Total Sourcing Volume in 2006: €34 billion

Sourcing is playing an important role in improving EADS’ business model, refining its activities as part of the drive to increase Group efficiency and integration while reducing cost and risk. It is taking action to secure supplies, manage costs and supplier performance, reduce exposure to the dollar and expand its presence in strategic countries.

There are three broad initiatives. The Group is beginning a process of developing its supply base towards forging closer relationships with key suppliers. It is increasing sourcing from strategically important countries outside Europe. And further measures are being taken to foster stronger and more efficient coordination of activities across the Divisions.

Specific steps were taken towards these goals in the 2006 financial year, and efforts will intensify in 2007.

Closer relationships

During 2006, EADS began to review its supply base in terms of what it buys, where and how. It intends to form closer relationships with a limited number of tier-one suppliers, giving them more responsibility for managing larger contributions, including suppliers lower in the chain. This allows EADS to focus on its core activities and to form stronger relationships with a smaller number of key suppliers.

These suppliers will be selected for their expertise and proven performance, as well as their ability and commitment to EADS’ business interests. This includes sharing risks arising from the end customer market. They will, for example, be expected to invest in developing tomorrow’s technology, products and systems, to help reduce dollar exposure and to support EADS in accessing new markets.

As a step towards strengthening collaboration with key suppliers, Supplier Councils and the EADS Procurement Network were started in 2006 and are systematically enhancing cooperation and networking with suppliers. They aim to improve the efficiency of the supply chain, to secure consistency for selected key elements of EADS’ procurement strategy, and to optimise processes through sharing best practices.

A380 engines

Internationalisation

The Group intends to increase sourcing from outside Europe. Currently, approximately one fourth of the value of all sourcing is from outside Europe, but this is expected to grow to 35% within a decade. As well as increasing access to essential technologies and commodities, this will expand sourcing volumes from Asian countries and support EADS in seeking new revenues from growing economies. This will also mitigate exposure to dollar weakness and help to reduce costs associated with labour intensive production.

Country sourcing offices are being installed in China and India, with further locations under consideration. A substantial number of sourcing missions to priority countries have improved awareness and knowledge of sourcing opportunities.

Sourcing integration

Coordination of procurement activities across the Divisions has increased in a number of ways.

To better integrate sourcing within EADS, the Chief Procurement Officers Council was established. This is a forum for Chief Procurement Officers from all five Divisions and the Headquarter to discuss all topics of interest with more than one Division.

By leveraging purchasing power across EADS, the Lead Buyers again made considerable cost reductions, in line with their targets. EADS is now preparing to increase their powers through Joint Procurement by going beyond aggregation of demand towards demand management and harmonisation. Shared Services in Procurement are being investigated in order to increase efficiency.

Reflecting the greater integration of sourcing, EADS started to roll out a common e-sourcing platform across the Group. The common platform, which hosted more than 4,500 electronic calls for tender in 2006, will support joint procurement activities and leverage synergies regarding infrastructure, supplier databases, templates and transparency.

Looking forward to 2007, EADS will begin to reduce the number of tier-one suppliers. It will also continue to seek sourcing opportunities outside its home markets and to leverage Group purchasing power. At the same time, the procurement functions will further develop capabilities, processes and tools.