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.

Policy

The EADS BUs Procurement Policies reflect the following statements:

1. “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 an ethical way of doing business.
2. 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.
3. EADS is committed to long term relationships and partnerships with its suppliers, in particular in the engagement in the development of technological know-how”.

Organisation

Sourcing Strategy

EADS Corporate Sourcing is the strategic architect of sourcing functions and provides overall orientation for 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 aim 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 EADS’ 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. In order to better integrate the internal customers into the procurement process and to increase EADS group leverage in Sourcing, the group of Lead buyers has been strengthened in 2006: the set of procurement commodities has been reorganised and “Enhanced Lead buyers” have been nominated;
• 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 product development;
• Both business risks and opportunities should be adequately shared with suppliers. Procurement Policies of EADS BUs address all typical business risks, including risks attached to CSR, 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.

Sourcing network

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 is responsible for implementing the EADS Sourcing Strategy within each Division of EADS.

The Chief Procurement Officers have organised Sourcing networks in order to coordinate strategic topics across EADS Divisions. Listed amongst these strategic topics, CSR is managed by a dedicated Sourcing CSR Network.

The Sourcing CSR network, pursues the objective of formalising the EADS CSR Sourcing management processes and associated documentation, in compliance with the EADS Code of Ethics, values and policies. This Network is composed of focal points in each Divisions’ Procurement organisations and is coordinated by EADS Corporate Sourcing.

Performances and Best Practices

Sourcing context in 2006

With three fourth 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 74%.

Complex systems and equipment account for 39% of EADS procurement. Structures, material and product-related services also account for 38%, while non product related material accounts for 23%.

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. (77%) and North America (21%), 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 to require its suppliers adhere to common standards in the areas of human rights, the environment and employment.

Influence of the Global Sourcing

As EADS targets to increase global sourcing volumes in countries where existing laws and regulations may not fully cover 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.

CSR activities

2006 CSR project

In 2006, the Sourcing CSR Network has flowed-down the EADS code of Ethics into different tools such as a CSR Supplier Code, a CSR Supplier evaluation Questionnaire, a CSR contractual clause and various metrics adapted to measure the compliance of Suppliers to EADS CSR policies. This tool set has been validated by the Chief Procurement Officers, and its implementation will be launched once approved and adapted by each Division to fit into its own Sourcing processes.

Due to the decisions made in the frame of EADS cost saving projects, the number of EADS Tier 1 suppliers is due to be strongly reduced in the next years. The reorganisation of the supply base around a reduced number of Tier 1 Suppliers will go together with a renewed content of the procurement contracts. When starting, this revision of contractual clauses should give EADS a good opportunity to deploy the CSR Sourcing tool set in the same time frame.

Sourcing Contractual terms related to CSR

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

The various CSR aspects are already considered through EADS Sourcing Risk and Opportunities Management (“ROM”) which recommends contractual guidelines for the key contractual chapters. These guidelines are published in the EADS Sourcing Information Tool which explains the principles for drafting contracts, disclaims the typical contractual clauses and gives practical comments for the use by 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 states that EADS encourages suppliers to implement an environmental management system complying with international standards such as ISO 14000 or EMAS.

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.

BUs best practices

In addition to the top-down approach described above, CSR in Sourcing has been well progressing in 2006 as shown through the following examples:

Airbus
Airbus now addresses the product’s environmental performance throughout its entire life cycle. In 2006, the sites and the products of Airbus have been certified against environmental standard ISO 14001. The supply chain plays a strategic role in fulfilling that objective, hence, the Airbus environmental project received a full support from Airbus Procurement. The following main milestones took place in 2006:

a) The head of Airbus Procurement sent to all Procurement personnel a Statement of Intent about Procurement environmental Policy in February 2006.

b) An area in the intranet pages of Airbus has been dedicated to the Environmental policies of Airbus Procurement. Airbus Procurement staff was also invited last year to go through e-learning modules in order to learn how to introduce Airbus environmental requirements into contractual agreements.

c) Later in 2006, the “Airbus Environmental pocket-guide” was distributed to all Procurement employees in Airbus. In this Guide, the CEO of Airbus presents the Airbus environmental challenges and the head of Procurement explains the Environmental Commitment and Objectives for Procurement, the Golden rules for environmental contribution. This Guide shows also the organisation in charge of Environmental Management within Procurement.

d) The Suppliers have been given online access to the Airbus environmental requirements in a specific chapter of the “Airbus Supplier Portal” in internet.

e) Various external communication events have been organised, in order to raise awareness about environmental issues within the Supply Chain.

EADS Astrium
The CSR requirements are now considered in the Supplier pre-selection process as part of the basic Supplier requirements which are prepared in order to ensure in particular:

• Compliance to EADS code of Ethics and CSR policies
• Awareness and demonstration of compliance with applicable statutory and regulatory requirements: WEEE, RoHS, CE Marking (which is a mandatory European marking for certain products to indicate conformity with European applicable standards) etc.

The Environmental Health and Safety requirements of EADS Astrium are presented in a dedicated Intranet page for the attention of EADS Astrium procurement teams.

Key Performance Indicators
All figures below have been calculated using new euro-dollar exchange rates. Figures for previous years have been recalculated accordingly (2006: 1.2556; 2005: 1.2441; and 2004: 1.2438).