Airbus: Adept At Managing Complexities Of Extensive Outsourcing, Supply Chain

For Airbus, the world leader in aircraft manufacturing, partners and suppliers are part of an extended family. They play a crucial role in its common business success. With 12,000 suppliers, Airbus outsources about 80 percent of the products and services for flying and non-flying parts, equal to over two-thirds of its turnover.

Having an overall sourcing volume of €49.6 billion, for Airbus global sourcing is one of its long-term objectives. It will be 40 percent outside Western Europe and the US by 2020. The company looks for partners who are ahead of the game and are able to offer creative, innovative and digital solutions even in a complex environment.

Suppliers for direct procurement are grouped under such various commodities for flying parts as Aero-structures, Equipment and systems, Material and parts, Propulsion, and Specialised IT and services. These clusters may vary depending on the product area. Indirect procurement of goods and services of non-flying parts that include buildings, machines and tools, engineering services, consulting, IT and office equipment is under the shared service unit, Airbus General Procurement.

Recently T Murrali of AutoParts Asia visited Airbus headquarters in Toulouse, France, and caught up with Thierry Vuillequez, Head of End-to-End Supply Chain Quality Boost, Procurement Operations. During an interaction he said, “We have now opened out the market as we need additional sources at competitive prices because we are selling aircraft all over the world. . . . We have set up benchmarks with Toyota, Bosch and Volvo, making use of their expertise. We are having a wide set of methods including Kaizen, Ishikawa – the fish bone concept, and others to ensure high quality standards. The levels of quality we need are more advanced than that of automotives. We use the same tools to achieve higher targets. We not only look at implementation but also sustenance of the whole system based on requirements.” Edited excerpts:

Q: Airbus works with over 12,000 suppliers and over 80 percent of the parts, including the engine, are outsourced; you make the main frame. What are the challenges you face in handling such large number of suppliers?

Vuilleequez: The total supplies from about 12,000 sources include flying and non- flying parts. I deal with the non-flying parts. The first challenge is that the suppliers are spread all over the world from Europe to USA, India and other countries in Asia. With high volumes coming in from so many countries, the task is in streamlining them. Communication is one of the main issues with different time frames. Organisational culture is another, how you handle persons in the US and China differs. The language barrier has to be taken into account. Besides handling these suppliers, we are dealing with millions of part numbers, a very complex business. Of course, now it is very interesting to work with robust data bases supported by information systems and software tools; it is a comprehensive evolution of managing all these complexities. The aerospace industry is seen as more stable than the automotive.

Q: Can you tell us about the different aircraft that you make?

Vuilleequez: We make about 60 aircraft a month on a single platform. We have several working hubs for single aisle such as A-320 (319, 321), A-340 and 350 (long range). Last year we delivered 800 aircraft, equivalent to more than 10,000 cars. We hope to increase the number this year. What is very different from automotive is that our aircraft are customised depending on the configurations required by the customer right from the colour and number of seats.

Q: To that extent, the number of parts, sourcing, and everything else increases. How different is your outsourcing strategy for procuring flying and non-flying parts? How do you classify them?

Vuilleequez: The constraints are diverse. For non-flying parts for India we have a big set-up of engineering services in Bengaluru. We have standardised the non-fly parts. For production of flying parts there are constraints in terms of safety and security. Safety is a major input for us. We subcontract some IT services to India, the US and other countries. At the end of the day we are not just selling an aircraft but ensuring optimum safety of the passengers. We select suppliers based on their quality and maturity on aerospace parts; we don’t buy just because it is cheap.

Q: Can you explain ‘Supplier Code of Conduct.’ What is unique about this concept? In what way has it helped Airbus?

Vuilleequez: I don’t believe it is unique. All companies in the world are focusing more on ethics and compliance. We have evolved benchmarks; many OEMs and big groups are progressing in the same way. Our relationship with the supplier is complementary; we comply with all rules and work together in the value chain to achieve common goals. Our commitment is to ensure that the supply chain is working well.

Q: Unlike the automotive industry aerospace has limited number of sources. So what are the key determinants while selecting a supplier for those parts that you already have? Do you invite others for new programmes?

