The risk of tiered outsourcing
Boeing further aggravated these risks by adopting a new outsourcing model, along with the new technology. Unlike Boeing's earlier aircraft, in which Boeing played the traditional role of integrating and assembling different parts and subsystems produced by its suppliers, the 787's supply chain is based on a tiered structure that would allow Boeing to foster partnerships with around fifty Tier-1 strategic partners. These strategic partners were to serve as “integrators” who assemble different parts and subsystems produced by Tier-2 and Tier-3 suppliers.
In due course, Boeing discovered, as Hart-Smith had predicted, that some Tier-1 strategic partners did not have the know-how to develop different sections of the aircraft or the experience to manage their Tier-2 suppliers. To regain control of the development process, Boeing was forced to buy one of the key Tier-1 suppliers, Vought Aircraft Industries, and supply expertise to other suppliers. Boeing also had to pay strategic partners compensation for potential profit losses stemming from the delays in production.
The risk of partially implementing the Toyota model
Boeing's outsourcing was modeled in part on Toyota's supply chain, which has enabled Toyota to develop new cars with shorter development cycle times. Toyota successfully outsources around 70 percent of its vehicles to a trusted group of partner firms.[8]
However key elements of the Toyota outsourcing model were not implemented at Boeing. Toyota maintains tight control over the overall design and engineering of its vehicles and only outsources to suppliers who have proven their ability to deliver with the required timeliness, quality, cost reduction and continuous innovation. As Toyota works closely with its suppliers and responds to supplier concerns with integrity and mutual respect, it has established an impressive level of professional trust and an overriding preoccupation with product quality.
By contrast, Boeing adopted the superficial structure of Toyota's tiered outsourcing model without the values and practices on which it rests. Instead, Boeing relied on poorly designed contractual arrangements, which created perverse incentives to work at the speed of the slowest supplier, by providing penalties for delay but no rewards for timely delivery.[9]