So what went wrong with the Boeing 787 Dreamliner? A new paper from UCLA's Anderson School of Management (http://www.anderson.ucla.edu/), due to be published later this year, has some ideas. Christopher S. Tang is Edward Carter Professor of Business Administration at UCLA, and one of the key authors of the report. He combined information from suppliers, the press, Boeing's website and his own research to discover why the massively hyped 787 has failed repeatedly to meet the company's timetable for testing and deployment.

The 787 was supposed to embark on its maiden flight in 2007, and enter into regular service by 2008. It has since suffered multiple setbacks, including supplier failures, a mechanics' strike and problems with materials. A first flight scheduled for this summer was abruptly put on hold for the fifth time. Now, Boeing isn't saying exactly when the plane will be ready.

Buyers of the Dreamliner, it goes without saying, are upset. But so are Boeing's suppliers. One problem, says Tang, is a major change in the way they're getting paid. Traditionally, when Boeing develops a new plane, each supplier is compensated when it finishes developing a particular component. Under the contract for the 787, Tier 1 suppliers don't get paid until everybody finishes their development work. "That's why a lot of suppliers tried to renege on the contract," Tang says. "Some have been waiting a long time [for payment]."

Boeing's idea behind the change was to push more up-front development costs to its suppliers. At the same time, says Tang, it could offer suppliers the rationale of "we're partners - all in this together." Instead, cash-strapped suppliers are complaining, raising the possibility that they will favor other aircraft manufacturers with a more generous policy of compensation.

The direct cause of the latest delay, according to Boeing, was structural in nature. The company said it needed to "reinforce an area within the side-of-body section of the aircraft." Last-minute problems emerged during full-scale static testing, and rather than pursue a temporary solution to keep the flight on schedule, Boeing opted for the extra time needed to come up with a permanent modification.

Boeing insisted that the problem wasn't related to its choice of materials. But Tang says that issue has caused delays nonetheless. One of the most innovative aspects of the 787 has been the use of composites that are much lighter than traditional materials, resulting in easier takeoff and less fuel consumption. The technology has already been deployed for fighter jets flying at lower altitudes than the typical commercial aircraft. How composites will behave at 30,000 feet still isn't fully known, according to Tang.

Complicating matters is the use of composites and new technology throughout the plane, in such areas as glass, software and entertainment systems. Each element is related to one or more suppliers that are making the items for the first time. Tang says Boeing designed a tiered structure like Toyota's famous production system, "but Toyota worked on it for 50 years to iron out all the wrinkles." Boeing, by contrast, has been under severe pressure to get the 787 on the market as quickly as possible, especially in light of the A350 and A380 aircraft being developed by rival Airbus. Boeing had to design a unique plane, says Tang, even though it lacked a good contingency plan for coping with glitches in the development process.

Finally, the Boeing supply chain is itself to blame. Once again, the manufacturer was out to try something new. It wanted to rely much more heavily on Tier 1 suppliers to build large sections of the plane, which would then be assembled in a few pieces at Boeing's own plant. On paper, that's not a bad idea; it has worked for major automakers. But building a $200m-plus commercial jet represents some additional orders of magnitude. If a single supplier fails to deliver even the smallest part on time - and that has already happened more than once - then the whole system becomes paralyzed. What's more, says Tang, Boeing's Tier 1 suppliers "may not be very good supply chain managers."

The problem, he adds, goes beyond parts. "It's virtually everything. It's the design of the plane and the software."

Boeing has since reorganized its entire production team and is taking a stronger hand in managing suppliers beyond the Tier 1 level. The company has dispatched its own engineers around the world to work directly with suppliers. It has even moved to acquire the 787 operations of at least one major vendor, Vought Aircraft Industries, in South Carolina. (Vought is making the aft fuselage sections of the plane.) The cash price of the deal is around $580m, which doesn't include Boeing's agreement not to recover money that it had already advanced to Vought. That's a tough pill for Boeing to swallow, given the additional losses that it's incurring in the form of lost deposits from disgruntled buyers.

The 787 suffered yet another blow to its timetable when 27,000 of Boeing's machinists walked off the job for more than seven weeks in the fall of 2008.

So the problems plaguing the 787 are many, and the supply chain is one of the chief culprits. Now Boeing has to prove that the Dreamliner is all it was hyped up to be. The airline has said the plane will be able to fly nonstop between any pair of cities, with the longest haul covering nearly 9,000 miles. That claim has yet to be proved, says Tang.

The UCLA paper, to be published in Supply Chain Forum, discusses how at least some of the problems could have been avoided. In the end, though, the company might have had little choice but to act when it did. At the time Boeing announced the 787, its stock was falling, hurt by the prospect of the Airbus A380. "Had they not made a bold and risky move," speculates Tang, "the stock price would have been much worse. If you track back to where they started from, maybe they'll still come out ahead."

A Boeing spokesman declined to make available a representative for comment on the UCLA report.

- Robert J. Bowman, SupplyChainBrain

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