CASE STUDIES - OUTSOURCING 3.0
BOEING AND THE 787 DREAMLINER PROJECT
To understand its full potential, as well as the barrage of debate surrounding outsourcing in the modern business networks, let us look at Boeing as a brief case study. Its 787 Dreamliner has been one of the most innovative and costliest projects on Earth today. From the beginning it was apparent that to keep up with Airbus and to create the next generation of airplanes, Boeing would need extensive cooperation of the best in the world.
The story of production of Boeing’s 787 Dreamliner is a poetry in motion and a true global supply chain in action.
DEEPWATER HORIZON OIL SPILL - AN OUTSOURCING CATASTROPHE
On 20 April 2010, Deepwater Horizon became front page news on nearly every newspaper on Earth.
The explosion of the Deepwater Horizon rig killed 11, caused the largest oil spill in US history and entailed high-profile lawsuits, the proceedings of which will fill up a book many times the size of the one you are holding.
CHRYSLER’S EARLY ATTEMPT AT MODULAR MANUFACTURING
Modularisation appears to be very useful in the car industry. Modular units can be added or taken away with the same flexibility as a Lego game. This strategy enabled Chrysler to outperform General Motors during the 1990s.
First, modularisation reduced the unit cost and investment needed to manufacture new products rapidly. Besides, Chrysler could utilise their scarce capital to gain a competitive advantage. Soon, Ford and GM also emulated the modularisation strategy to compete successfully against "imports".
Modularisation can be applied to a wide range of industries, each of which has its own unique issues and requirements.
RED BULL’S STORY AND THE POWER OF NETWORK
We will see many examples of networks in action displaying their synchronicity throughout this book. A case in point is the story of the energy drink Red Bull. The tale defies all explanations.
There was a time in early 1980s when Red Bull’s co-creator and celebrated face - Dietrich Mateschitz - grappled with seemingly insurmountable problems within his entrepreneurial venture.
The Thai drink adaption was considered ‘disgusting’ and ‘unappetising’. The market research firm was very clear in its conclusion “No other new product has failed this convincingly”. Health authorities were suspicious of the ingredients and were reluctant to grant permissions.
On top of it all, Mateschitz, a marketing professional, lacked manufacturing and supply chain experience. His partners in the venture were a father and son team of Thai product developers and businessmen, who lacked any real international savvy.
Three things that Dietrich Mateschitz had in abundance were business savvy, an infectious can-do attitude and an intuitive understanding of the power of business networks. These allowed him to fight some of the biggest and most valuable soft drink brands on earth and create a niche in which he still reigns.
The entire story of the company is told in great detail in a number of books and articles, and generally each writer has explained it through their own lens - somewhat like the parable of five blind men describing an elephant. Here is my own brief, albeit somewhat one-eyed account of the key victories along the way and the role of networks in this success story. From the very beginning Dietrich built a network of loyal fans, drinkers, marketers, logisticians and distributors.
Realizing that there was no way he could take on the massive marketing and advertising budgets of the large global beverage marketers, he built unique relationships with his key marketing enablers.
For example, marketing guru Alex Wipperfurth in his book Brand Hijack describes his relationship with his advertising agency went far beyond the customer-supplier relationship seen in the corporate world “It is probably the strongest client/agency relationship in the business, with the ad agency as true, long-term partner rather than dispensable vendor.”
By far the strongest network that Dietrich created was of raving fan customers. Fueled with innuendos, rumors and speculations about the special powers of the product itself and the ingredients, the early adopters saw themselves as special people participating in a network of contra-cultural movement.
That he has managed to grow the network to its immense size and keep its spirit alive is a true testimony to his marketing genius and will make a great case study in network creation and nurturing.
An equally strong and loyal network was created in distribution, sales and logistics areas. Once a critical mass was created in a particular geography, distribution network was almost always on an exclusive basis. This allowed the distributors to focus on the unique ingredients of Red Bull’s distribution success and be part of the action - which is incidentally the driving philosophy behind Red Bull.
FOXMEYER’S DISASTER SHOWS THE IMPORTANCE OF PREPARATION
In 1996, in the US, FoxMeyer was the second largest wholesale drug distributor with sales over $5 billion.
It all started with an ambitious attempt to revamp the company’s IT systems and distribution facilities. Because of a poor preparation, they did not understand nor configure the systems correctly.
Problems began to sprout up with the ordering and automation systems. Soon enough, there were huge sale losses, increased costs and ultimately bankruptcy and bitter lawsuits against FoxMeyer’s various technology consulting suppliers.
Watch the author talk about Modularised outsourcing, including the importance of preparation
HSBC: A SMART CHOICE TO OUTSOURCE AND FOR GOOD REASONS
HSBC decided to outsource in order to tackle its problems in terms of technology. The demand to continually improve technological infrastructure was starting to distract HSBC from its core competencies.
This outsourcing example shows that outsourcing often occurs for various reasons at the same time. In this case, it was not only driven by costs reduction but by technology upgrade, core competencies focus and efficiency.
PROCTER & GAMBLE AND WAL-MART SHOW THE WAY
This is an example about how integration and shared information between manufacturer P&G and retailer Wal-Mart can be an effective lever that leads to the successful development of a channel partnership.
The two companies jointly developed a data highway to link all their data together, in order to reduce the costs of data warehousing and also be aware of the consumer’s needs.
JAPANESE SHIPBUILDING AS A PERFECT EXAMPLE OF RESULTS-FOCUSED OUTSOURCING AND MODULARISATION
Reigning for around 3 decades after WWII, Japan adopted and adapted innovative principles of both business and shipbuilding realms, thanks to great masters such as Elmer Hann, Edwards Deming and Peter Drucker.
Specifically, Japanese shipbuilders embraced Results-focused Outsourcing and Modularisation(ROM), which enabled them to achieve high productivity, economy of scale, superior quality, low weight, reduced professional fees, reduced site labour, safer construction and environmental consideration.