Boeing's Problems Aren't All in Asia

Boeing's Problems Aren't All in Asia

Boeing's Problems Aren't All in Asia

Moneybox
Commentary about business and finance.
Dec. 2 1998 10:43 AM

Boeing's Problems Aren't All in Asia

Workers in cyclical industries are used to uncertainty when it comes to their jobs. But there weren't any Boeing workers who were prepared for the company's announcement yesterday that it would be cutting another 28,000 jobs, bringing total layoffs announced this year to 50,000. And while in part these cutbacks represent an aggressive response to a sharp falloff in demand from Asia, they're also the result of a failure of management--production-line inefficiencies, mismanaged capacity, and poor forecasting. Boeing needs a new approach, and job-cutting alone isn't it.

Advertisement

Boeing has, after all, only one competitor--Airbus--in the commercial aircraft market. And until Asia fell apart a year ago, demand for airplanes was at a cyclical peak. Normally, that combination would allow a company to rake in the dough. But instead Boeing found itself turning out fewer planes than it needed to and spending more on each plane than it should have. Boeing was actually adding workers as late as 1996, and more recently asking workers to pull extra overtime in order to deliver planes when promised. As a result, the company never reaped the profits at the top of the demand cycle that it should have.

The irony here is that in recent years a number of management theorists have suggested that Boeing's production model, suitably modified, represents a possible future for global manufacturing. Unlike a classic assembly-line company, which restricts the number of potential options in order to reap the benefits of standardization, Boeing customizes each of its planes. The number of potential options is practically unlimited, which means that an airplane factory looks nothing like the Modern Times classic model of mind-destroying automation.

The virtue of this model is that customers get exactly what they want, which in theory should allow Boeing to charge premium prices. And what those management theorists see in the future is a world in which computerization and e-commerce will combine to allow companies to customize products like Boeing does while simultaneously retaining the economies of scale that the assembly line offers. The current Platonic ideal here is Dell Computer, which builds its computers to order but still turns them out quickly and cheaply.

The problem is that "flexible production" only works if your entire production system is set up to take advantage of the approach. And although Boeing has been doing flexible production forever, it has never really embraced a top-to-bottom reinvention of the system. As a result, Boeing's approach has a lot of the old-school craftsman in it and not enough Henry Ford. The company still has multiple and incompatible computer systems. It has resisted standardization where it shouldn't. And it has done a poor job of managing inventory.

All of these are supposedly in the process of changing. And Boeing couldn't have anticipated what would happen in Asia. But the 50,000 job cuts we'll see between now and the end of next year are simple testimony to the fact that now as much ever, management matters.