Boeing is making headlines again with significant quality and safety issues. The recent news, however, are not all that new, even for the 737 Max. In an effort to explain why these issues persist, two themes emerged: an excessively relaxed culture regarding quality and safety, and poor supplier management practices.
One could make the argument that Boeing's short-termism dates as far back as Harry Stonecipher. Harry was brought in to revitalize the spirit of innovation at Boeing, after a long period of stagnation (reflected in the stock price).
After a couple years with Harry as CEO, the board was still unsettled. They replaced Harry with James McNerney, who oversaw the development of the 737 MAX and focused a lot on capex management. While I'm speculating, part of me wonders if the Harvard MBA blinded him to the importance of company culture and engineering strategy - critical company components that are difficult to defend during a cut-throat analysis of balance sheets.
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Another thing that comes to mind is Airbus's integrated design philosophy, in contrast to Boeing's modularization. Boieng, to my knowledge, has historically tried to subcontract "the best" modularized components and assemble them into one aircraft: Turbines from the UK, Seats from Ireland, Avionics from Taiwan, etc. Each aircraft employs a unique supplier network, specifically designed to best serve the aircraft's use-cases.
Airbus on the other hand tries to integrate and re-use parts between aircraft. Notice how they promote the commonality between the A350-900 and A350-1000 [https://aircraft.airbus.com/en/more-commonality-better-integration], and this quote from their website on the building process of aircraft, focus on standardization and commonality "With increased modular design and customisation capabilities the next industrial system will leverage higher levels of standardisation and commonality of parts and major components, enabling new Build-To-Stock and Build-to-Order decoupled approaches". Is this why Airbus hasn't run into nearly as many QA issues?
Part of me wonders if neither of these approaches are the right one. While they keep the companies afloat, it doesn't seem like either company has made a step-change breakthrough in decades. Improvement is generally characterized by single digit percentage efficiency-gains Y/Y. Is that the best we can do?
From my 2021 Taylor & Francis book: Manufacturing Mastery: The Path to Building Successful and Enduring Manufacturing Businesses:
“....By demanding accountability and responsibility for customer satisfaction and retention, leaders
in operations must think more strategically. Their role is no longer ensuring capabilities and
capacity to “get order, fill order.” It becomes knowing and anticipating market needs and wants
and determining the supply mechanisms that best develop value performance for the
organization. It requires expert involvement in both strategy development and execution as well
as the business operating system, while mastering forward-looking design. This isn’t your
father’s manufacturing environment.
Strategy without execution is just a dream, but execution outside an umbrella of strategy is
myopic and doomed to fail. Two perhaps not-so-obvious truths: manufacturing is a supply chain
decision; so too, then, is the choice of vertical and horizontal integration.
Those decisions can go very wrong if not planned and executed well by operational experts.
Look to the Boeing 787 Dreamliner. Or the “Nightmareliner” as many began calling it. Boeing
chose to transition from a vertically integrated manufacturing model to a global-partner model in
the development, design, and production of a product deemed important to that company’s
future. Numerous quality problems arose from both commercialization-driven priorities, and
design and machining weaknesses in many components. Poor communication and inconsistent
assumptions were rampant. There’s a lot more to outsourcing than issuing contracts and purchase orders. Boeing executives became acutely aware of the volumes of tribal knowledge and “off-
the-record adjustments” that had previously kept production moving....”
I look forward to my AI assistant booking a flight on a 737 SuperDuper MaX 20 with my iPhone 32 in twenty years time. Hopefully Gad will have finally figured out the most efficent way of boarding it by then, but I'll probably still be in Boarding group 3 no matter what I do......
Marginal cost analysis, and the resultant modularity of product design and development , has led to a molasses in product , especially hardware development , at least in Silicon Valley. Scientific , R&D breakthoughs have a much higher barrier than 30 years ago to make it to production. Even Software development is becoming increasingly "modular" and reliant on the same platforms.
It's not just 50 year old planes that keep getting updated, think - when was the last time you saw a truly new device? A Nest thermostat? Personally I've benefited from it greatly as a partner at an engineering consultancy, and there are undoubtedly advantges to having contractor teams design and develop your products. They typically see more cutting edge technology from mutliple projects and can amortise the cost of specialists over multiple projects. The ODM model where off shore manufacturers design re-badged and mildy customised versions of their "modules" to suit clients is very attractive to the bean-counters who don't wish to encur the cost , and risk, of full product redesign. However then there is little differentiation, margins shrink in what becomes a price battle with similar products and the next round of fully outsourced development begins. This leaves only start ups to do the "New" but they have to use the same eco-system of me-too components /suppliers and risk being seen as cost prohibitive and not "Agile/ Lean" if they take on too much inhouse.
The cost of truly new design , with custom components, new tooling and processes, becomes prohibitive ,at least in the eyes of investors. Aerospace, Automotive, Med devices, all have a similar pattern. It's only the giants like Apple, Samsung et al that truly have the pockets to create new differentiated products and, whilst the AirTag and upcoming VisionPro are welcome new categories most people have lost track of what version of the iPad / Pixel Phone/ Galaxy they are on.
