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Boeing Case Study: Financial Planning
As globalization force changes to business practices to remain competitive, organizations will be challenged to maintain a working environment that meets business demands. Hence, Boeing is no exception. A growing trend toward outsourcing production or services exists. Outsourcing has spawned different meanings: acquiring a product or service rather than producing it, contracting out of a company's non-core, non-revenue-producing activities to specialists, or delegating to an external service provider the day-to-day operation of a business process. Chiefly, outsourcing is the passing of service provision or production to another party, but it is not the same as passing of the responsibility. Insomuch, Boeing is faced with outsourcing challenges due to a fragmented supply chain, thus incurring financial implications.
Benefits vs. Risks
Global or domestic outsourcing can offer many benefits in which Boeing chose to embrace for its manufacturing of the 787 to foreign partners. The benefits of outsourcing are variable and are dependent upon the nature and situation of the organization. It helps companies to achieve their business objectives through operational excellence and an edge in the marketplace. Boeing outsourced 70% of the 787 content to other manufacturers, thereby parlaying the non-core functions. Outsourcing gives the right combination of people, processes, and technology to operate effectively in the global marketplace without burdening time and budget. Moreover, Boeing wanted...
Additionally, its partners would contribute toward $8 billion in development costs. However, such realization of benefits eluded Boeing, which created a backlash and a need to reassess its outsourcing strategies.
With benefits come respective risks. Boeing took a calculated risk by migrating from the old, 20th century integration model, whereby an organization would own the entire supply chain. In this case, Boeing's objective was to become agile, by quickly creating capacity in parts of the world or in core capabilities where it did not already exist. Organizations should form outsourcing relationships or alliances with companies that can provide the capacity, capability, and agility needed to compete in today's changing market. Unfortunately, outsourcing has a trickling effect that Boeing did not anticipate or plan contingencies carefully. Poor supplier or partner relationships created an additional $2 billion in development costs. In contrast, the objective was to lower development costs, not increase them. Seemingly, Boeing partners wanted to realize the benefits, as well. Therefore, exponential outsourcing breeds a lack of control of the supply chain, rendering quality, costs, and delivery issues that Boeing did not anticipate.…
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