Wednesday, September 4, 2013

Modularity: The Boeing 787 Counterexample

In our course reading, "Learning from Tata's Nano," the authors herald Modular Design as a "Revolution."
They remark that the Nano is "constructed of components that can be built and shipped separately to be assembled in a variety of locations. In effect, the Nano is being sold in kits that are distributed, assembled, and serviced by local entrepreneurs." (Hagel and Brown).

However, the story of Boeing's 787 Dreamliner provides as a cautionary tale regarding overenthusiastic embrace of the principle of modularity. The Dreamliner constitutes an attempt by Boeing to create a extremely fuel efficient and long range jet.

Outsourcing of parts and modularity of design was a key feature in the design of the Dreamliner. According to Michael Hiltzik at the LA Times, " The 787 has more foreign-made content — 30% — than any other Boeing plane, according to the Society of Professional Engineering Employees in Aerospace, the union representing Boeing engineers. That compares with just over 5% in the company's workhorse 747 airliner.
Boeing's goal, it seems, was to convert its storied aircraft factory near Seattle to a mere assembly plant, bolting together modules designed and produced elsewhere as though from kits."

However, the Dreamliner finally arrived over three years late and cost billions of dollars more than estimated. According to the Seattle Times, "Boeing was forced to compensate, support or buy out the partners it brought in to share the cost of the new jet's development, and now bears the brunt of additional costs due to the delays. Some Wall Street analysts estimate those added costs at between $12 billion and $18 billion, on top of the $5 billion Boeing originally planned to invest."

Moreover, when it finally did arrive, it suffered from problems such as lithium ion batteries that would overheat and catch fire.

What's the story here?

According to Steve Denning at Forbes, there were a few main problems. First, Boeing did not adequately coordinate with suppliers to ensure that the modular pieces would integrate properly. He quotes a 2001 report from Boeing Aerospace Engineer Dr. L. J. Hart-Smith, who wrote, "it is necessary for the prime contractor to provide on-site quality, supplier-management, and sometimes technical support. If this is not done, the performance of the prime manufacturer can never exceed the capabilities of the least proficient of the suppliers. These costs do not vanish merely because the work itself is out-of-sight." (Hart-Smith)

Denning also notes that the Dreamliner involved so many innovations that Boeing should have been more involved in the production, rather than less. Essentially, he argues, the interactions between new technologies cannot be totally predicted. This teaches us that these kinds of aggressive offshore supply network designs might be more appropriate for more mature products where the interactions between components are more well-understood.

Denning details many other failures of the Dreamliner, ranging from C-suite leadership to haphazard adoption of Toyota manufacturing policies.

Thus far in the class, we have encountered companies like Ikea that use a complex and far-flung supply network to aggressively reduce costs while keeping quality high. In fact, as I type I am sitting at an Ikea table, with my feet up on an Ikea ottoman, reclined in an Ikea office chair (Not to mention that my living room is home to two of the iconic Poang chairs). However, the Dreamliner case teaches us that what works for chairs may not necessarily work the same way for next-generation cutting edge aeronautics.


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