The out sourcing model has been comprehensively explored over the last few decades. It started with clothing and low margin consumer items, and with the 787 program it’s been taken to it’s logical conclusion. Where not only the build of major sub sections has been sent to other companies, but the design, the development and most importantly the risk was also shared.
The 787 has had some very public supply chain and partner issues, however (and I admit I’m probably too close to it to be impartial) it’s a fundamentally good product that has over 800 airplanes sold and very few cancelations. If it was not a game changer the customers would not have stayed.
Looking at other companies working in aero we see some using a very different strategy. That of designing and building parts in house.
An article about SpaceX made interesting reading, I was aware of the company from industry publications and a friend works for Surrey Satellite Technology which is partially owned by them.
SpaceX was started in 2002 when Elon Musk was looking for his next venture with $1.5 billion from the sale of Paypal to Ebay burning a hole in his pocket. He founded what’s now SpaceX, a small company that recently won a contract to supply the International Space Station with it’s Falcon rocket.
It took just 6 years to go from start-up to flying hardware into low earth orbit. In risk adverse aero terms this is fast, in the bureaucratic, government dominated space business it’s unheard of. This is what private companies do so well, they make the exotic affordable. I know it’s relative, but $8M for a SpaceX launch verses maybe $15M per launch for existing launchers will go a long way to making low earth orbit more accessible.
Building rockets is not easy and doing it from a clean sheet of paper with lots of knowledge, but no hardware is even harder.
SpaceX set out to make cut the price of access and did it in a number of ways.
- Eliminated the massive overhead found in “legacy” aero
- Employed engineers not afraid to get their hands dirty developing hardware
- Put emphasis on the product and not the process
- Own the engineering and production
Each one of these is the opposite of mainstream space that has lived on government contracts and cost-plus contracts. There was nothing new about this, a number of successful small aero companies use the same philosophy, what’s different is how this was leveraged throughout the value stream in the final product.
SpaceX designed and built their own liquid-fuel rocket engines, the first ever that was not built under government contract, and the first new liquid fuel engine in the US for 40 years.
All the rocket parts are designed by SpaceX and almost all are built in-house. This allows them to quickly rectify problems and rework assemblies to incorporate changes. Add engineers that understand the hardware and the build process, and production becomes very agile.
It took two months to identify a launch failure problem, design the change, build the parts and have the modified launcher on the pads ready for launch. This is incredibly fast and was achieved because of product knowledge.
Owning the entire value stream, from concept to tested hardware out the door is a huge advantage when it comes to fixing problems. No endless rounds of meetings, politics, testing and waiting months for engineering before build can be revised.
Over the last couple of years SpaceX has won a NASA contract to deliver 20 tons of cargo to ISS and demonstrate the potential to deliver crew members. For companies that see a future in delivering hardware, Space-X and the Falcon Launcher shows there is another way to build hardware.