The EADS Sourcing vision is to deliver competitive advantage by winning, integrating and developing relationships with the world’s best suppliers. Its Sourcing Strategy is designed to support this vision.

• “Suppliers represent a high proportion of the value of EADS’ products, and play an important part in customer satisfaction. As such, EADS endeavours to integrate them fully in its ethical way of doing business.
• Fostering a mutually beneficial relationship with suppliers, EADS’ sourcing principles require all suppliers to be responsible and to implement its standards and requirements across all levels of the supply chain.
• EADS is committed to long term relationships and partnerships with its suppliers, in particular in the engagement in the development of technological know-how.”

EADS Corporate Sourcing is the strategic architect of sourcing functions and provides overall orientation for all sourcing activities across the Group, in particular regarding the key elements of the Sourcing Strategy, which are Procurement Marketing and Global Sourcing, Joint Sourcing, Supplier Evaluation and Risk and Opportunity Sharing.

• Procurement Marketing and Global Sourcing aims to identify the best potential suppliers worldwide and to evaluate them with regard to their capabilities and their certifications. Procurement marketing is becoming increasingly important as EADS targets new global supply markets to support Global Industrial Development;
• Joint Sourcing activities allow purchasing power to be leveraged across EADS. A group of Lead buyers bundles procurement volumes of selected material groups for common negotiation. The Joint Sourcing also allows all EADS BUs to use a common EADS contract per supplier;
• The EADS Supplier Evaluation and Development process guarantees that suppliers’ performances are regularly evaluated. Suppliers can expect that the same process and the same criteria are applied by all BUs: Commercial, Logistics, Quality, Technical and Customer Support. Evaluations are shared with suppliers as a basis to discuss further improvement and development needs and plans. With regard to the high proportion of sourcing required for products and the complexity of the procured systems, equipment and structures, EADS favours long-term, mutually beneficial, reliable and stable relationships with key suppliers. Consideration for partnerships is limited to suppliers who continuously show excellence in their performance, who can demonstrate a credible long term interest and who are able to support their business interest with their own developments and investments. It is a principle for such partnerships that suppliers are involved and integrated at the early stages of development.
• Both business risks and opportunities should be adequately shared with suppliers. Procurement Policies of EADS BUs address all typical business risks and suggest how they should be dealt with in EADS’ contractual agreements. Procurement Policies also set out the principles and guidelines for conducting business with current and prospective suppliers. These guidelines describe how partnership relations should be handled in an equitable manner in the interest of all parties concerned and how disputes should be dealt with professionally and as quickly as possible in accordance with the agreed partnership arrangements.

Each EADS Division and BU has its own sourcing function.

The five EADS divisions’ Chief Procurement Officers compose the Chief Procurement Officers Council (“CPOC”) which is chaired by the EADS Chief Procurement Officer. This Council was created in 2005; it is responsible for implementing the EADS Sourcing Strategy.

The Procurement Directors Board (existing since 2000), which is composed of the Divisions and BUs Procurement Directors and of members of the Corporate Sourcing team remains a platform for exchange of information, experience and for diffusion of the EADS sourcing strategy.

One of the first decisions taken by the CPOC in early 2006 was to create a Sourcing CSR network, led by EADS Corporate Sourcing with the objective of formalising the EADS CSR Sourcing Policy, in compliance with the EADS Code of Ethics. The Sourcing CSR network will organise flow-down of the CSR Sourcing Policy to suppliers and organise related-supplier performance measurement.

In addition, the EADS Executive Committee decided mid 2005 to implement a new structure within the Sourcing organisation in order to support the Globalisation Development of the Group. This new structure named Global Sourcing network includes Country Sourcing Offices (“CSOs”) starting with China, Russia and India. More will be created where EADS sourcing volume happens to grow.

These CSOs will take an active role in supporting fulfilment of CSR standards by EADS suppliers based in their regions.

