Quick, if you're a large European manufacturer, what's the quickest way to cut costs? Buy more from suppliers who take dollars, that's how. A recent Procurement Leaders post suggested just as much when it cited recent comments from EADS' (Airbus) chief executive, who noted that "the company has called on its suppliers to move more of their production to the dollar area ... EADS is already planning to sell several Airbus plants and one of its own sites, but is now looking towards its suppliers to reduce costs still further." Despite Boeing's own 787 challenges, EADS is caught in a double-whammy of a Spend Management situation. On the one side, it faces a higher cost structure from domestic European suppliers who cost more than those in the United States (thanks to the falling dollar) while also needing to sell planes at a higher cost because of the strength of the Euro or risk cutting too heavily into precious margin points. This situation, unfortunately, is unavoidable given the currency situation. But EADS leadership must take responsibility for the other challenge which is their failure to adequately move to a variable cost structure -- relative to Boeing -- by outsourcing the major elements of design and production to suppliers.
- Jason Busch