By September 1, 2007 3 Comments Read More →

Lean is Not About Outsourcing

How Boeing Got Going – TIME

Evolving Excellence’s Kevin Meyer will comment on this after his vacation, I’m sure (read his other Boeing comments starting here).

There’s a piece in Time Magazine and it makes a very misguided reference to “lean.”

Boeing is planning to shift the emphasis on speed to the production line. It took a page from lean manufacturing to help manage its restructured partner base and outsourcing of parts. The company has pushed outsourcing to new levels, about 70% of the aircraft. (Boeing and Airbus both averaged about 50% on previous jets.)

I don’t know Boeing’s business well, so I’m not so much questioning their supply chain strategies here. But, I do take issue with Boeing (or more likely, the reporter) equating lean to outsourcing.

There’s nothing in the Lean or Toyota Production System approaches that says you should outsource, or that outsourcing is a good thing. Toyota doesn’t make all of their parts, but outsourcing is a business decision that’s somewhat separate from lean, right? What percentage of Toyota’s “value add” is done in house? If you’re outsourcing and that leads to longer lead times (say, you outsource to China), that’s a problem. The lean approach values fast response and short lead time supply chains.

The folks in the article also take a different view of “value.”

To Richard Aboulafia, vice president of analysis for Teal Group, an aerospace and defense consultancy, the 787’s production process qualifies it as the iPod of aerospace–essentially not only the new face of aviation but of American manufacturing as well. “Look at your iPod. Where was it built? Who the hell cares? That’s not where the value is,” he says. “You design, you integrate, you sell, you support, you finance. There’s a lot to be said for putting it together under your roof, but leave bending metal or pouring plastic to someone else.”

What do you think about this? Traditionally, we view “value” as the value creating manufacturing steps that actually change the product in some way. Aboulafia pooh-poohs that dirty manufacturing stuff, but thinks value is created by financing?

We have different definitions of “value” here. The lean definition of value follows three rules:

  1. The customer must value the activity (be willing to pay for it)
  2. The activity must change the form, fit, or function of the product
  3. The activity must be done right the first time

Finance doesn’t really fit those rules, does it?

Is this a new “iPod world” or does manufacturing still provide the true value to customers??

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Mark Graban's passion is creating a better, safer, more cost effective healthcare system for patients and better workplaces for all. Mark is a consultant, author, and speaker in the "Lean healthcare" methodology. He is author of the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, as well as The Executive Guide to Healthcare Kaizen. His most recent project is an eBook titled Practicing Lean that benefits the Louise H. Batz Patient Safety Foundation, where Mark is a board member. Mark is also the VP of Improvement & Innovation Services for the technology company KaiNexus.

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3 Comments on "Lean is Not About Outsourcing"

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  1. Ron Pereira says:

    I think part of the problem here is labels.

    “Lean” and “Six Sigma” are labels and nothing more. They are just words that excite many emotions.

    Some will say lean is a way of life while six sigma is tools. While others will say six sigma is a way of life and lean is tools. It is a circular debate that adds no real value.

    If Boeing feels the need to outsource, just like (as you mentioned) Toyota does quite a bit of, it should NOT be associated with the label “lean.”

    Instead, it should be associated with its overall manufacturing strategy which I hope involves deep quantitative and qualitative analysis of their business situation as they decide what to make versus buy.

    That’s my two cents at least! Great post Mark – as usual.

  2. Andy Wagner says:

    The issue I have with Aboulafia’s statement is that Boeing isn’t actually designing the components that they are outsourcing. They’ve sent a heck of a lot of the institutional knowledge out with the dirty manufacturing. This is particularly true when it comes to the wave of the future, composites manufacturing. It’s a major risk, and I hope it works out for them.
    While getting investment capital from other companies and overseas is probably necessary to design a new airliner, I hope to see Boeing back in the business of designing critical systems (like wings) on their next airliner.

  3. Anonymous says:

    One problem in this country is that we have trouble prioritizing our needs. In an economy, there is a basic make/buy decision that is grossly overlooked for the sake of profits. What do I need to buy and what can I make on my own for less than I can buy it for? Another wrinkle in this question is this; what can I buy and what should I be capable of making? Capability is an incredibly undervalued component of our economy that is being outsourced for the sake of short term profits. If one considers capability in the long term, than the question of make/buy becomes more of a local question than a global one.

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