One could make the argument that Boeing's short-termism dates as far back as Harry Stonecipher. Harry was brought in to revitalize the spirit of innovation at Boeing, after a long period of stagnation (reflected in the stock price).
After a couple years with Harry as CEO, the board was still unsettled. They replaced Harry with James McNerney, who oversaw the development of the 737 MAX and focused a lot on capex management. While I'm speculating, part of me wonders if the Harvard MBA blinded him to the importance of company culture and engineering strategy - critical company components that are difficult to defend during a cut-throat analysis of balance sheets.
--
Another thing that comes to mind is Airbus's integrated design philosophy, in contrast to Boeing's modularization. Boieng, to my knowledge, has historically tried to subcontract "the best" modularized components and assemble them into one aircraft: Turbines from the UK, Seats from Ireland, Avionics from Taiwan, etc. Each aircraft employs a unique supplier network, specifically designed to best serve the aircraft's use-cases.
Airbus on the other hand tries to integrate and re-use parts between aircraft. Notice how they promote the commonality between the A350-900 and A350-1000 [https://aircraft.airbus.com/en/more-commonality-better-integration], and this quote from their website on the building process of aircraft, focus on standardization and commonality "With increased modular design and customisation capabilities the next industrial system will leverage higher levels of standardisation and commonality of parts and major components, enabling new Build-To-Stock and Build-to-Order decoupled approaches". Is this why Airbus hasn't run into nearly as many QA issues?
Part of me wonders if neither of these approaches are the right one. While they keep the companies afloat, it doesn't seem like either company has made a step-change breakthrough in decades. Improvement is generally characterized by single digit percentage efficiency-gains Y/Y. Is that the best we can do?
Great article, Gad.
From my 2021 Taylor & Francis book: Manufacturing Mastery: The Path to Building Successful and Enduring Manufacturing Businesses:
“....By demanding accountability and responsibility for customer satisfaction and retention, leaders
in operations must think more strategically. Their role is no longer ensuring capabilities and
capacity to “get order, fill order.” It becomes knowing and anticipating market needs and wants
and determining the supply mechanisms that best develop value performance for the
organization. It requires expert involvement in both strategy development and execution as well
as the business operating system, while mastering forward-looking design. This isn’t your
father’s manufacturing environment.
Strategy without execution is just a dream, but execution outside an umbrella of strategy is
myopic and doomed to fail. Two perhaps not-so-obvious truths: manufacturing is a supply chain
decision; so too, then, is the choice of vertical and horizontal integration.
Those decisions can go very wrong if not planned and executed well by operational experts.
Look to the Boeing 787 Dreamliner. Or the “Nightmareliner” as many began calling it. Boeing
chose to transition from a vertically integrated manufacturing model to a global-partner model in
the development, design, and production of a product deemed important to that company’s
future. Numerous quality problems arose from both commercialization-driven priorities, and
design and machining weaknesses in many components. Poor communication and inconsistent
assumptions were rampant. There’s a lot more to outsourcing than issuing contracts and purchase orders. Boeing executives became acutely aware of the volumes of tribal knowledge and “off-
the-record adjustments” that had previously kept production moving....”
Not acutely enough.
737 MAX, more like 737 LAX
Instead of basing executive compensation to stock price, base it on quality/safety, including compensation that is deferred many years post-departure.
I look forward to my AI assistant booking a flight on a 737 SuperDuper MaX 20 with my iPhone 32 in twenty years time. Hopefully Gad will have finally figured out the most efficent way of boarding it by then, but I'll probably still be in Boarding group 3 no matter what I do......
Marginal cost analysis, and the resultant modularity of product design and development , has led to a molasses in product , especially hardware development , at least in Silicon Valley. Scientific , R&D breakthoughs have a much higher barrier than 30 years ago to make it to production. Even Software development is becoming increasingly "modular" and reliant on the same platforms.
It's not just 50 year old planes that keep getting updated, think - when was the last time you saw a truly new device? A Nest thermostat? Personally I've benefited from it greatly as a partner at an engineering consultancy, and there are undoubtedly advantges to having contractor teams design and develop your products. They typically see more cutting edge technology from mutliple projects and can amortise the cost of specialists over multiple projects. The ODM model where off shore manufacturers design re-badged and mildy customised versions of their "modules" to suit clients is very attractive to the bean-counters who don't wish to encur the cost , and risk, of full product redesign. However then there is little differentiation, margins shrink in what becomes a price battle with similar products and the next round of fully outsourced development begins. This leaves only start ups to do the "New" but they have to use the same eco-system of me-too components /suppliers and risk being seen as cost prohibitive and not "Agile/ Lean" if they take on too much inhouse.
The cost of truly new design , with custom components, new tooling and processes, becomes prohibitive ,at least in the eyes of investors. Aerospace, Automotive, Med devices, all have a similar pattern. It's only the giants like Apple, Samsung et al that truly have the pockets to create new differentiated products and, whilst the AirTag and upcoming VisionPro are welcome new categories most people have lost track of what version of the iPad / Pixel Phone/ Galaxy they are on.