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17/09/2018 09:48:41 AM

Trend moves back insourcing instead of outsourcing and apply in Boeing

In the past, outsourcing is very popular trend with US companies. However, outsourcing is not the best choice in recent years. Why?

Outsourcing has become a major global strategic imperative over the last decades; to survive against lowcost competitors U.S. companies have been forced to find ways to reduce costs by moving manufacturing overseas. First, millions of unskilled manufacturing jobs were outsourced to countries in Asia and Central America; then semiskilled and skilled jobs in engineering and information technology followed. There is a huge talented workforce in countries such as India and China, where millions of workers have the skills to satisfy job requirements and are willing to work for a fraction of what companies must pay workers in the United States. In some areas, such as the production of clothes and shoes and the assembly of electronic devices such as iPhones and PCs that are labor intensive, countries such as the United States will never be able to regain a competitive advantage because of low labor costs overseas. However, there are other areas in which companies that depend on a reliable supply of high-quality components and finished products have experienced problems with outsourcing production abroad, and many companies have or are in the process of moving back production to the United States—the process of insourcing. There are many reasons for this: Some relate to quality issues and some relate to the enormous problems that most electronics companies experienced after the disastrous flooding in Thailand and the tsunami that struck Japan cut off the supply of vital components. Thousands of U.S. companies were unable to obtain the chips and memory circuits necessary to maintain production, and they became backlogged with orders and lost billions in potential sales.

Boeing experienced firsthand the problems in controlling quality and product development during the building of the Boeing 787 Dreamliner that was finally delivered to its first customer in 2011. Boeing had experienced great success with outsourcing the production of many important components when it developed its previous new airliner, the 777. To tap into the skills of engineers in countries abroad and to reduce costs, Boeing decided early in development of the 787 to work closely with its suppliers who invested in the equipment and facilities necessary to meet Boeing’s demands. Its Dreamliner team has about 50 suppliers from the United States and around the world; the partnership features six companies from Japan, six from Britain, five from France, two from Germany, two from Sweden, and one each from South Korea and Italy. 29 They make sections of the fuselage, landing gear, parts of the wing, pumps, valves, engines, brakes, doors, waste systems, escape slides, tires, tubing, cabin lighting, and ducts. Boeing announced the first of several important delays in delivery dates of key components with overseas suppliers in 2007. 30 A major setback was a problem that arose in 2009 when major structural problems were found in the design of the assembly connecting the wing to the fuselage. Boeing was forced to postpone the date of introduction of the innovative new 787, and when it was finally delivered, it was over two years late to market. In 2012 it was still having the problem of obtaining components fast enough to ramp up production of the 787 in order to better meet customer demand, and in 2013 the new fleet of Dreamliners was grounded until a major battery problem was solved. It is reevaluating its outsourcing strategy and has already decided to insource production of more components in order to obtain more control over its global supply chain. Like many other companies Boeing has seen the disadvantages of offshore production, including shipping costs, logistical problems, and quality issues. And many U.S. companies are working with their employees and unions to establish pay rates that will make it practical to insource production of many complex or bulky products. For example, GE worked with its unions to establish an agreement that would allow it to bring back to the United States the manufacturing of water heaters and many of the complex components that go into its appliances. Similarly, Caterpillar announced that it would reorganize global production of excavators and triple the volume of excavators made in the United States for export to the Americas. Every manufacturing job brought back to the United States is valuable, especially in a recession. The growing rate of insourcing provides a signal to all U.S. companies that they need to have a second source of supply to ensure they do not suffer when unexpected problems from natural and political factors arise quickly and disrupt their manufacturing activities.

Th.S. Nguyễn Thị My My