May 17, 2020

Buying teams cost retail sector £1.3bn in lost profits

Supply Chain
buying teams
Freddie Pierce
3 min
International management consultancy Invertohas released the results of research with 150 directors of UK retailers The research found that: Retailer...

International management consultancy Inverto has released the results of research with 150 directors of UK retailers 

The research found that:

  • Retailers could increase their profits by 4.8 percent (£1.3 billion across the industry) by better buying 
  • When asked the single most important trend that would affect the procurement function over the next five-10 years, 19 percent of respondents said inflation / currency fluctuation in the Far East leading to higher output cost 
  • Most retailers seem to be a bit deluded about how good a team they have and that they are all getting better terms than their competitors 

Risk factors around supply chain dominate buying trends over next 10 years

 A survey of 150 directors of UK retailers* reveals profits could be increased by £1.3 billion** across the retail industry through better buying.

Hard-pressed retailers said that a ‘perfect’ buying team could improve margins by almost five per cent.

 “Retailers need to stop and think,” said Richard McIntosh, UK Managing Director of Inverto, an international management consultancy specialising in procurement and supply chain management.

 “In the current economic climate, growing top-line sales is hard. For a typical retailer, a one per cent saving in costs provides the equivalent EBIT impact of a 12 percent increase in sales, so the way they buy deserves attention.

 “The problem is retailers need to honestly assess the performance of their buying teams before they’re able to access these significant benefits. Ninety per cent rate their buying team as better than average – they can’t all be. Seventy per cent believe they’re getting better terms than their competitors - this also cannot be true. Retailers are deluding themselves.”

 Dominating the concerns for retailers were issues around the supply chain. Almost a quarter said increasing the range of suppliers would improve the performance of procurement. While the top four trends affecting procurement over the next 10 years included inflation/currency fluctuation, traceability of sourcing through the supply chain, environmental issues and the identification of new suppliers.

 “Increasing profits through procurement is a necessity over the next few years but it’s getting harder with suppliers already squeezed and low-cost sourcing prevalent,” McIntosh continues. “Retailers have to become more sophisticated with their buying strategy and be open to new ways of working.”

 Indirect spend – or goods and services not for retail - such as marketing, facility management or shop fitting can account for up to a tenth of an average retailer´s turnover but appears to be a blind spot for many. The majority of respondents (79 percent) said their procurement resources are focused on direct spend opposed to indirect spend.

 McIntosh comments: “Managing indirect spend effectively saves our retail clients on average 12.4 percent***.  Who can afford to be turning savings down? Especially when a quarter said they have to pass the benefit of cost savings to the customer in order to remain competitive. It makes the case for actively managing every pound of expenditure even more compelling.”

 * INVERTO Retail Procurement Research was conducted by independent research company Illuma in May 2013. One hundred and fifty one telephone interviews took place with directors from a cross-section of retail-based industries.

 ** 4.8 percent of the £27.7 billion UK retailers made in profit in 2012 according to Euromonitor International Retail report ISIC 52.

 *** Average savings calculated by INVERTO’s analysis of the procurement practices, purchasing processes and indirect spend of 16 major retail chain stores.

Share article

Jun 16, 2021

EU and US agree end to Airbus-Boeing supply chain tariffs

3 min
Supply chains embroiled in Airbus-Boeing dispute will no longer be impacted by $11.5bn tariffs imposed on food and beverage, aircraft and tobacco

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.”

Share article