Boeing Continues to Push for Supply Chain Savings

Boeing suppliers are developing "a sense of acceptance" that the manufacturer's push for a 15 percent reduction in supply chain costs won't ease up even as the economy improves, an informal survey of several major suppliers by Canaccord Genuity finds. Whether the push will succeed remains to be seen.

Boeing Continues to Push for Supply Chain Savings

Now in its second year, Boeing’s “Partnership for Success” aims to help vendors optimize their supply chains and lower costs in exchange for more Boeing business. But feedback from some suppliers suggests the combination of pressure to trim unit costs and boost production could prove to be more disruptive than transformative.

“We are starting to hear more suppliers indicate that they may be prepared to walk away from some business, especially if the carrot of higher volumes is less meaningful if confidence in rate increases weakens at all,” Canaccord says.

So far, Boeing isn’t blinking. The manufacturer is using 777X participation “for as much leverage as it can on the supply chain for further cost reductions within its broader Partnership for Success initiative,” Canaccord said in a February research note. “Many suppliers have indicated that a 15-20 percent reduction is what is expected for involvement on the 777X, or to potentially avoid the infamous Boeing ‘no fly list.’”

December’s awarding of 777X landing gear to Heroux-Devtek (HDI) is considered evidence that Boeing is serious about trimming costs, even if it means changing suppliers. Canaccord says the steep price reductions and possibly demand for aftermarket access helped HDI nab the deal.