Vuilleequez: Yes, the number of suppliers is limited but we are not monopolistic, and want to de-risk our supply chain so that we get to choose from a bigger range. We certainly do not have an infinite variety of suppliers but are always looking to expand the scope of selection; we invite new ones as and when we can.

Presently we are trying to leverage some new suppliers from India like Aequs in Belagavi, Mahindra Aerospace, and Dynamatic Technologies, all of them are in Karnataka. For the past four years we have been expanding the supply chain in Asia, Europe and the US.

Q: Do you see scope for consolidation of suppliers? Is it an option in the aviation industry?

Vuilleequez: A big entity like ours cannot work with too many small companies. On the one hand we welcome new suppliers but on the other hand we cannot work with small ones as they may not have enough assets and the requisite financial capability. For example, we work with Mahindra because we know it is a big Indian organisation with adequate financial backup. We expect a minimum of core business in relation to company size. This is part of our strategy.

Q: In the automotive industry some work is done in-house while the rest is gradually off-loaded to suppliers. Is it the same in aviation? Are there options to off-load what is done at Airbus to suppliers in the near future? 

Vuilleequez: We have been doing this for decades, basically to make it easier, depending on the programme that is being done. It accounts for 70- 80 percent of our turnover.

Q: Is there still scope for this?

Vuilleequez: Yes, overall what we purchase is 70-80 percent of what we sell.

Q: How is the relationship between the suppliers and the aircraft manufacturer? Is it transactional, or collaborative product development, a concept which began with aviation?

Vuilleequez: We believe in working on a long-term basis; most of the suppliers have been with us on four to five-year contracts. We don’t go in for frequent changes because for a supplier to enter the aerospace market, after being qualified and approved, takes almost a year for structural and mechanical parts; for engines it could go up to seven years. So we cannot afford to shift the supplier base, especially for flying parts, frequently. That would affect our manufacturing and lead times. We provide solutions wherever required and have gone in for design-and-build contracts with most of them.

Q: You mentioned that customers want customised products. In this scenario would you engage with suppliers on short-term or long-term basis?

Vuilleequez: We will go for both. The cabin requirements will be different from the engine and landing gear. Suppliers have to be selected accordingly for both the short and the long term. Short term is mainly linked to customisation, particularly for the cabin. For seats, which are covered by stringent norms of safety and security, it would be long term.

Q: When there is limited model change (in aviation industry in general), you have long-term suppliers. What will be the role of the sourcing department in this scenario?

Vuilleequez: It would focus on quality, time and cost. Quality is a must as it is linked to safety; we are transporting people. Deliveries have to be on time and costs must be controlled to prevent the competition from jumping in. In the aviation sector our market share with Boeing is 50:50; the top two aircraft manufacturers in the world have practically equal market share for planes with a capacity of more than 100 seats.

Q: I think the concept of ‘Collaborative Product Development’ began with aerospace and it was followed by many, including automotives. How is this evolving at Airbus with the new disruptive technologies? Airlines try to improve operational efficiencies and reliability by looking at several options like introducing the Connected Experience etc.

Vuilleequez: Airbus was the first aircraft to fly with two pilots without a flight engineer. The A-310 that introduced the concept of the forward-facing cockpit was also the first to ‘fly-by-wire.’ We introduced firsts in the market for all the major technological evolutions. We have been doing this for the last 40 years; it’s in our DNA. Also, our suppliers are evolving by themselves; see the number of screens provided in the cockpit today. They have to keep up with us technologically to remain our supplier. These concepts are now coming into automotive also.

Q: In addition to AS 9100 and NADCAP – the certifications for the aviation industry– what are the other norms followed by Airbus? Is there a system evolved by Airbus, especially for suppliers for manufacturing parts, which has been insisted upon?

Vuilleequez: There are two things. One is that AS 9100 and NADCAP are regulatory requirements that follow international norms of airworthiness; suppliers have to be authorised to manufacture these. Second is that we have the necessary tools to assess maturity, capability and capacity of the suppliers. APQP (Advanced Product Quality Planning) was invented in 1994 for use in automotive but today it is very much a part of aerospace. We have set up benchmarks with Toyota, Bosch and Volvo, making use of their expertise. We are using a wide set of methods including Kaizen, Ishikawa – the fish bone concept, and others to ensure high quality standards. The levels of quality we need are more advanced than that of automotive. We use the same tools but achieve higher targets. We not only look at implementation but also sustenance of the whole system based on our requirements.

