How Boeing Dealt with CSR During the Production of the 787 Dreamliner - Article Example

Ethics: How Boeing dealt with CSR during the production of the 787 Dreamliner Introduction Boeing is a multinational company whose core business is designing, manufacturing as well as selling of aircrafts, satellites, rockets and rotorcraft .Boeing offers leasing as well as product support services (Yenne, 2005). It is amongst the biggest aircraft manufacturers in the world and the 2nd biggest defense contractor globally on the as per its 2013 revenue. Boeing is also biggest exporter in the US by dollar value. The decision to outsource Since the 1977 deregulation of air travel by the US government, more airlines entered the US market leading to severe price competition. Thus as airfares took a nosedive, more and more US passengers continued to rise per year from 240 million in 1977 to 640 million in 1999.On the same vein, manufacturers of commercial aircrafts in the US faced a lot of competition from their counterparts in Europe. Thus, for instance, Boeing having lost market share to Airbus was under immense pressure to choose between 2 basic competitive strategies; reduction of costs as well as the selling prices of their existing kinds of aircraft or design a new airplane so as to elevate income through creation of value (Tang & Zimmerman, 2009).This resulted in Boeing’s 2003 decision of focusing on creation of additional value for its customers as well as their passengers by designing an innovative plane; the 787 Dreamliner; whose parts would be widely outsourced(70%) so as to save both time and cost (note that through the entire paper the term “787 Dreamliner,””787,” or “Dreamliner” shall be used interchangeably.) The first strategy for Boeing was value creation strategy for her passengers through enhancing their travel experience by redesigning the plane and providing considerable enhancements in comfort. Consequently, comparative to other planes, more than half of the principal structure of the Dreamliner (comprising the fuselage together with the wing) would be made from composite materials. Compared to the conventional material (aluminum) used in manufacturing of airplanes, the composite material would allow for increased pressure and humidity to be retained in the passenger cabin, providing extensive enhancements to the flying experience. In addition, due to the lightweight nature of the composite materials, the Dreamliner would now undertake long-haul flights. Accordingly, the 787 would enable airlines to provide nonstop/direct flights between any pair of cities devoid of stopovers, something that is preferred by nearly all international travelers. Boeing also redesigned the 787’s electrical system to be using lithium-ion batteries (Tang & Zimmerman, 2009). Secondly, Boeing’s strategy for value creation for its core immediate customers(the airlines) as well as its final customers (the travelers) was to enhance flight operational effectiveness by offering big-jet ranges to midsize planes while cruising at almost the same speed. This effectiveness would enable airlines to provide economical direct flights to as well as from more together with smaller cities. Additionally, with a capability of hauling between 210 to 330 travelers and a 8500 range nautical miles, the Dreamliner was deigned to consume 20% less fuel in comparison to today’s similarly sized aircrafts. Thus the 787’s cost-per-seat mile was anticipated to be 10% lesser than for any other airplane (Tang & Zimmerman, 2009). Moreover, unlike the conventional aluminum fuselage vulnerable to fatigue and rust, the Dreamliner’s fuselages are on the basis of composite materials effectively reducing replacement as well as maintenance costs. So as to decrease the development time for the 787 from 6 to 4 years as well as development cost from 10 billion dollars to 6 billion dollars, Boeing decided to outsource extensively by using an unconventional supply chain- new to airplane manufacturing industry so as not only to develop but also produce the 787.This kind of supply chain was visualized to maintain manufacturing as well as assembling costs at minimum while at the same time spreading the developmental financial risks to Boeing’s suppliers. Because of the distinctive value that the Dreamliner offered to the airlines as well as their customers, the number of orders received exceeded expectations .By November 2008, Boeing had received a sum of 895 orders for the Dreamliner; with the 787 becoming the fastest retailing airplane in the history of aviation. Their share price rallied at an all time high and the C-suite got their bonuses. All this was wonderful stuff; if Boeing could only deliver (Tang & Zimmerman, 2009). Outsource More Thus, Boeing thought that by outsourcing seventy percent of the production and development activities within the Dreamliner’s program, it could reduce the time for development by capitalizing on the ability of suppliers to develop different plane sections simultaneously. In addition, the company believed it would minimise the 787’s cost of development by leveraging on the expertise of the suppliers. The more Boeing outsourced coordination and communication between Boeing and its cohort of suppliers became vital so as to keep the progress of the 787 program running (Allworth,2013). Nonetheless, reality finally set in and unfortunately things did not work out as envisioned. Whereas, the first Dreamliner was initially planned to be delivered back in 2008, a series of cost overruns and delays meant that deliveries would not start until 2011.In addition; the project ran into billions of dollars over budget together with being 3 years behind schedule. According to Boeing’s Chief of Commercial airplanes, Jim Albaugh, the company spent so much money trying to pull through than it ever would have used had it endeavored to maintain the core technologies closer home. Boeing seemed to have turned the corner once the Dreamliner’s deliveries had began, however, since the launch the company became plagued with a series of high-status problems ranging from to overheating batteries, fuel leaks, fires to smoke in the plane’s cabin. The troubled manufacturer became grounded with global regulators on their neck seeking to find out whether their aircrafts would ever be safe to fly again. Boeing had undertaken one of the most widespread outsourcing campaigns that it had ever tried in the entire history of its existence-an endeavor that received extensive press coverage. Nevertheless, the cost-cutting manner in which Boeing conducted outsourcing both within the US as well as beyond did not comprise steps to alleviate or eradicate the predicted risks and costs that occurred. Thus, even with established technology, major risks do exist in outsourcing that various components will not join together as the aircraft is being built. So as to reduce these potential issues, it is important that the prime contractor gives on-site superior, supplier-management and at times technical support. Consequently, if this fails to be executed, the prime manufacturer’s performance can never surpass the abilities of the least skilled of the suppliers. Such costs do not disappear simply because the work itself is not within sight (Allworth, 2013). Thus, Boeing failed to make adequate provision for such on-site support for its entire cohort of suppliers. Indeed, the company explicitly assigned this role to sub-contractors. As a result, when the subcontractors did not perform the prerequisite coordination, Boeing ended up providing the support anyway. All the same, Boeing tried to save face and engaged in various Corporate Social Responsibility (CSR) acts. CSR, also known as corporate citizenship, corporate conscience or Responsible Business is a type of corporate self-regulation incorporated into a company’s business model (Kotler & Lee, 2011).Corporate Social Responsibility serves as a self-regulatory framework in which a company monitors as well as ensures that it actively complies with the culture of ethical standards, law as well as international norms. Thus, a company’s implementation of CSR, with some business models, goes further than compliance in addition to engaging in activities that seem to propagate social good, more than the firm’s interest as well as that which is needed by law. Generally, CSR aspires to embrace accountability for corporate activities in addition to encouraging a constructive impact not only on the environment but also the stakeholders comprising employees, consumers, communities, investors and others (Stanwick, 2013). CSR to Save Face Consequently, Boeing engaged in various CSR acts so as to minimise the impact of the damage caused and save face amidst an outsourcing program gone terribly wrong. For instance, the company sent its engineers to the sites of different tier-1, tier 2 as well as tier-3 suppliers globally to resolve different technical issues that seemed to be the core cause of the postponement in the development of the Dreamliner (Allworth, 2013).Eventually, Boeing was forced to redesign the whole aircraft sub-assembly procedure, resulting to so many additional expenses which were not part of the project from the beginning (Donning, 2013).The Dreamliner involved key technological innovations that had never been proven in any other aircraft. For instance, numerous questions arose such as; would the use of Carbon fiber endure the severity of international flying? Would the lithium-ion batteries that are notoriously known for overheating leading to fires that are hard to extinguish be used safely? No one for sure knew anything about these ground-breaking technologies (Tafoya, 2013). In addition, the Dreamliner contained numerous new electrical systems, distribution systems and power panels. Thus, the interactions amongst these new technologies, introduced at the same time, exponentially also increased innovation risk. The innovation risk meant Boeing ought to have been involved more in the developing as well as manufacturing of the Dreamliner. Surprisingly, Boeing opted to be less involved, in the process delegating a lot of the detailed procurement and engineering to its sub-contractors. This further resulted in unanticipated problems that kept recurring delaying the project the more as well as increasing the costs further. Complex products such as airplanes comprise of a necessary outsourcing degree, basically because the company does not have the prerequisite expertise in some aspects such as avionics and engines. Nevertheless, Boeing considerably increased outsourcing for the Dreamliner more than for its earlier