Multi-year supplier contracts often are associated with the need for strategic direct materials. For large enterprises that have the financial resources, they can well provide a source of industry competiveness or edge in supply.
A prime example is provided in aerospace industry as Boeing has just announced a memorandum of agreement with Japan’s Toray Industries for long-term supply of carbon fiber composite material. Once finalized, this contract extension will take effect in 2015. According to one syndicated report, the contract is estimated to have a value of $8.6B.
This ten year supply agreement represents by Boeing’s words, a significant increase in material provided by Toray. It includes expanded material supply for Boeing’s ongoing 787 Dreamliner production program along with provisions to supply wing structures for the new 777x aircraft development and production program. According to the announcement, the wingspan of the planned 777x measures 22.8 feet longer than the span of today’s 777-300ER, which in-itself is a large commercial aircraft. Further noted was that in 2013, Boeing contracted for more than $4 billion in goods and services sourced within Japan’s aerospace sector suppliers.
A large portion of the future demand for commercial aircraft stems from Asia and Middle East air carriers. Sourcing strategic materials in these regions assures continuity of product innovation as well as customer related influence.