Navigating the Turbulence of Modular Strategy, Innovation, and Quality Control at Boeing

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. 

Let’s first delve deeper into these two, and then offer an alternative explanation. 

Poor Culture 

In 2019, the New York Times featured a relevant article examining safety concerns that emerged during the decade following the inauguration of Boeing’s manufacturing plant in North Charleston, S.C., in 2009. These concerns were raised after significant problems with production quality and regulatory oversights were encountered at Boeing’s state-of-the-art plant, which was tasked with manufacturing the 787 Dreamliner, an aircraft celebrated for its advanced design.

The NYT’s investigative efforts uncovered a prevailing culture, which prioritized production speed over quality —an approach that led to considerable manufacturing delays and a push to expedite the aircraft’s production, often at the expense of addressing employee-raised concerns.

It is important to understand that when it comes to culture and quality, what we see is always the tip of the iceberg. The problems at Boeing reflect broader issues within the company; further highlighted by two fatal crashes involving the 737 Max jet. Concerns have been raised regarding whether Boeing’s competitive drive to outperform Airbus with the 737 Max may have led to safety hazards being overlooked —particularly in relation to the design of its anti-stall system, which was a critical factor in both accidents.

The North Charleston plant has attracted attention from airlines and regulatory bodies due to various safety lapses. Numerous whistle-blower claims and safety complaints have been lodged by workers, citing issues such as defective manufacturing, debris left on aircraft, and pressure to disregard violations. Some employees have taken legal action against Boeing, claiming retaliation for pointing out manufacturing errors.

The article mentions Joseph Clayton, a technician at the North Charleston plant, who expressed his concerns on frequently finding debris near critical wiring areas under the cockpits. He openly admitted his reluctance to fly on the Dreamliner, citing safety worries. These individual apprehensions are part of a larger pattern of issues affecting two key Boeing models: the 737 Max and the 787 Dreamliner. This situation has also prompted regulators and legislators to scrutinize Boeing’s priorities, examining if the pursuit of profits has occasionally overshadowed the fundamental importance of safety.

But why do I claim this is not just a quality management issue but a cultural one? Becuse Boeing’s leadership has defended its practices, with Kevin McAllister, head of Boeing’s commercial airplanes, asserting the high quality of production at the South Carolina site. Despite occasional manufacturing errors, which are common in the industry, Boeing maintains that there is no evidence linking these issues in South Carolina to major safety incidents. 

Nonetheless, the article documents former Boeing employees who have reported dangerous mistakes in the manufacturing process. For example, John Barnett, a former quality manager with nearly three decades at Boeing, raised concerns about metal shavings found near flight control wiring, which, he claimed, were dismissed by superiors.

The presence of such metal shavings, which can lead to potential electrical shorts or even fire, were confirmed by Federal Aviation Administration (FAA) inspections carried out in aircraft certified as debris-free by Boeing. In 2012, this issue was believed to have caused damage to an operational airplane, prompting the FAA’s 2017 directive, which required the removal of shavings from Dreamliners before delivery. Boeing acknowledged compliance with this directive but assessed that such issues didn’t pose a flight safety risk.

But concerns like these are not isolated to Boeing’s North Charleston facility. In 2005, and in an effort to compete with Airbus, Boeing rushed to certify its 737 MAX by applying pressure on FAA managers. In turn the FFA urged their safety engineers to delegate significant aspects of the plane’s safety assessments back to Boeing, to speed things up. This led to an underestimation of the new flight control system (MCAS), and a failure to fully account for its operational risks. The MCAS system, crucial for maintaining flight stability, was found to have design flaws (notably its tendency to push the aircraft’s nose downward repeatedly) that weren’t adequately reviewed due to the rushed certification processes. Based on input from a single sensor, the MCAS played a crucial role in the tragic crashes of Lion Air and Ethiopian Airlines.

In summary, these revelations about Boeing’s North Charleston facility as well as the broader organizational culture, highlight a concerning trend where production pressures and competitive demands potentially compromise safety standards. The implications of these issues are far-reaching, affecting Boeing’s reputation and raising significant concerns about the safety and reliability of its aircraft.

