Boeing has announced a deal to purchase Spirit AeroSystems. The Seattle aircraft maker will pay roughly US$4.7bn for Spirit, which builds wings, tailplanes, and fuselages of aircraft at a number of facilities in the US, UK, France, Morocco, and Malaysia. Except this is a re-purchase, as the operations that are today Spirit AeroSystems were once part of Boeing.
As the Wall Street Journal pointed out “Spirit AeroSystems is going full circle, from part of Boeing to independent supplier back to part of Boeing. It is the perfect example of a realization dawning on corporate America: Perhaps outsourcing isn’t all it was cracked up to be”.
The reason that Boeing gives for the purchase is clearly connected to its severe problems with poor manufacturing standards, asserting that “by reintegrating Spirit, we can fully align our commercial production systems, including our Safety and Quality Management Systems, and our workforce to the same priorities, incentives, and outcomes – centered on safety and quality.”
This issue of ‘alignment’ is critical. Essentially Boeing is looking to increase its control over Spirit at the operational level. Manufacturing management systems can be imposed more easily within a vertically integrated company than between a customer and a supplier, although it does not appear that Boeing’s systems have been beyond reproach.
Yet the implications for supply chain management are not as clear as the Wall Street Journal might imply. Certainly, in the context of assembling aircraft, a high degree of integration may be desirable. However, the management of electronic supply chains is a different matter. Certainly, the software is critical to a jet airline builder, however, the hardware will predominantly have to be bought from suppliers. This is even more the case in other engineering industries, such as the automotive sector.
It might be suggested that Boeing’s supply chain management failures were not due to the concept of outsourcing. Rather Boeing placed too much emphasis on short-term cost-cutting as the motivation for selling Spirit, followed by excessively tough contracts. Essentially supply chain management was done badly.
It is very unlikely that the world will return to an economy characterized by vertically integrated corporations. Not least digital products make exchange between companies much easier. Other advantages remain as well. However, Boeing’s experience is a reminder that supply chain management has to be done properly.
Author: Thomas Cullen
Source: Ti Insight
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