Good Research Paper On Airbus Outsourcing Manufacturing Operations
Globalization has revolutionized even the aircraft manufacturing industry. In 2004, an EADS executive declared that commercial aviation has become a subject of globalization. A year later, both Boeing and Airbus began to heavily depend on outsourcing in producing their aircrafts (Hill and Jones 2007). Outsourcing in the aircraft manufacturing industry is dictated primarily by necessity, efficiency, cost and risk reduction, and sale generation (Hitt et al 2008). The task of building an aircraft is made less complex when components are supplied by and outsourced from external sources. This is because the building of an aircraft entails ‘integral architectures of major subsystems’ that include airframe, avionics, hydraulics and engines. This also implies that an aircraft supply chain could involve a substantial number of suppliers. The end goal of such a supply chain in aircraft manufacturing is ultimately to reduce transaction costs and this is achieved by reducing complexity through the substitution of integral architectures with modular ones employing standardized interfaces and interchangeable elements (Vrijhoef 2011). This supply chain approach in aircraft manufacturing is well illustrated by the Airbus case. Airbus outsourced a little more than half of the parts it uses in building its aircrafts from various suppliers in many parts of the world, but has retained several core technologies. These suppliers form a pyramid of tiers of hierarchical order. In order to keep it all together and eliminate the gap between design and manufacturing, Airbus employs supply chain integration strategies in various aspects of the outsourcing operations.
Airbus, like Boeing, uses global outsourcing as a marketing tool with particular focus on US, Japan and China early on. The main goal is to reduce manufacturing costs, but this strategy generated the additional and positive advantage of winning not only more customers, but also political friends. In the US, for example, Airbus entered into supplier contracts with General Electric for engine supply, Eaton Corporation for hydraulic systems, Honeywell for avionics, Northrop Grumman for navigation equipment, and Goodrich Corporation for landing gears and evacuation system. This resulted in the doubling of Airbus spending in the US – from $2.6 billion in 1994 to $5 billion in 2004. This generated new friends for Airbus in the political sector, such as Congressmen and high government officials. In total, Airbus spending in the US for the A380 alone stands at 45% of the plane’s cost in 2007 (Hill and Jones 2007).
The same strategy was used by Airbus in other countries. In Japan, it entered into substantial contracts with Japanese suppliers, such as Mitsubishi Heavy Industries, Fuji Heavy Industries, Sumitomo Metal Industries, Japan Aircraft Manufacturing Corporation, among others – a total package that summed up to $1.5 billion in 2002. It did this with the hope of cornering a higher share of the market for commercial jets, which at that time had Boeing cornering 80% primarily through Japan Airlines and All Nippon Airways, which used Boeing planes. In China, Airbus awarded two state-owned aerospace companies with a 5% risk-sharing role for the manufacture of A350. The Company also hoped to increased its share in the aircraft market, which Boeing had cornered at 72% (Hill and Jones 2007).
A high level of supply chain integration is necessary in the aircraft industry to eliminate the gap between design and manufacture. A typical aircraft or aerospace supply chain consists of various tiers. Tiers of platform assemblies are organized in a pyramid where suppliers of lower tiers deliver components that are necessary to build a major part of the plane to a first-tier supplier. Thus, the first-tier supplier is responsible for integrating all lower tier supplies and construct a subsystem that will fit with the other subsystems during the final assemblage of the aircraft (Vrijhoef 2011). Fig. 1 shows a typical pyramid of tiers employed in the aerospace or aircraft manufacturing industry for a specific airframe demand and how such demand is fulfilled employing the various levels or tiers. This typical pyramid illustrates how the pyramid of tiers employed in the aircraft manufacturing industry works.
Airbus keeps tight control of its suppliers, especially over tier one suppliers. The objective of this is to eliminate the possibility of transferring technology to other countries that could capitalize on it and establish themselves as major threat to Airbus. Most Airbus suppliers, therefore, are associated, one way or another, with the Airbus parent company EADS (Hitt et al 2008). Airbus outsources 52% of its parts as compared to Boeing’s 65% (Jones and Robinson 92). Of the main Airbus planes, the A350 has the highest number of components outsourced. Table 1 shows a comparative picture of outsourced components of A320, A330, A380 and A350.
For its A350, Airbus increased outsourcing of its components through the years, but retained core technologies, such as wing design and composite technology. Outsourcing covering manufacturing of parts, production and sub-assembly of parts were distributed to 16 locations in Europe. Thus, various parts of the A30 are manufactured in different places: Wales for the wings’ Germany for the body, Spain for the tail, and France for the cockpit. Final assembly for the plane is done in Toulouse, France and Hamburg, Germany and to gather all the components
together for the final assembly, Airbus uses three special carrier ships. North America, China and Japan are also involved as they have centers for engineering design, sales and customer support. India and Brazil have also been considered for local manufacturing to serve their markets.
Airbus, like its main competitor Boeing, is outsourcing many of its parts and components from various parts of the world. The ultimate goal for this strategy is to reduce manufacturing costs through the reduction of complexity and the use of risk-sharing arrangements, but other reasons factor as well. To eliminate the possible gap between design and final product, Airbus has to adopt supply chain integration strategies. These strategies primarily highlight extensive collaboration between and among suppliers, on one hand, and Airbus, on the other, as well as close surveillance of suppliers’ processes. They also include absolute control by Airbus on some important aspects and the use of a secured information system that allows exchange of information and data between parties without risks from external sources.
George, B. (2013). “Aerospace Supply Chain: Opportunities for India Suppliers.” NASSCOM. Retrieved from http://www.nasscom.in/Aerospace-Supply-Chain-Opportunities-for- India-Suppliers-55118
Hill, C. and Jones, G. (2007). Strategic Management: An Integrated Approach. Cengage Learning.
Hitt, M., Ireland, D. and Hoskisson, R. (2008). Strategic Management: Competitiveness and Globalization, Cases, Volume 2. Cengage Learning.
Jones, P. and Robinson, P. (2012). Operations Management. Oxford University Press.
Leeham 2012. Odds and Ends: More from the Airbus Innovation Days. Retrieved from http://leehamnews.com/2012/05/29/odds-and-ends-more-from-the-airbus-innovation- days/
Michaels, D. (2012). Hit by Delays, Airbus Tries New Way of Building Planes. The Wall Street Journal. Retrieved from http://www.wsj.com/articles/SB10001424052702303879604577407861198472788
Reddy, P. (2011). Global Innovation in Emerging Economies. Routledge.
Vrijhoef, R. (2011). Supply Chain Integration in the Building Industry: The Emergence of Integrated and Repetitive Strategies in a Fragmented and Project-Driven Industry. IOS Press.
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