With two thirds of its revenues sourced from external suppliers, efficient and effective supplier relationship management is a key factor for EADS’ success. For this, EADS concentrates on its major suppliers. EADS’ top 50 suppliers already account for 43% of the sourcing volume and the top 250 suppliers account for 75%.

Complex systems and equipment account for 45% of EADS procurement. Structures, material and product-related services also account for 36%, while non-product related material accounts for 21%.

While EADS likes to see itself as an important customer for its key suppliers, EADS wants them to be independent and at the edge of technological development. On average, EADS suppliers make no more than 10% of their revenues from EADS.

Most of EADS’ sourcing volume is provided by large companies. The remaining sourcing volume (15%) is spread across a large number of small and medium sized enterprises, as per the European Commission definition, i.e. with less than 250 employees or less than €50 million turnover.

Sourcing activities focus on the EADS home countries France, Germany, U.K. and Spain, and on the U.S. Sourcing outside the E.U. and North America is still limited. However, EADS sees its global sourcing activities increasing to better exploit opportunities and to support sales.

Most of EADS’ suppliers are currently located in the E.U. (approximately 75%) and North America (23%), regions in which social, economical and environmental practices are well regulated by applicable norms and laws. EADS Sourcing contractual terms request that these suppliers shall comply at any time with laws and regulations on economical, environmental and social standards and anticipate or at least make their best endeavour to anticipate forthcoming changes in these standards.

To reinforce supply chain compliance to EADS CSR related requirements, EADS tier 1 suppliers are contractually bound to flow-down these requirements to tier 2 suppliers.

Procurement policies also reflect the principles of the UN Global Compact. As a member of the UN Global Compact, EADS has accepted responsibility to apply these principles in its supply chain and requires its suppliers to adhere to common standards in the areas of human rights, the environment and employment.

As EADS targets to increase global sourcing volumes in countries where existing regulations do not include EADS CSR requirements, procurement contractual terms for these domains need to be written in a more extensive way. Therefore, EADS is on one side engaged in a process for embodying additional CSR requirements into procurement contracts and on the other side EADS is organising supplier CSR performance measurement.

The decision to further develop CSR requirements is clearly taken and EADS has already reasonably pretty well addressed key elements of CSR in sourcing contracts.

The various CSR aspects are already considered through EADS Sourcing Risk and Opportunities Management (“ROM”) which recommends appropriate contractual guidelines for key contractual chapters. These guidelines are published into the EADS Sourcing Information Tool which explains the principles for drafting contracts, disclaims the typical contractual clause and gives practical comments for the use of the buyer. For each domain, the requirements are contractually cascaded on to sub-tier suppliers.

For example, regarding environmental responsibility, principles for drafting contracts state that: “The purchase contract should provide that the supplier shall comply with all applicable laws, regulations, etc. as well as all commitment to which EADS has subscribed (e.g., Global Compact initiative) and end-customer requirements, in particular: (1) Suppliers are asked to support a precautionary approach to environmental challenges; (2) Undertake initiatives to promote greater environmental responsibility; and (3) Encourage the development and diffusion of environmentally friendly technology.” The recommendation to the buyer also says that EADS should make sure that the supplier complies with international standards such as ISO 14000 or EMAS (Eco-Management and Audit Scheme).

Moreover, in terms of compliance with EADS Ethical commitments, it is recommended that the contract includes EADS key engagements such as the support, respect and protection of international human rights within the supplier’s sphere of influence; the respect of the freedom of association and the effective recognition of the right to collective bargaining; the elimination of all forms of forced and compulsory labour; the quality of working conditions such as but not limited to, appropriate level of remuneration, and protection of health and safety of the employees.

All figures below have been calculated using new €-$ exchange rates. Figures for previous years have been recalculated accordingly (2005: 1.2441; 2004: 1.2438; and 2003: 1.1304).

The Sourcing geographic breakdown is stable and centred on Western countries.

The increase in value of Sourcing is mainly influenced by A380 production ramp-up which started ahead of A380 deliveries, temporarily increasing sourcing vs. sales volumes.