers, leading to "mismatched" parts and poor quality control.

The Fastener Crisis: A global shortage of aerospace fasteners (bolts) stalled production because Boeing had lost direct control over its hardware supply chain.

Technical Failures: Because sections were built in silos, they often didn't fit together during final assembly in Everett, Washington. Later, the aircraft faced grounded fleets due to overheating lithium-ion batteries—a component outsourced to a complex chain of Japanese and French suppliers.

The Fallout and Mitigation

The Dreamliner arrived three years late and billions of dollars over budget. To stabilize the program, Boeing had to reverse its strategy:

In-sourcing: They spent over $1 billion to buy out struggling suppliers (like Vought Aircraft Industries) to bring production back under Boeing’s roof.

On-site Oversight: Boeing dispatched hundreds of engineers to supplier factories globally to monitor quality in real-time.

Strict Clauses: Contracts were rewritten with aggressive performance penalties and mandatory transparency requirements for sub-tier vendors.

Discussion  Questions

1.Boeing’s strategy was intended to share financial risk with suppliers. However, by outsourcing the design and engineering of major sections, did Boeing accidentally outsource its core competency? Discuss whether a company can truly "integrate" a product if it no longer understands how the individual parts are engineered.

2. Research Task: Modern Supply Chain Visibility

Research the concept of "Supply Chain Control Towers" or Digital Twins. How could modern real-time data tracking and IoT (Internet of Things) have prevented the 787’s "mismatched parts" and fastener shortage? Find one example of a company today using technology to monitor their Tier-2 and Tier-3 suppliers.