Squeezing Your Suppliers: A Lesson From Boeing
Few companies can teach a lesson as well as Boeing. They were one of the pioneers of flight, shepherded civilization into the jet age, and most importantly have lost $50 billion in valuation over the last four months. That’s impressive!
You would think a company that spent the last half decade squeezing suppliers while forcing increased responsibility on them would be a great buy. Boeing, by all accounts, hits every mark. Reduced engineering and development responsibility, check! Reduced overhead by forcing suppliers to lower their costs, check. Increased margins and profitability, check! And it worked, for a while.
Plane development and manufacturing, like all other manufacturing, creates a fog where you don’t 100% know how the product will turn out until it’s off the assembly line. We see this with the 737 Max and the Samsung Galaxy Fold. Two very different products — both meant to expand a product line and excite the consumer class around them.
What Boeing didn’t take into account are the lead times it takes to get a plane from blueprint to delivery. Planes like the Max can take six years before they’re carrying passengers and during those six years they gutted their senior employment while putting those responsibilities onto their suppliers. Instead of one company (Boeing) or a small handful of aerospace companies writing code, Indian and Russian dev farms were churning out buggy code for as low as nine dollars an hour. Worse yet, Boeing didn’t review or test all of the code, in some cases they just assumed it worked.
While their ability to develop software for their own products and systems has been reduced they’ve also been laying off and sending their own assemblers into early retirement. The highly proficient assembly line workers and engineers tasked with making sure the planes come together are in a state of crisis and haven’t been able to pass their hard learned skills to newer, less experienced employees.
While their stock rallied from 2017 through March 2019 it all seems to have caught up. Their stock is down 20% as multiple investigations continue to keep them in the news. No matter the size of the business, there are certain things you cannot outsource without reducing the quality of the product or service you are creating. Every company is different and maintaining or growing market share in a competitive market is tough. However, everything comes with a price and as Boeing found out sometimes that price can be as high as $50 billion dollars.
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