Boeing Found the Worst Solution for Cost-Cutting Clients

Published : October 11, 2014

scissorsWhat do you do when you're a huge company faced with an equally huge client cutting back on their spending? Well, if you're Boeing, the answer seems to be that you turn to the vital network of your supply chain with an ill-advised pair of scissors in hand. As defense contracts shrink, Boeing has found itself scrambling to offset the difference with less cost output, settling on dumping two-thirds of its 6 billion dollar cutbacks on the artery that keeps its business—quite literally— flying: supply chain management.

The results may look promising on paper in the short term, but the long-term risks to both Boeing products and reputation are likely not worth it.

New, Unproven Suppliers

As those of you who are already working with a third-party provider—fulfillment, logistics, or otherwise—it’s much easier and less expensive to do business with a company you already have an established relationship with.

When sudden cost-cutting measures leads to internal restructuring, as is imminent in Boeing's plan, the carefully-built communication networks that have been cultivated between the different departments in partner companies evaporate, and new ones need to be built from scratch.

In addition to this disruption of business relationships, everything from shipping speed to packaging, billing to product quality, becomes a new potential problem.

Less Accountability

The ability to offer low bids require component suppliers to cut their own costs in turn, and that generally means offering fewer services to the end client. While manufacturers obviously need to comply with oversight laws and regulations, this measure might mean they skip on the expensive, non-mandatory—but still important— quality checks that put a company at the forefront of their industry.

For Boeing, this doesn’t necessarily mean that a lower-priced fuselage will come plummeting out of the sky, but as with any product or package that goes through fewer layers of quality assurance, there is an arguably higher chance that defects will be missed that extra audits might have caught.

It Only Takes One Problem

Large companies in minimally-populated markets like Boeing have a product with high visibility by definition. This means that an error or malfunctioning component are instantly thrust into the limelight, and not quickly forgotten by the customer.

A recent engine failure on one of Boeing's planes in August 2014 highlights how quickly negative press can spread— it was picked up by major news outlets in a matter of hours and spread throughout the internet. In the age of digital media, Boeing's name is now linked to that issue, and likely to come up over and over in searches both vague and specific. Extrapolate this PR issue to other problems— something as small as a failure of a bathroom door, or a non-essential but highly visible external part breaking mid-flight— and Boeing may never dredge itself out of the negative-spin trench.

Budgetary stress on supply chain management makes these problems more likely— if not from the components themselves, from compressed or rushed work deadlines caused by a supply chain plagued by late shipment arrivals.

Hasty Decisions May Actually Help Competitors

Boeing may be the one to pull the proverbial trigger, but current supply chain companies that are given the boot still need to make money too. If a lucrative contract suddenly comes in from Lockheed Martin Corp or General Dynamics Corp, Boeing may find their rivals using the premium parts they once did. Better parts lead to better planes and better reputations— the latter worth far more over time than any cost-cutting wizardry Boeing attempts in the short term.

Building a stable production-oriented business model is not so different from building a plane—at least when it comes to supply chain management. Success comes from finding the right components, ensuring their integrity, and carefully maintaining them once in place. Consistency and reliability are attributes valued in both brands and products, and Boeing may soon learn, rather painfully, that throwing them away for a brief monetary boost is a move that won't get them off the ground.

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Topics: Supply Chain Logistics

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