Q: Is the ‘Type Certificate’ very specific to Airbus?

Vuilleequez: Type certificate is basically the authorisation given by the Airworthiness authority. It is something like homologation used in the automotive industry; it is done by the regulatory agencies.

Q: More than sourcing, supply chain seems to be very complex in aviation. How does Airbus manage as you have to source from different parts of the world? How many direct suppliers do you have?

A: We have roughly 3,500 supplier sites; one supplier may have two or three plants at the same site. We have people to manage and information systems to support. Our teams are located across the world in a number of countries like the US, UK, Spain, China and those in SE Asia. We have 350 to 400 people in Bengaluru with 25 to 30 in the supply chain for procurement. Wherever there is sourcing, our people from the supply chain department are present. They are strategically located all over; for example, our people in India oversee the suppliers in Sri Lanka.

Q: How different is Inventory Management between assembly (production) operations and MRO (maintenance, repair and overhaul)?

Vuilleequez: In Airbus we don’t have a direct MRO branch. MRO is done by specific companies or our alliance subsidiaries like Air France and Lufthansa who do it on their own though we do supply the parts to them, especially the proprietary ones.

Q: Do you see scope for sourcing parts from emerging nations, including India?

Vuilleequez: Definitely, yes. For example, 30 years ago India had just one or two in the aerospace industry, from the public sector. In the current scenario there are many Tier-1 and Tier-2 suppliers. Airbus had set up its own functioning in India about 12 years ago; not a plant but the Engineering Centre. Similarly, our suppliers like Gardner, UTAS, Thales and SEFEE also took root in India and day by day the numbers are increasing.

Q: How many Tier-1 suppliers are there in India?

Vuilleequez: Not many. There are Mahindra, Aequs and a few others but now more of them are establishing factories in India. Tier-2 suppliers are more than 25. Some of our Tier-1s have got into joint ventures with Indian companies like the global supplier Lisi (one of the largest fastener suppliers in Europe) with Ankith Fasteners based in Bengaluru.

Q: Do you see any scope for the Tier-1s for generic or organic growth and through JVs with other suppliers?

Vuilleequez: Yes, certainly.

Q: What kind of challenges do you see in this? What message do you have for the Indian suppliers?

Vuilleequez: We started working with Indian suppliers four to five years ago. At first it was very difficult and time consuming, with a lot of effort required. To be in the aerospace or defence market means engaging with a number of regulations, certifications and approvals. It’s not an easy market to deal with. We have also to take into account the difficulty of international logistics. It requires massive investment in terms of time, skills and competencies.

Q: Do you see lack of skills or competencies in the emerging countries, including India?

Vuilleequez: If you look at the automotive industry in India compared to what it was 30 years ago, you find that it has matured very well. The aerospace journey in India started about ten years ago and is still on the learning path, it is only a matter of time before it settles down. Of course, suppliers would have to get into the Airbus way of working; many of them are not yet prepared for that.

Another advantage is that in India people speak English over a wide spectrum; in other countries, particularly China, lack of English is an obstacle to good communication. India has many good universities that produce plenty of engineers, which is an advantage when compared to other countries. Joint ventures with big groups would certainly help the aerospace industry there.

Q: Your website informs us that global sourcing is one of the long-term objectives; you aim to source 40 percent from Western Europe and the US by 2020. Your views?

Vuilleequez: Airbus has suppliers from four countries in Europe: France, Germany, Spain and the UK. When we started 50 years ago we worked essentially with European and American suppliers because the aerospace industry then was dominated by Boeing, McDonnell Douglas and other big names. We have now opened out the market as we need additional sources at competitive price because we are selling aircraft all across the world. In India the market is leaning more towards Airbus especially after Indigo Airlines came into operation. Air India was one of our first customers 40 years ago; our relationship with India continues to be strong.

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