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The Inside Scoop on Airbus’ Supplier Strategy

November 14th, 2006 · by Tim Minahan · 5 Comments · LCCS and trade, events, sourcing, supplier management, supply management

The top story in Europe last week (besides whether football players and coaches are too disrespectful to referees) was Airbus’ announcement that it would axe more than 80% of its supply base. The beleaguered aerospace manufacturer has been on a downward spiral due to cost overruns and a two-year delay in its flagship A380 super-jumbo project.

Airbus estimates that the plan, which would chop the company’s supplier rolls from a current 3000 to just 500, would reduce material costs by ₤1 billion ($1.9 billion U.S.) over the next three years. The aerospace giant says the supplier consolidation will also cut administrative costs by an additional ₤235 million ($446.5 million U.S.).

Considering this newsworthy event, it was fortuitous that Matthias Gramolla, Vice President of Sourcing Strategy at the European Aeronautic Defence & Space Co. (EADS), was one of the keynotes at the ProcureCon Europe Conference I attended in Brussels. For those that have not been following the Airbus story, EADS is Airbus’ Franco-German-led parent organization. It directs much of Airbus’ business and, more recently, buying strategy.

Responding to questions about Airbus’ new supplier reduction plans, Gramolla was quick to point out that A380 delays and cost overruns were the result of “an internal problem” and were not due to any issues supplier performance.

“The intention is not to take any suppliers out of the industry or our supply chain,” said Gramolla. “But we do want to focus more on a limited number of systems and equipment suppliers. And we want our Tier One suppliers to manage overall systems and the sub-tier suppliers that support them.”
It remains to be seen which suppliers will take on this meta-integrator role and which will be sent packing.

However, Gramolla suggested that these decisions will be determined based on the following:

  • Supplier’s willingness and ability share market risk
  • Ongoing performance
  • System capabilities (including the criticality and uniqueness of the system or service provided by the supplier)
  • Financial strength

It should be noted that Airbus executives said the remaining suppliers will be expected to provide additional price and cost concessions. And comments from Gramolla suggest that suppliers in Asia will have a better chance to keep or expand their Airbus business.

“The old model of sourcing from Europe and exporting to other regions doesn’t work anymore,” said Gramolla. He indicated that nearly 100% of Airbus’ current supply comes from Europe or North America. “This is not a balanced with our sales figures where 20% of [revenues] come from Asia. We have to be accepted as a local player.”

Surviving suppliers will continue to be measured on commercial, technical, quality, logistics, and customer support performance. These metrics are consistent across EADS business units, although individual businesses can augment these core metrics with additional measures.

Gramolla said EADS will be adding metrics to “measure the future health and capabilities of the suppliers.” Such forward-looking measures include: supplier capabilities, financial health, corporate and social responsibility, and how well suppliers manage their own supply chains.

Upshot: In the near-term, aerospace suppliers will bear the brunt of Airbus’ misfortunes. And those that stay on the company’s supplier roster will be expected to not only deliver innovative and quality products but also to demonstrate highly effective supply management operations.

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5 responses so far ↓

  • 1 Supply Excellence » 2007: The Year of Sustainable Supply Strategies // Jan 2, 2007 at 11:19 am

    [...] HP, Airbus, and others are pushing sustainable supply strategies across the supply chain by embedding environmental and social responsibility in supplier selection criteria and performance metrics. In fact, HP’s sustainability guidelines serve as the foundation of Electronic Industry Code of Conduct (EICC), which promotes responsible manufacturing and business practices across the global electronic supply chain. [...]

  • 2 Supply Excellence » Supply Excellence Turns One // May 8, 2007 at 10:36 am

    [...] 10. Research Redux: Top Five Supply Management Strategies 9. The Inside Scoop on Airbus’ Supplier Strategy 8. Make the Perfect Pitch for Your Supply Management Initiative 7. Sourcing Innovation: Prediction for the Future of Strategic Sourcing 6. Can Supply Management Save GM? 5. Nokia: Journey to a Center-Led Supply Organization 4. Top Supply Strategy #2: A Compliance Tale 3. I’m Inspired: More Ways to Do Good 2. Could the U.S. Be the Next Low Cost Country? 1. Supply Strategy #1: A Spend Intelligence Short Story [...]

  • 3 Supply Excellence » Wal-Mart Eco Plan Sparks Supplier Revolt // Oct 5, 2007 at 10:36 am

    [...] If Wal-Mart — or Airbus or Hewlett Packard or anyone else for that matter — wants to measure and award business based on how well suppliers manage their own carbon footprints, so be it. The NLPC’s argument that it is cheaper for Wal-Mart suppliers to operate using inefficient and wasteful manufacturing and delivery methods is misguided, short sighted, and just plain wrong. (Sort of like arguing that Wal-Mart is unethical for demanding suppliers to use fair labor practices when child labor is so darn cheap.) [...]

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    [...] You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your ownsite. [...]

  • 5 Bret // Aug 6, 2008 at 3:27 am

    very interesting and informative

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