The Effect of Supply Chain Strategy on Quality and U. S. Competitiveness

INTRODUCTION The initial trend of global supply chain began more than a decade ago when companies typically outsourced non-critical parts and components of their products. These components were important to the overall business operations, but often secondary to the core value or quality concerns of the products and therefore could be entrusted to offshore suppliers or contractors. As time went on, more parts and components were outsourced until some entire companies moved overseas. In addition to lower costs in developing countries or emerging markets, lack of skilled labor force, as a result of weakening U.S. manufacturing competitiveness, is also cited in the literature. In extreme cases, firms simply did not question if outsourcing or offshoring was the most beneficial to their global supply chain strategy in the long run but rather assumed that outsourcing would have a positive effect by default. This research investigates the effect of global supply chain strategy on product quality and overall U.S. competitiveness by analyzing the case of Boeing 787 Dreamliner's recent lithium-ion battery overheating incident. Boeing 787, a new and complex product, has outsourced 70% of its parts and components with a redesigned global supply chain strategy. However, the grounding of all 50 Boeing 787s by the U.S. FAA on January 16, 2013 has touched the nerve of not only its quality concerns but also its global supply chain strategy. This grounding decision is a result of an in-flight battery fire with Japan Airlines, along with a similar scenario occurred earlier in January 2013 in Boston with the same airline company. This research focuses on how Boeing's new aggressive supply chain strategy may have contributed to its quality and safety problems and generalizes its impact on product quality and overall U.S. competitiveness. In this research, we first try to scrutinize root causes of the in-flight battery fire by asking such questions as: Is it an isolated problem related only to lithium-ion batteries? Is it a much broader quality or safety issue to all new and complex products? Does the new aggressive supply chain strategy for Boeing 787 exacerbate the problem? If so, what lessons can we learn, and how can we maintain high product quality under today's large-scale global supply chain networks? Then we try to analyze how to take advantages of outsourcing and offshoring and at the same time maintain high product quality and overall U.S. competitiveness in terms new product design and innovation. The rest of the paper is organized as follows. Section 2 reviews the literature. Section 3 analyzes the impact of global supply chain strategy on product quality. Section 4 discusses managerial implications. Finally, section 5 summarizes the research findings. LITERATURE REVIEW We review the literature from the following three aspects: i) Boeing 787 supply chain strategy and its lithium-ion battery problem, ii) supply chain strategy and product quality, and iii) outsourcing and offshoring on U.S. competitiveness. Boeing 787 Supply Chain Strategy and its Lithium-ion Battery Problem The Boeing 787 Dreamliner, designed to use 20% less fuel and expected to be 10% lower in cost-per-seat mile, is not only a revolutionary aircraft, but it also serves as a role model with an unconventional supply chain strategy. In responding to global competition and fuel economy, Boeing Commercial Airplanes in 2004 launched the 787 Dreamliner. Boeing 787 has a new lightweight composite materials fuselage, as opposed to traditional aluminum materials (Hawk, 2005). In addition, Boeing 787 has outsourced a full 30% of its parts and components that are managed by its tie-one suppliers, contrary to its Boeing 747 with only 5% outsourced and managed by its tie-one suppliers. This new global supply chain strategy was designed to reduce the new product development cost from $10 billion to $6 billion. …