Good Knowledge Essay

7336 WordsMay 21, 201530 Pages
Why 787 Slips Were Inevitable?1 Yao Zhao, PhD Associate Professor in Supply Chain and Project Management Rutgers, the State University of New Jersey yaozhao@andromeda.rutgers.edu Abstract: Boeing 787, the Dreamliner, was the fastest-selling plane ever in the commercial aviation industry. However, its development was a nightmare – the first flight was delayed by 26 months and the first delivery was delayed by 40 months with a cost overrun of at least $10 Billion. By a comprehensive empirical study of the actual events and facts, we find strong evidence to suggest that a majority of the delays were intentional. An analysis of economic drivers in joint development projects discovers that the 787’s risk-sharing partnership forced Boeing and its partners to share the “wrong” risk. This led the firms into a Prisoner’s Dilemma where delays were in the best interests of these firms although doing so drove them into a disaster. We reconcile the analysis with the empirical evidence to reveal the rationale behind many seemingly irrational behaviors that delayed this program. Finally, we suggest a new “fair sharing” partnership to share the “right” risk and greatly alleviate delays for development programs of this kind. Key words: innovation, joint ventures, product development, supply chain, manufacturing. 1. Introduction On September 26, 2011, Boeing Company publicly announced the delivery of its first 787 Dreamliner to its launching customer, All Nippon Airways, after a 40-month of agonizing delay. The actual development cost of the program was estimated at about $40 billion and was “well more than twice the original estimate” (Mecham 2011). The Dreamliner is believed to be the most advanced commercial aircraft ever built and the most efficient to operate. It was the fastest-selling plane ever in the commercial aviation industry (Tang and Zimmerman

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