Supplier Management 

The underlying issues with Boeing’s production extend beyond internal cultural problems to encompass broader challenges in supplier management. This alternative explanation highlights how Boeing’s outsourcing practices contributed significantly to its recent quality problems.

The issue is discussed in a Wall Street Journal article that points to a dual issue of negligence: Firstly, the suppliers’ own problematic culture, which mirrors Boeing’s in terms of cover-ups, and secondly, Boeing’s inadequate supplier management system, suggesting that the issues stem from both parties. 

Boeing’s production system involved dozens of factories manufacturing key components of the 737 and 787 jets before final assembly by Boeing. For instance, the fuselage plant in Wichita, Kansas —initially owned by Boeing and sold in 2005— has since experienced numerous production and quality issues under its new ownership by Spirit AeroSystems. Spirit, a key supplier for Boeing, has faced challenges maintaining quality, especially after workforce reductions and financial strains during the COVID-19 pandemic.

Employees at Spirit have reported that production pressures often led to overlooking quality issues, and internal complaints were frequently ignored. With a production rate of two fuselages per day, the sheer volume of components, along with the complexity of the assembly process, make quality control a daunting task.

While executives at Boeing acknowledge the challenges, they have maintained that the company’s supply chain approach allows for global technology integration and cost efficiency. However, the recent spate of manufacturing issues across various Boeing models, including the 787 Dreamliner, the 737, and the military and Air Force One replacement jets, suggest systemic problems in supplier management and quality assurance.

In response, Boeing has committed to enhancing training, increasing inspections, and placing more personnel on the ground with suppliers. This approach aims to mitigate risks associated with outsourcing and improve the overall quality management system. However, as these issues continue to emerge, it’s clear that the challenges the company faces with supplier management are a significant factor in its recent production woes, necessitating a thorough reevaluation of its outsourcing strategy and supplier oversight practices.

The Root Cause

As many readers know, my approach goes beyond simply rehashing news stories. Instead of simply relaying what is already in the news, I strive to dig deeper, offering insights and perspectives beyond surface-level reporting. 

The deeper aspect to be explored here traces back to the decision to sell the Wichita plant mentioned above. Understanding the rationale behind this move is crucial, as it represents, in my view, a pivotal factor in the unfolding situation. But to grasp the full impact of that decision, it’s important to recognize the major trends prevalent at the time, which involved a clear trend toward modularization. 

The decision was influenced by the industry trend toward modularization, where planes were increasingly being built in a more segmented, modular manner. 

The concept of modularity in aircraft manufacturing, exemplified by Boeing’s decision to sell its Wichita plant, presents both advantages and disadvantages. On the positive side, modularity allows for easier management of suppliers, streamlines the launch of new aircraft, and improves financial metrics like return on net assets by offloading assets from the balance sheet. However, this approach also introduces significant drawbacks. It creates a dependency on suppliers and complicates their management due to the lack of integration. 

While the move initially seems as a cost-saving measure, the outsourcing strategy introduced significant risks and challenges. The final product’s quality is contingent on the chain’s least capable supplier’s reliability. Boeing’s distributed manufacturing system was particularly strained during the pandemic, which disrupted supply chains and led to workforce shortages, exacerbating existing quality control issues.

Furthermore, when outsourcing components, companies like Boeing potentially lose the in-house engineering expertise required for effective management and innovation. Top engineers, who prefer working in research and development, may not stay if their role involves primarily managing suppliers. This leads to an intriguing downside: a diminished capacity for innovation. Outsourcing makes incremental innovation easier but significantly hinders the ability to make deep, transformative innovations. 

While economically beneficial, the strategy can inadvertently stifle the creative and technical ingenuity essential for groundbreaking advancements.

Marginal Thinking

The phenomenon is more concerning than it seems at first glance. 

The issue with the Boeing 737 Max highlights a trend in many industries: opting for incremental improvements over complete redesigns, which are more time-consuming. For instance, instead of designing a new plane from the ground up as Airbus did, Boeing innovated the already successful 737, but marginally so. This approach, while efficient, limits the scope of innovation. Although Airbus faces similar pressures, their approach has been somewhat different. 

