This guest post is from Doug Smock of Design News and BCC Research.
The Dreamliner aircraft development project was launched by Boeing six years ago as one of the most ambitious technology and supply chain projects in history. On the technology side, the Dreamliner was the first commercial airliner design with a plastic composite body. On the supply chain side, Boeing made the switch from a top-down, disciplined captive design and manufacturing approach to one that was largely outsourced to suppliers around the world.
The Dreeamliner is now two years late, and it’s not an exaggeration to say that Boeing’s future rests on its outcome. Three years ago, Boeing officials were eager to talk about the great work on the Dreamliner, on the technology and supply sides. Now they’re mum, but I took a couple of shots at raising the questions about the Dreamliner, and then making some educated guesses about the answers.
So what are the questions?
And what are the answers?
Read my pieces on What’s causing huge delays for the Boeing 787 Dreamline and why the Dreamliner is so late to find out!
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A recent article in Industry Week claims to offer a cost-effective approach to maximizing international property protection. While the three step approach is logically sound, reasonable from a cost perspective, and reasonably complete from a legal perspective, I can’t help wondering how effective it really is. But to understand why, we first have to review the proposal.
The authors, who know their stuff, recommend the following:
- Always utilize contracts with trade secret protection with employees and business partners.
- Use patents to not only fortify the protection but protect your IP from those entities with which you have no contractual relationship.
- Implement your strategy in those countries in which you do business.
It’s certainly the right way to do business from an IP protection standpoint, and I might even recommend something similar if you asked, but I’m not sure it’s going to work, especially for those of you doing business with countries like China where IP protection has historically been very weak. I know that they have been talking about beefing up their IP protection, that they recently signed an MOU with Japan, and even cracked-down on the Fu Wei group, but what they’ve done is a drop in the bucket compared to the IP piracy that has been allowed to go unchecked for decades. And they’re not the only country where patents and WIPO might not do you any good. Furthermore, a contract is only as good as the legal system set up to enforce it. If we’re talking a country that naturally distrusts foreigners and tends to rule in favor of local companies, a contract might not do you much good either.
In other words, the best strategy in the world won’t help you if the country in which you are doing business isn’t strong on IP protection. As a result, the first step should be to only do business in countries with strong IP enforcement if IP is critical to your business. The next step would be to find trusted business partners in those countries who believe in mutual IP protection. Then contracts (which should still be solid) become less important and patents only an issue for products that can be cost-effectively reverse engineered.
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A recent press release from the Conference Board announced the results of the fifth annual survey on offshoring trends that was done in conjunction with the Duke Offshoring Research Network. The survey found that more than 50% of companies had a corporate offshoring strategy last year, up from just 22% in 2005 and that 60% of companies currently offshoring have aggressive plans to expand existing activities.
Wow! Twice as many companies are now planning to offshore, and almost two thirds of companies offshoring are planning to increase their offshore activity! Risk be damned. The threat of peak logistics costs rolling around again in ten years or less be damned. The threat of losing a shipment to the Somali pirates and being stocked out for three months be damned. The threat of IP theft be damned. We’re offshoring anyway!
Let’s be clear … I’m not against offshoring when it makes sense, but I think many companies have been overdoing it and I fear that, in efforts to cut costs quickly to “get through this recession” they are going to take overdoing it to the next level. It’s not about the lowest cost today … it’s about the highest value over the lifetime of the project. When you offshore when the economy is down, costs can only go one way — up! Wages will rise as the new “low-cost” locale gets used to a higher quality of life. Raw material costs will only increase as demand in the region skyrockets. Shipping costs will only increase as the ocean carriers approach capacity again. And unless you’re outsourcing to a mature region with mature plants and experienced people, quality will be an issue, IP theft will be an issue, and lack of innovation will be a big issue. Investing in the right innovative partner who can help you find ways to take costs out of design and production while improving quality will usually provide you more value in the long run than the lowest cost provider today will provide you (because their costs will go up while their contributions stay flat).
Now, I do agree that companies with a well-thought out corporate-wide offshoring strategy can achieve significantly better performance in cost savings while meeting target service levels and improving relations with providers and overcoming internal resistance if they do it right, but I also believe that many companies just aren’t there yet. If the offshoring craze heats up again and they jump in head-first without the experience and planning required for success they will fail before they succeed. Given the weakened financial state of many companies right now, I just don’t think many can afford even a single failure.
So if you must jump on the bandwagon that is looping around again, get some help before you do. Start with Dick’s seminar and course on International Sourcing to get a grip on the basics and then bring in a professional consultancy that does this every day to help you. Because, as Arie Lewin, Professor of Strategy and International Business at Duke says, “simply offshoring more functions isn’t the solution … to achieve real savings, companies need to get the processes right“.