The aircraft manufacturing and the aviation transportation sector comprise the aviation industry. The aerospace sector has been making some critical news during the last decade due to the ongoing competition between Airbus and Boeing. Mobility patterns have changed as a result of improvements in technology and rising affordability in the transportation of goods and people. The aerospace industry is under increasing pressure to lower costs, re-engineer and simplify manufacturing and procurement management processes and improve product and service quality without sacrificing safety. This paper aims to analyze the development and functioning of the procurement process in the example of Airbus.
The objectives of purchasing are a highly complicated hierarchical process. The general buying goals may include any of the following features: supply movement, competent and effective sourcing strategy management, supply base organization, balancing destinations to internal partners, and developing coordinated buying strategies that support hierarchical objectives and goals. The first stage includes assessing the need. For instance, through an 80% Buy Procurement Process, over one million components for the A380-800 aircraft were sourced. The airplane required 1.25 million parts, with the remaining 0.25 million coming from a 20% procurement policy (Sopra Steria, 2019). However, on average, Airbus receives 9.33 million or 485 million pieces from its suppliers every week or every year at its multiple sites around Europe. A Four-Pillar model electronic platform named AirSupply oversees the company’s procurement (Weber, 2019).
Submitting a Request for Quotation (RFQ) to potential suppliers includes information on the product or service requirements, such as quantity and certification requirements. For instance, direct and indirect procurement are the two methods Airbus company uses in its procurement push strategy (Airbus, 2021). All parts used in their aircraft manufacturing are sourced through direct procurement. Contrarily, indirect procurement includes sourcing every component utilized in the production of Airbus aircraft. The five major direct procurement categories are aerostructures, equipment, systems, propulsion, materials, details, and specialized IT and services (Altundag, 2022). In contrast, indirect procurement covers general operational and corporate procurement categories like machines and tools, consulting, engineering services, IT and office equipment, and buildings.
The aeronautic industry utilizes a specific strategy regarding its choice of suppliers. Mazaud (2020) states that the procurement method has two key components: sourcing and transversality. These components allow Airbus to control the information flow to and from its suppliers and to choose the best supplier for each corporate and product demand. Long-term, it also aids the company in enhancing technological and operational effectiveness (Airbus, 2021). According to Airbus (2021), the supplier selection procedure entails supplier registration, registration evaluation, and invitation to tender following the identification of partnership capabilities.
The next stage is purchasing itself. Purchase orders are the signed contract a buyer makes to a seller, specifying the goods or services to be bought, their number, precise descriptions, price, date of purchase, and payment terms (Fajie et al., 2018). Orders must use some crucial elements to ensure that expenditure stays within budget. Without purchase orders, keeping track of expenses becomes more complex, susceptible to errors, and problematic when authorizing conveyance reports.
The third stage of the actual process is delivering the products and putting them in the warehouse. To guarantee that the delivery is made as agreed and sent for inspection, the warehouse employees must create the product receipt note with a packing list by comparing the number of aeronautical components to the purchase order and invoices. The company will strictly enforce the warehouse personnel to examine and ensure the parts come in good condition before being taken into the inventory stock, up to the quantity accepted based on the business inspection process. According to their purchase terms, Airbus realizes the stage: “The transfer of title and risk does not constitute acceptance of an Item by the Buyer. All Items are subject to Buyer’s right of inspection, count, testing, acceptance, and rejection arising under the Specific Terms or at law” (Airbus, 2018, p. 4). Thus, since the company’s supply network is interconnected, inventory is kept at the suppliers’ warehouse by the company, and parts required at each Airbus assembling factory arrive just in time.
However, numerous engineering and technological challenges are addressed during the procurement process. These include weight-lifting, fuel management and efficiency issues, aerodynamics, landing and braking systems, avionics, and obstacles faced during electrical power generation. At the same time the A380-800 was being developed, Airbus collaborated with its first- and second-tier suppliers, including Stork Aerospace (Baxter, Srisaeng and Wild, 2018). To further overcome problems in aircraft manufacturing, Airbus also collaborated with the suppliers of its wing components to create a more complex composite rib structure that used its own High-Lift Design and an innovative Active Load Management System. It was done to address the weight and lift issue.
Another challenge is closely connected with the last stage of procurement, which is delivery. Deliveries of aircraft may be delayed due to late component deliveries that cause downtime. These may lead to customers’ cancelation of orders, which would reduce income. Delivery errors and other operational issues can result in high costs, decreased profitability, and impaired cash flow, not to mention negative effects on the company’s brand, reputation, and stock price. For example, Airbus Group was affected by delays in aircraft deliveries and canceled orders due to the late component shipment. Consequently, its shares fell by 6% (Ahmada et al., 2021). Aerospace firms cannot afford such procurement mistakes because they negatively impact their profitability in the current competitive environment. Therefore, techniques were modified to lay aerofoil skins on the aircraft’s vertical and horizontal stabilizers, decreasing laying time and improving manufacturing efficiency. It is one of the developed solutions to issues (Stamatelos and Labeas, 2020). These actions significantly enhanced the aircraft’s capability, manufacturing, maintenance costs, operational effectiveness, and long-haul capability drive.