In the context of Boeing’s incremental innovational approach, the MCAS (Maneuvering Characteristics Augmentation System) of the 737 Nine Max is a prime example. The plane required a more robust engine to achieve faster speeds, which altered its flight characteristics. This approach required the MCAS as a corrective measure. However, the system’s reliance on specific sensors, which proved to be fallible, led to critical failures. Outsourcing key components like the fuselage compounded this situation, increasing dependency on external suppliers. The failure to adequately manage and integrate these outsourced elements along with the sensor issues ultimately highlighted the limitations and risks of Boeing’s innovation and supplier management approach.

This failure illustrates a topic I’ve addressed several times: sometimes, you need to make decisions based on marginal analysis. But often, you must step back and ask, “Is this the right approach?” 

Clayton Christensen wrote: 

“But it’s a dangerous way of thinking. Almost always, shows that the marginal costs are lower, and marginal profits are higher, than the full cost. This doctrine biases companies to leverage what they have put in place to succeed in the past, instead of guiding them to create the capabilities they’ll need in the future. If we knew the future would be exactly the same as the past, that approach would be fine. But if the future’s different—and it almost always is—then it’s the wrong thing to do.”

The quote appears in his writings and talks about the pitfalls of relying solely on marginal cost analysis for making business decisions. Christensen argues that this approach can lead companies to leverage existing systems and processes that have been successful in the past rather than investing in the development of new capabilities needed for the future. He emphasizes that such a marginal cost approach might show short-term benefits but could be detrimental in the long run, especially when the future differs significantly from the past. This concept is a critical part of Christensen’s broader ideas on innovation, disruptive technologies, and business strategy, as seen in his various works, including his book How Will You Measure Your Life? 

Looking two steps ahead in the context of Boeing’s situation, we can anticipate a more strategic approach to decision-making. This future perspective involves not just considering immediate cost implications, such as those associated with outsourcing, aircraft design, and quality management, but also recognizing the long-term total costs of such decisions, particularly the costs associated with poor quality. 

These issues had warning signs within Boeing. In a presentation and White paper from 2001. The document by Dr. L. J. Hart-Smith on Boeing’s outsourcing raises significant concerns about the company’s long-term strategy, specifically focusing on the downsides of excessive outsourcing in aircraft manufacturing. Hart-Smith warns that while outsourcing can appear to reduce costs in the short term, it can lead to a loss of control over quality and innovation. He argues that outsourcing transfers the production work and the associated profits. The paper also discusses the impact of the Return on Net Assets (RONA) metric, suggesting that it can mislead companies into prioritizing short-term asset reduction over long-term sustainable growth. Hart-Smith emphasizes the importance of retaining critical in-house production capabilities to ensure future product development and innovation. The overall message is that Boeing’s reliance on outsourcing and a focus on financial metrics like RONA could undermine its long-term competitiveness and ability to innovate.

Boeing’s trend toward modularization and its decision to outsource significant operational assets under financial pressure fundamentally impacted its ability to maintain quality and safety standards. This strategy, driven by a desire to streamline balance sheets, led to the shedding of what was perceived as merely operational components but were, in fact, integral to Boeing’s capacity for innovation and quality control. This transfer of critical production processes to external suppliers diluted Boeing’s direct oversight of manufacturing quality. It resulted in a loss of in-house expertise and diminished its capacity for technological innovation. These changes significantly impacted Boeing’s ability to detect and address safety and quality issues, as evident in the challenges faced with models like the 737 MAX. The focus on financial metrics and modular efficiency overshadowed the essential need for maintaining stringent quality control and safety protocols, ultimately affecting Boeing’s reputation and operational integrity in the aerospace industry.

In his seminal article Manufacturing—Missing Link in Corporate Strategy, Wickham Skinner writes: “A company’s manufacturing function typically is either a competitive weapon or a corporate millstone. It is seldom neutral.”

But, it’s not the outsourcing, and it’s not the modularity… It’s not even the poor culture of quality. The root cause is the short-termism in everything the firm does. It’s their inability to see that modularity exposes the firm to future problems, and their inability to see that going too far in the sourcing path hurts both its manufacturing and R&D. It’s their inability to see that cutting corners has significant cost implications. 

As Boeing navigates these turbulent skies, the lesson is clear - in the relentless pursuit of short-term profits, losing sight of foundational values can not only lead to “a fall from grace,” but to a nosedive into peril.