Nobody likes to receive parts, sub-assemblies or assemblies that aren’t up to spec from their suppliers or partners. It becomes a critical issue, however, for companies that have outsourced much of their production, such as those in the in the aerospace & defense industry. Consider, for example, the case of Boeing. At the end of August, the aircraft manufacturer announced that its first 787 Dreamliner aircraft will not be delivered in December as scheduled—the project has already been delayed by more than two years. Instead, Boeing has now pushed delivery of its first Dreamliner back until the middle of the first quarter of 2011. A story that ran in The New York Times, a couple of weeks ago reported that the latest setback came after a Rolls-Royce engine failed during a Boeing test earlier in August. Rolls-Royce—which is a separate company from the carmaker of the same name—says it can fix the problems. But, a Boeing spokesman says the company had been counting on using that particular engine in a Dreamliner making test flights this fall. Unfortunately, Boeing’s supply chain problems extend to other aircraft. The company is updating its old 747 jumbo aircraft with new, fuel-efficient engines, but there are outsourcing problems with that program as well as well. A story that ran in the ChicagoTribune earlier this week reports that as the 747-8 undergoes flight testing needed to gain certification from federal authorities, technical issues continue to become evident. What’s more, Boeing concedes it is now unlikely that the process will be completed this fall, as it had earlier predicted. Many of the technical issues originated with contractors, say union leaders. For example, one recent cause for concern is whether air-bleed ducts that feed compressed air from the engines into the plane’s cabin pressure system will meet certification standards, Tribune sources said. “There’s a lot of dreadful work coming out of the partners the company is working with and also some great work,” Ray Goforth, executive director of the union representing 21,102 Boeing engineers, told the Tribune. “But they’ve really saddled themselves with some partners who are just not capable of doing the job. Unraveling those relationships is going to take time and money.” There are numerous benefits to outsourcing. In Boeing’s case, outsourcing design and manufacturing initially slashed development costs for the 787 Dreamliner, which features all-new technology. The problem at Boeing, as the Tribune article points out, is that Boeing executives have admitted the company didn’t have adequate oversight in place. Additionally, engineers said the 787 and 747 problems were slow to be addressed by senior officials who often didn’t want to hear bad news. So it sounds like Boeing—and I suspect there are numerous other companies in a similar situation—really has two problems to address. One certainly is to improve the way the company responds to disruptions – both in terms of how quickly they find out about a problem, and how quickly they can react to it. But it’s the second issue that is more challenging. That is: How can Boeing change corporate culture? To be fair, Boeing has taken steps to remedy the situation. First of all, the company has taken direct control of more of the 787 process to limit how much work is outsourced. Boeing bought Vought Aircraft Industries’ 787 operation and its stake in Global Aeronautica, two early supply-chain bottlenecks for the Dreamliner. It’s also rumored, the Tribune reports, that additional work on the 787 and future programs will be “in-sourced” to Boeing’s factories. More importantly, Jim Albaugh, who stepped in as president of Boeing’s commercial airplane business last fall, has hired a consulting firm to deal with cultural and communication problems. That, to this observer anyway, is the pressing concern. It’s one thing to receive a critical part or assembly that fails during testing. But when that does occur—especially given a time-sensitive production schedule—action needs to be taken quickly. That type of response requires senior management to be both receptive to hearing bad news and capable of acting quickly. What do you think? Does product you receive from suppliers and partners meet your expectations? If it doesn’t, is senior management receptive to hearing about it?