Boeing’s Challenges Are Just Beginning

By putting its second 787 assembly line in South Carolina, Boeing will save itself some money on labor costs (and perhaps win a little more political support for its defense contracts from that part of the country.) It has also sent its labor union a clear signal: There is no future in militant unionism. Long strikes will only serve to push production out of our region.

But Boeing’s recent move also raise some serious questions about the company’s competitive position. Is Boeing’s strategic advantage really about labor costs? Certainly, that’s part of the equation. But Boeing already enjoys a labor cost advantage over its main rival Airbus. And a weak dollar is widening that advantage.

Boeing’s real problem today is its inability to deliver a strategic new product. After many long delays, it is still unclear how Boeing will address the many design and production problems encountered by the 787. An ill-conceived design and production process has already undermined trust among its airplane customers and suppliers. That’s a serious concern, because the ability to design and manufacture new planes is core to the Boeing brand.

The Boeing 777 provided a great example of how to do it right. The company took a complex set of decisions about customer needs, production processes and supplier networks to produce an excellent product. (Alan Mulally, who played a key role in the 777, and might have helped Boeing avoid its current problems, is now busy turning Ford around.)

With the 787, the development approach was troubled from the start. Major suppliers say Boeing forced them to sign supply contracts before Boeing itself had made final design decisions about the parts Boeing wanted them to supply. After forcing those contracts on suppliers in an effort to hurry things along, Boeing has now left many of them high and dry. With the 787 program stalled, suppliers who spent much of their own money designing parts and building production capacity, are now losing money as production systems across the supply chain have come to a virtual halt. Japanese suppliers and customers, who have long been loyal buyers of Boeing, are expressing frustration with the company, as are customers around the world.

Boeing has resolved its labor issues in a manner that saves it money but leaves behind a sense of bitterness and betrayal in the community and among its own employees. What kind of corporate culture is it creating? Hopefully, it does a better job of resolving equally troubling issues with suppliers and customers. Boeing is still critical to our region’s future. We want to see the company return to its former strength. That means finding a way to restore its culture as a manufacturer and designer of excellent products.