In modern industry, to optimize the purchasing strategy and reduce overall costs, contractors hand over financial responsibility for creating subsets to suppliers. As a result, more risks emerge managed by the bespoke procurement process. “Non-Recurring Costs” (NRC) are the most typical type of risk sharing; this is where the physical interface contributes financially to the growth and industrialization of the module that is under its control (Li et al., 2018). Although they are based on anticipated sales, these charges are included in the module’s price. The intermediary is responsible for any losses from sales.
Based on the Airbus case study, the risk-sharing agreements moderate the obstacles. They state that the suppliers would be responsible for essential parts are the costs associated with developing each component or module for which they submitted a bid or were contracted. At the same time, these expenses would only be recouped during the aircraft’s sales management (Mazaud, 2020). This risk-sharing arrangement effectively allowed Airbus to shift most of the costs associated with research and development to its suppliers (Mazaud, 2020). Thus, it increased both its immediate and long-term profits.
The specific detail that requires attention is the purchasing process and its management in terms of the aerospace industry. The complexity of the supply chain requires diverse approaches to achieve the most productive indicators of further stages in procurement. The example of Airbus presents a specific method of successful management of the list of suppliers based on multimodal control. The strategy involves segmenting direct vendors following various difficulties due to the diversion of its purchasing.
The list of suppliers includes the first-tier suppliers that are synchronized based on the strategic nature of the materials. This relationship will be more of a partnership in the degree to which this expertise supplements Airbus’ core skills. The first-tier suppliers handle the coordination of the relationship with the second-tier suppliers, which are the next level in the segmentation. Nearly all of the factors that determine this association are financial. However, the second-tier provider may occasionally search for particular competencies in second-tier suppliers. Engineering service providers hold another level of the list, directly communicating with Airbus or top suppliers. They are frequently organized based on budgetary considerations, which forces them to outsource all or some of their services.
This process detail is essential and sufficient because of the hierarchical structure of the supply chain, which increases visibility. A modular approach can ensure enough expertise in the coordination methods—the inherent strategic dimension in purchasing leads to exemplary, more differentiated supply chain management. Due to the location of suppliers and the nature of their production, the movement of international subcontracting has become increasingly important. Major companies working in single or maximum dual sources reduce the number of first-tier suppliers but increase their size. However, the growth provides a more efficient purchase and production process.
The choice of contractor and collaboration forms is specific for each field because it highly depends on the requirements and production process. The aerospace industry uses two types, which are different by nature but are necessary for fulfilling the modern needs of the companies. The primary forms of the previously proposed methods are prime or general contractors and sub-contractors. The aerospace industry, where focus on reducing cost has made the sustainability of delivery schedules problematic, has recently drawn the attention of researchers who have recognized a specific relevance to modern approaches in that sector (Ruiz-Benitez, López and Real, 2017). At the same time, the most relevant forms of collaboration are defined by the contractors and include strategic alliance and cross-departmental cooperation.
Whereas a general contractor is in charge of the entire project’s work, they continuously concentrate their total focus on it. At the same time, subcontractors work as required according to their expertise and are more specialized. The first type employs and manages other professionals; however, they are not superior to subcontractors. The letter form is not a fixed profession because any specialist can work as a subcontractor if hired to execute a project by another contractor. If the project owner needs someone with more qualifications than a project manager, they may hire a prime contractor to handle the project’s leadership and coordination. They perform some tasks that a project manager might handle, such as maintaining schedules.
Prime contractors, generally referred to as “Primes,” are vital to supply chain management in the aerospace industry because they ultimately control the whole project on behalf of their client. They are responsible for the organization of all the levels of subcontractors (Manville, Papadopoulos and Garengo, 2021). Although such contractors’ divisions have been supported in the literature, putting the system into action presents significant difficulties. According to a German aerospace sector study investigating the human aspects of subcontractor categorization, there is a shortage of empirical research in this field. Pešalj, Pavlov, and Micheli (2018) have demonstrated that the classification primarily focuses on quality improvement, claiming that eliminating the current work package challenges will increase efficiency and result in an overall business benefit. In addition, some academics emphasize that there must be additional research to support the development of measurement for both forms at the same time as adjusting a strategic baseline and assessing the diversity of systems, despite the acknowledged improved performance through prime contractors.
