Cessna's New Plane Represents the Future of Global Sourcing

Last week, Cessna announced that it would bring to market a new entry-level airplane at a market leading price point. The new single-engine plane, the 162 SkyCatcher, is not remarkable for its speed or agility, or even its low price point: $109,500 -- an amount nearly 50% cheaper than their current entry level plane. No, the plane is remarkable because Cessna is not only working with global suppliers to source parts and assemblies for the plane, but is assembling the plane entirely in China, working with a joint venture partner. Cessna's entire strategy, in fact, is based on a low price point which it hopes "will help keep the price of the plane low enough to attract new pilots to counter the dwindling ranks of U.S. recreational fliers. It also could lower the cost barrier for training new pilots amid surging demand for airline pilots world-wide."

I believe that Cessna's new plane represents the future of global sourcing for a few reasons. First, the only way that Cessna realized it could bring such a plane to market would be through global supply partners who could jointly assist with the entire total landed cost for the plane. In other words, the plane would never see flight unless Cessna could fundamentally re-engineer the cost structure for the entire aircraft by looking global and searching for innovative ways to reduce costs throughout the supply chain (from lower tier sourcing through to final assembly). This reminds me of the way Tata is breaking the rules of automotive convention by attempting to bring a $2000 car to market in India.

Second, the new SkyCatcher represents the future of global sourcing because Cessna turned to a China for the right, longer-term reasons -- not short-term savings band-aids. Last summer, as VAT rebate changes and a stronger Yuan began to impact the China price -- at least from a North American perspective -- those companies who had gone to China for 10-20% cost savings began to realize the potential total landed cost risks that they should have originally factored into their global sourcing decisions. Cessna, in contrast, is sourcing and building a plane in China for what amounts to at least 50% less than the cost of what it previously paid to source globally and then manufacturer locally in North America. Now that's a smart global sourcing decision. But it's one that involved a much deeper make/buy analysis -- not to mention a customer analysis -- to see if there was a market for such a low-cost plane in the first place.

Third, Cessna's move serves as a model for global sourcing because the firm realized the importance of embracing local markets from a sales standpoint as much as a sourcing one. Sourcing from -- and manufacturing in -- China will give Cessna a huge leg up on penetrating the Asian market, which could potentially be larger than all of its other regions combined. This type of approach goes far beyond merely sourcing locally to meet offset requirements to locally (a potentially risky strategy that virtually all A&D companies are involved with).

In summary, Cessna has fundamentally changed its supply chain in hopes of tapping a huge market opportunity, aligning its procurement strategy around these objectives. Or, one could argue taking this thought a step further by saying that a smart Spend Management strategy aligned the rest of Cessna around a fundamentally game-changing move in the market.

Jason Busch

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