planes such as the 737 and 747 which had been at about 35-50%.However, for the Dreamliner, Boeing intended to raise this percentage to 70%.The company therefore did not approach outsourcing as a wearisome necessity and instead just like several US companies, Boeing passionately embraced outsourcing in the Dreamliner as a way of minimizing time and costs of development (Tang & Zimmerman, 2009). When in early 2013 many 787s experienced fires linked to the use of lithium-ion batteries, investigations were launched by Japan JTSB and US NSTB resulting in grounding of Boeing’s Dreamliner fleet. Boeing reacted swiftly by taking a strategic approach that involved creation of real-time content meant for sharing freely via digital channels as well as social media for educating and informing constituents globally. Gary Wicks, the manager for Boeing’s digital communications in an interview claimed that since the grounding was something unanticipated, they had to quickly identify their key audiences and the parties they needed to communicate with stakeholders such as employees, customers as well as third-party professionals needed to not only give their views but also shed more light on the ensuing situation. Thus Gary together with his team developed content aimed at assisting in clarifying issues via factual information and for example, a page about the Dreamliner’s Electrical System comprised basic information regarding the airplane power as well as details on the Dreamliner’s systems-in video, print-ready graphics and in text. The company utilized its Twitter feeds, comprising @Boeing as well as @BoeingAirplanes in order to spread word around and interact with its suppliers, customers as well as other stakeholders. Thus, according to Gary; the company’s best content is provision of information that only they can provide. The information, according to Gary must be compelling and it must try to provide a peep into what the problem is; something that no one else has the ability to provide. Thus, when Boeing made the infographics and videos, the company wanted to ensure that this was a look at what they are doing from their perspective (Tafoya, 2013). Excitingly, several media outlets directly took content from the company’s site and effectively used it in their newscast and stories. The information was widely shared with even reputable publications such as The Wall Street Journal running the story and Av Week and GeekWire taking content directly out of the website. In addition, the Boeing team on learning that the #dreamliner story had been amplified on social media, particularly Facebook and Twitter, quickly embraced that too. According to Gary, Boeing did not only have a story to tell; but also had the information that they could provide which would assist in clarification since apparently there had been so much misinformation about the 787.The team also realized there were several questions raised through the social media regarding what actually the batteries are capable of doing. Boeing needed to shed more light on batteries in a way that is easily understandable and sharable to a broad set of individuals. The company swiftly created a Batteries and Advanced Airplanes page for this reason (Sodhi & Tang, 2012). Boeing should have adopted another superior approach so as to reduce extra costs as well as risks of big-scale outsourcing. This is because outsourcing does not necessarily cut costs and increase profits but instead drives knowledge and profits to suppliers in the process raising costs for the parent company. Consequently, not only is outsourcing done of the work only but also the profits related with the work are also outsourced as well. Boeing before arriving at make-buy decision ought to have defined what it really wanted and established the relative costs of the same. The company should also have put significant additional up-front endeavor in not only planning but also avoiding the circumstance where core sub-assemblies fail to fit together while doing the final assembly thereby increasing the costs and time by a big magnitude than was initially planned (Sodhi & Tang, 2012). Thus if Boeing had outsourced the construction and engineering of the 787 long before it was defined as well as established its relative costs; the company would have avoided billions of dollars in over budget and pushing its delivery schedule over 7 times. Thus the company delivered its first fleet over 3 years late (Sodhi & Tang, 2012). Moreover; Boeing further exaggerated these risks through adopting an outsourcing model that was new alongside a novel technology. Compared to its earlier airplanes, in which Boeing executed the conventional task of incorporating and assembling various parts together with subsystems produced by various suppliers, the Dreamliner’s supply chain was on the basis of a tiered framework that would let Boeing to cultivate partnerships with about 50 Tier-1 strategic collaborators. These strategic collaborators would act as “integrators’ assembling various subsystems and parts that Tier-2 and Tier-3 suppliers would produce (Tang & Zimmerman, 2009). Nevertheless, Boeing later realized that some Tier-1 strategic partners did not have neither the know-how of developing various airplane sections nor the expertise of managing their Tier-2 