Wednesday, February 16, 2011

Well, Waddya Know!

Michael Hiltzig's latest column provides an interesting way to view corporations' outsourcing: it's not just immoral, it's expensive.

Sure, it's immoral to abandon your loyal American workers in search of cheap labor overseas. But the real problem with outsourcing, if you don't think it through, is that it can wreck your business and cost you a bundle.

Case in point: Boeing Co. and its 787 Dreamliner.

The next-generation airliner is billions of dollars over budget and about three years late; the first paying passengers won't be boarding until this fall, if then. Some of the delay stems from the plane's advances in design, engineering and material, which made it harder to build. A two-month machinists strike in 2008 didn't help.

But much of the blame belongs to the company's quantum leap in farming out the design and manufacture of crucial components to suppliers around the nation and in foreign countries such as Italy, Sweden, China, and South Korea. Boeing's dream was to save money. The reality is that it would have been cheaper to keep a lot of this work in-house.
[Emphasis added]

Obviously the upper management brains were otherwise occupied when Boeing shipped out key engineering and technically advanced manufacturing assignments to contractors with the lowest bids, some of whom didn't even have an engineering department at the time the contracts were awarded. Boeing also didn't set up any kind of oversight with these contractors. The results were disastrous. Parts shipped into the Seattle area assembly point didn't arrive at the right time for the assembly train, and when they did, they didn't fit the specifications and as a result didn't fit the parts to which they were to be joined.

Middle management employees, those who had been down this road before with such former aerospace companies as McDonnell Douglas, tried to warn the suits, but here too those brains were otherwise engaged.

Boeing executives now admit that the company's aggressive outsourcing put it in partnership with suppliers that weren't up to the job. They say Boeing didn't recognize that sending so much work abroad would demand more intensive management from the home plant, not less.

"We gave work to people that had never really done this kind of technology before, and then we didn't provide the oversight that was necessary," Jim Albaugh, the company's commercial aviation chief, told business students at Seattle University last month. "In hindsight, we spent a lot more money in trying to recover than we ever would have spent if we tried to keep many of the key technologies closer to Boeing. The pendulum swung too far."

You think, Mr. Albaugh?

Maybe paying decent wages and providing benefits to the skilled workers you have at home just might have been the right thing to do, even the most prudent. What's the old saying?

Ah, yes: "Penny wise, pound foolish."




Blogger PurpleGirl said...

A day or so ago I mused in a comment in a Paul Krugman blog that so many upper level managers and upper level executives were now from foreign countries (as US companies became more multinational) that they didn't have patriotic ties to the US or American workers. I wonder what the make-up of the Boeing Board is and where the decision makers come from.

9:27 AM  
Blogger Classof65 said...

The lack of quality control in foreign companies is shown every day in the number of recalls announced in the news here every day. The recalls are due to a number of reasons: use of wrong materials, particularly lead paint; incorrect measurements of vital parts; use of designs dangerous to children, etc., etc.

A company I worked for opened a plant in Mexico. The Mexican government required that we use an agent to hire factory workers. The agent received a bonus for each employee hired. So, after an employee was hired and trained, they would quit and the agent would reap another commission for hiring a new employee. The agent became rich, the company lost its butt. Then we began to have problems with parts which wouldn't fit the parts made in the States... eventually it became clear that we should never have tried to run a plant in a foreign country that did not share our attention to detail nor our work ethic -- especially long-distance.

5:53 PM  
Anonymous Anonymous said...

Sign me up to fly on that plane! They were too cheap to build it right, but I'm sure it will pass safety tests. And besides, chances are good I won't have too go through TSA pat downs at the end of the flight.

All travelers are assumed to be terrorists. But substandard planes are okay.

3:04 AM  

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