Boeing puts squeeze on suppliers
Boeing said that it will accelerate efforts to conserve cash, cut costs in its supply chain and reduce inventory of parts in its factories, while informing vendors that it will take longer to pay bills.
The world’s biggest aerospace group, which marks 100 years in business in 2016, will revise terms that will allow it up to 120 days to pay, rather than 30 days as in the past, when the new payment schedules are rolled out later this year.
Under plans to reduce its factory inventory, Boeing will place greater reliance on suppliers to hold parts instead. Confirming the changes in payment and inventory terms, the group defended them as necessary in helping them to compete when airlines want more capable planes at lower prices.
“To align with industry norms, we are in the process of adjusting the payment terms of our large suppliers,” said spokeswoman Jessica Kowal. “In most – if not all – cases our new payment terms are in line with their payment schedules to their own suppliers.”
Reports suggest that Boeing and its European rival Airbus earn lower average profit margins on the airliners they engineer and sell than many of the companies that supply components for the planes.
A programme called Partnering for Success launched in 2012 involved Boeing suppliers cutting their prices by 15%. Reports suggest that the group’s chief executive officer (CEO) Dennis Muilenburg seeks a renewed round of cost cutting.
Commenting on the move, Ad Van der Poel, senior vice president (SVP), financing services at Finnish electronic invoicing software group Basware commented: “Boeing’s decision to extend payment terms to 120 days is a typical example of challenging payment practices by an international business.
“Although this may be triggered by the need of Boeing to manage their working capital, we do need to recognise the impact this type of action has on business development. Many supplying companies will be put at risk by restricted cash flows. Every business needs to take responsibility for themselves and their supply chains, which includes reasonable payment terms.
“As an alternative, Boeing could address its challenge with the help of a third party or by paying its suppliers early and negotiating discounts.
At the weekend, Boeing said that it would boost its existing investment in the UK despite the country’s forthcoming exit from the European Union (EU). The group employs more than 2,000 staff in the UK and spends more than £1.4bn annually with 250 suppliers in the country.
“’We’ve doubled our presence over the last five years, we intend to continue to ramp that up and also continue to deepen and broaden our supply chain,” Muilenburg told newspaper The Mail on Sunday.