suppliers. Thus, for example, Boeing on realizing that their weakest link in the Dreamliner’s supply chain, the company bought one unit of Vought Industries in 2008 and later the other unit in 2009.So as to reclaim control of the development procedure, Boeing had no other option but to buy out Vought Aircraft Industries which was one of its Tier-1 suppliers so as to transfer the much needed expertise to the rest of the suppliers. The above 2 acquisitions offered Boeing direct management of Vought Industries together with their Ttier-2 suppliers involved with the development of the fuselage (Tang & Zimmerman, 2009). In addition, Boeing had to compensate strategic partners for potential losses in profits arising from production delays. This is because some of the company’s suppliers were in danger of experiencing massive potential losses-putting the completion of the whole 787 program in danger. For example, Boeing, in response to work stoppage threats, in 2008, compensated its Tier-1 strategic supplier Spirit Aerosystems about 125 million dollars so as to make sure that this supplier went on its crucial operations. Boeing, in response to the inability of suppliers to meet deadlines in production, decided to send its core personnel to various sites globally to not only fill the supplier’s supervisory vacuum but also address production problems in person. Consequently, this turned out to be a costly endeavor because staffs were pulled from Boeing’s on-site to tackle issues at various sites of the outsourced partners. In some circumstances, the strategy for depending on suppliers for sub-assembling turned out to be very risky for Boeing and led to Boeing having to carry out the work by itself. For example, Boeing sent several of its engineers to various sites of tier-1, tier-2 as well as tier-3 supply partners globally to address technical issues that seemed to be the main cause of delaying the development of the 787.Eventually; Boeing was forced to redesign the whole 787 subassembly process. So as to restore the confidence of their customers about their capability in airplane development in addition to reducing any more delays, Boeing decided to make some management changes and brought in somebody having a proven record and expertise in supply chain management. Thus, Mike Bair, the original Dreamliner program director (a proven marketer) was substituted with Patrick Shanahan-a proven supply chain manager. Shanahan was now tasked with responsibility for coordination of processes for Dreamliner’s key plane families, comprising the 787.In addition; the company changed its top management; whereby Jim McNerney replaced James Bell-the then interim CEO. Finally, so as to an end a 2 month shutdown, the company made dispensations that would provide employees with a fifteen percent boost in wages over the next 4 years (Sodhi & Tang, 2012). Historically, Boeing had worked with its subcontractors by providing them with comprehensive blueprints of the required parts-after Boeing have created them already. This implied that Boeing was tasked with the responsibility of designing all important aspects of the puzzle first. However with the Dreamliner, it seems Boeing attempted a very different technique; instead of solving the puzzle and requesting suppliers to supply a definite puzzle piece, Boeing requested suppliers to build their own designs for various parts. However, the puzzle had not yet been appropriately determined when Boeing requested suppliers for the various pieces. Therefore it should not come as a surprise then that as the pieces came back from faraway suppliers, for the pioneer plane ever built of Composite materials-those components failed to fit together as envisioned. Cost and time all blew out accordingly (Allworth, 2013). In conclusion, as Boeing attempted to salvage the situation; it seemed apparent that the company was determined to not only solve but also explain and assist where necessary the crisis it was undergoing through. The company communicated well and this really paid off and in real time everyone started understanding the glitches that need to be ironed out whenever a new product is being launched. Nevertheless, Boeing and everyone involved in the development of the Dreamliner heaved a great sigh of relief when the Ethiopian Airlines flew the plane for 2 hours from Addis Ababa in Ethiopia to Nairobi –Kenya, putting an end to a 3 month hiatus (Paur, 2013). References Allworth,J. (2013). The 787s Problems Run Deeper Than Outsourcing. Harvard Business Review , np. Donning,S. (2013). What Went Wrong at Boeing? Forbes , np. Kotler, P,& Lee, N. (2011). Corporate Social Responsibility:Doing the Most Good for Your Company and Your Cause. New York,NY: John Wiley & Sons Ltd. Paur, J.(2013).Boeing 787 Finally Resumes Passenger Flights: Wired.np Sodhi , M.& Tang, C.(2012).Managing Supply Chain Risk. New York, NY: Springer. Stanwick,P. (2013). Understanding Business Ethics. New York,NY: Sage Publications. Tafoya,D. (2013). Organizations inte Face of Crisis:Managing the Brand and Stakeholders. New York,NY: Palgrave Macmillan. Tang, C, & Zimmerman, J. (2009). Managing New Product Development and Supply Chain Risks:The Boeing 787 Case. International Journal Forum , p 1-14. Yenne,B. (2005). The Story of the Boeing Company. New York,NY: Zenith. Read More