The forms of contractors determine the choice of collaboration methods implement throughout the work package of the Airbus production process. The primary type is determined by the contractors and is a strategic alliance involving external collaboration based on work toward a shared goal. Another form of cross-departmental cooperation focuses on internal work, which various specialists require to finish the aerospace project. For instance, the form of the alliance was implemented by Airbus in 2019 (Duvelleroy and Benquet, 2019). To work together on the deployment of collaborative 3D design, engineering, manufacturing, simulation, and intelligence applications, Airbus and Dassault Systèmes have signed a five-year alliance agreement. It allowed Airbus to advance its digital transformation significantly.
At the same time, cross-departmental collaboration work during the work packages. In most cases, it is used when one of the partners contributes the materials or expertise that the other department lacks. Hence, the prime and sub-contractors operate this system, making various companies contribute to the final product (Airbus, n.d.). For instance, Airbus utilizes one strategy called AirSupply, which unites the supply chain and all manufacturers into one system of companies. They follow the same scheme, “order – shipment – payment – quality,” contributing to the cooperation’s final result (Airbus, n.d.). Thus, the different types of contractors and collaboration benefit the finished product success in aerospace industry management.
The other issue the aerospace industry faces is the possible breach of contracts. Four types of violations can appear minor, material breach, actual, and anticipatory breach of contract. The last type implies that although there has not yet been a formal breach, one of the parties explicitly stated that they would not carry out their part of the contract. An example of such a case can be found in the case of Leki Aviation against Airbus. Leki is a danish leader in providing and distributing aircraft interiors, parts, and other supplies to the global aviation sector. During their cooperation with Airbus, the problems occurred when Leki stated that Airbus Group refused to fulfill their part of the contract.
Leki claims that Airbus improperly repudiated the Distributor Agreement when it sent the termination letter on May 17, 2012, intending to skip fulfilling all of its duties under the contract. Leki is required to sell items to Airbus per the terms and conditions stated in the Distributor Agreement’s Articles. According to the contract, the rights and responsibilities are to survive any expiration or termination of this agreement (Sherwood, 2017). Airbus preemptively revoked the contract and declared its intention not to fulfill its contractual commitments by mailing its letter on May 17, 2012. Thus, the anticipatory breach of the contract appeared through the Airbus announcement of refusal to fulfill the agreement.
Another type of breach – material – occurs when one party faces severe consequences if another breaks the agreement. Or it may appear due to the completely different results of the cooperation than those stated in the contract. For instance, in the aerospace industry, the delivery delay without addressed reasons may cause a significant decrease in aircraft manufacturing, interfering with the complex supply and factory chain. No public cases of material breaches with Airbus Group can be analyzed. Nevertheless, there is a specific description of such cases in their terms and conditions of supply. For instance, it says, “Seller shall be entitled to terminate the Supply Agreement and without incurring any liability if Customer is in material breach of any of its obligations under the Supply Agreement” (Airbus, 2020, p. 10). Therefore, the consequence of the breach includes termination of the contract and empowering sellers to operate according to their policies.
Minor breaches of contracts are more frequent than the other types, but it still indicates a severe violation of the agreement. The minor breach involves the fulfillment of the contract but partially or consists of substituting some parts. The airbus case study includes minor breaches in terms of supply chain functionality. For instance, if Stork Aerospace as a supplier constitutes the delivery from one factory in Europe to another factory or delivers the stated components and material from the United States. The final result is the same as stated in the contract, but minor changes may influence the shipment process or the cost of the components.
The final type of contract breach is actual, meaning the failure has already occurred. Such form can be minor or material, but the main feature is that there was no prior notification of the refusal to cooperate. The example for this case may be the latest public argument between Qatar Air and Airbus. The breach appeared as Qatar refused to accept two airplanes, A350s, due to surface paint issues (Ryan and Gemmell, 2022). Planes were already delivered, and consequently, the material breach occurred. However, Qatar Air states that the surface issue is a safety measures violation secured under the acceptance section of products of the agreement. Thus, if the safety measures are proven secure, the actual breach of contract for the refusal will be relevant.
Therefore, the aerospace industry follows a specifically determined procurement process, which involves a complex supply chain of various stages. The companies utilize methods and strategies to help improve the whole system’s success indicators. Airbus’s case study showed that they include sourcing and transversality, interconnection of the network, and segmentation of the lists of suppliers. There are also significant challenges and risks that the company may face during the procurement, involving technological problems of manufacturing or delivery issues, which can alter the final result. Prime and sub-contractors are also important in aerospace, determining the collaboration types relevant to the manufacturer. The final aspect of breaches of contract is crucial to detect and resolve the weak link of the chain. Thus, each element contributes to the final result of aircraft manufacture.
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