APS Group: Innovation in procurement - why it's a people thing
Once concerned only with managing contracts and negotiating favorable pricing, procurement departments are now responsible for driving innovation across the whole business. One way this is being achieved is through closer relationships with suppliers, who can deliver fresh thinking and new solutions. As well as bringing suppliers on board and ensuring they are smoothly integrated into the business, procurement teams are also being tasked with managing the ongoing relationships between suppliers and other internal departments, such as HR and marketing. I’m very fortunate to sit at the intersection of procurement and marketing where I’m able to witness how procurement leaders in global organizations strive to be a partner to their colleagues.
When confronted with the pressure to deliver monetary value however, I see them constantly questioning how they can effectively balance innovation against the need for cost savings – and I can’t help but wonder if that is changing their role within the organization?
Are we prioritizing innovation?
A few years ago, we carried out a survey which asked procurement professionals what they valued most when selecting a service partner – and how important the desire to introduce innovative solutions was versus other considerations.
Initial conversations seemed to suggest that innovation was high on the agenda – yet the final data presented a more conservative picture, with procurement professionals saying they found it difficult to prioritize this.
There’s no escaping the fact that choosing a partner that can deliver cost savings can be a determining factor in purchasing decisions - and for almost one fifth of procurement industry professionals it mattered more than anything else. The vast majority (83%), however, claimed that other factors were more important – namely, a strong track record and a reputation for delivering on time and to budget.
The ability to deliver innovation was considered a ‘nice to have’, with only one in twenty saying they would rank innovation as the most important reason when choosing a supplier.
Barriers to innovation
So, what exactly is the barrier to introducing innovation into a business? Change is easier said than done and it’s not uncommon for organizations to be slow to embrace new ways of working. A fundamental barrier can be the fact that businesses are so often focused on short-term savings that they lose sight of the business case for long-term gains.
Procurement teams have traditionally been encouraged to set targets centred around quantifiable returns that are measurable in dollars and cents. Over time, this has created a mindset where procurement professionals are under extreme pressure to squeeze suppliers on price. In doing so, they can adopt a more adversarial approach that can hinder the ability to work with suppliers collaboratively.
What’s clear is that this is changing and many procurement professionals understand this and want to take ownership of this process to work more closely with both suppliers and internal departments. To do this, trust is key. Treating suppliers as trusted partners and allowing those partners to get under the skin of the business from the outset can deliver multiple benefits – including the ability to analyze situations and identify opportunities that can enable an organization to communicate with their customers more effectively and in ways they may never have considered otherwise.
Finding the right cultural fit
It doesn’t matter if it’s a rigorous tender process or a recommendation – there is always an element of doubt and risk attached when appointing a new supplier. This was reflected in our survey, with 56% saying they valued ‘track record’ above all else.
One way to approach this challenge is to simply ask would-be suppliers to demonstrate how they help to introduce innovation. At APS, we have a tried and tested methodology made up of several steps – the first is winning hearts and minds. To do this it’s important to connect with all of the stakeholders in the business, understand their goals and challenges and let them know they are not only being heard but their feedback is helping to define the new way of working. From this engagement we can start to identify quick wins and tap into our own network.
For example, if we were to create a direct mail campaign, we’d want to look at our client’s supplier network first – designers, copywriters, paper suppliers, etc. Could our own roster of suppliers bring down the costs involved? We then look at how we could possibly re-engineer things. Could we produce those campaign assets in a more effective way? Take the direct mail example – could the design be altered to hold its contents better? Beyond that, how heavy or large is it? A centimetre too big for instance might affect your postage rate. This stage is all about producing the best product possible in the most efficient way. The process around getting a product into production is just as important as the product itself. After all, time is money.
As mentioned, there are several additional steps to this methodology. However, by asking suppliers what they would do to drive innovation, you’re already getting a good idea of how they work and if they’re going to work for you.
Crucially, it’s important that – even once the supplier is on board – this process is repeated so that organisations can continue to find further savings, product improvements and tech-led enhancements, ensuring they are adopting an agile approach.
When bringing innovation into an organisation, procurement certainly has an opportunity to take the lead – and they have made great effort and progress to leave that caricature of ‘penny pincher’ firmly behind them. However, this doesn’t mean that the sole responsibility of driving innovation should be left on their doorstep. Instead, a collaborative approach that pulls in different thinking and encourages different departments to work together towards a shared goal means organizations can ultimately do things better, smarter and more efficiently. As the saying goes, two heads are always better than one.
EU and US agree end to Airbus-Boeing supply chain tariffs
The EU and US have agreed to resolve a 17-year dispute over aircraft subsidies, suspending tariffs on billions of dollars' worth of goods that have plagued procurement leaders on both sides of the Atlantic.
Under an agreement reached by European Commission Executive Vice-President Valdis Dombrovskis and US Trade Representative Katherine Tai on Tuesday, the tariffs will be halted for a period of at least five years.
It will bring an end to punitive and disruptive levies on supply chains that have little to do with the argument, which became embroiled in the trade battle. Businesses on both sides of the dispute have been hit with more than $3.3bn in duties since they were first imposed by the US in October 2019, according the EC.
The US imposed charges on goods upto $7.5bn in response to a World Trade Organisation ruling that judged the EU’s support of Airbus, its biggest aircraft manufacturer, unlawful. A year later in November 2020, the EU hit back. The WTO found the US had violated trade rules in its favourable treatment of Boeing, and was hit with EU duties worth $4bn.
In all the tariffs affected $11.5bn worth of goods, including French cheese, Scotch whisky, aircraft and machinery in Europe, and sugarcane products, handbags and tobacco in America. Procurement leaders on both sides of the fence were forced to wrestle with tariffs of 15% on aircraft and components, and 25% on non-aircraft related products.
Boeing-Airbus dispute by the numbers
- The dispute began in 2004
- Tariffs suspended for 5 years
- $11.5bn worth of goods affected by tariffs
- $3.3bn in duties paid by businesses to date
- 15% levy on aircraft and 25% on non-aircraft goods suspended
Both sides welcome end to tariffs
European Commission President Ursula von der Leyen branded the truce a “major step” in ending what is the longest running dispute in WTO history. It began in 2004.
“I am happy to see that after intensive work between the European Commission and the US administration, our transatlantic partnership is on its way to reaching cruising speed. This shows the new spirit of cooperation between the EU and the US and that we can solve the other issues to our mutual benefit,” she added.
Both aircraft manufacturers have welcomed the news. Airbus said in a statement that it will hopefully bring to an end the “lose-lose tariffs” that are affecting industries already facing “many challenges”. Boeing added that it will “fully support the U.S. Government’s efforts to ensure that the principles in this understanding are respected”.
The US aerospace firm added: "The understanding reached today commits the EU to addressing launch aid, and leaves in place the necessary rules to ensure that the EU and United States live up to that commitment, without requiring further WTO action."
This week’s decision expands upon a short-term tariff truce announced in March this year. The EC says it will work closely with the US to try and further resolve the dispute, establishing a Working Group on Large Civil Aircraft led by each side’s trade minister.
Airbus last month signalled to suppliers that post-pandemic recovery was on the horizon, telling them to scale up to meet a return to pre-COVID manufacturing levels. “The aviation sector is beginning to recover from the COVID-19 crisis,” said Airbus chief executive Guillaume Faury, adding that suppliers should prepare for a period of intensive production “when market conditions call for it.”