CEOs still don’t ‘get’ what their procurement teams do
According to research involving over 500 procurement professionals* by leading management consultancy, 4C Associates, 48percent said that their boss still doesn’t ‘get’ what the procurement team does or can do. 55percent say they are treated as a ‘support’ function - there to just cut costs rather than recognised for the strategic value they can add across the business such as developing supplier relationship management initiatives or brand reputation.
Mark Ellis, Partner and procurement transformation specialist at 4C Associates, said “Procurement has come a long way in the past few years. In some enterprises, the function has gone from being seen as a ‘blocker’, ‘bean counter’, ‘policy enforcer’ and ‘enemy of innovation’, to being viewed as a strategic business partner. However, not all businesses are recognising the true extent to which procurement can add value. As the economic climate begins to change, enterprises, which before could thrive by implementing cost leadership models, now need to re-evaluate their offerings.
“Take Ryanair, for example, renowned for its low-priced fares. The airline has been forced to alter its strategy. Whereas previously Michael O’Leary openly pondered the idea of charging passengers to use airplane toilets, he has now implemented several measures to win back customers such as more generous hand baggage restrictions, more attentive staff and a more customer friendly website. As a result, the airline last year reported a rise of 66percent in its net profit.”
However, according to 4C Associates, responsibility also lies within the procurement department to take a step up and prove themselves to be invaluable to the organisation. The consultancy says that there are a variety of reasons why many functions haven’t done this. Some enterprises are more reliant on sourcing, contracting and suppliers than others, but in many cases following a few steps can help elevate, or solidify, the function and make a significant difference to the way procurement is viewed internally and externally.
One key way procurement can get the recognition it deserves is how the department presents itself. “Procurement will always need to deliver cost efficiencies and these will remain central to its role and the value it delivers within the enterprise. However, if all the function does is speak in terms of savings then that’s how it will be perceived: as a cost cutter. Traditionally procurement has not done a great job of illustrating its triumphs,” adds Mark.
According to 4C Associates, for the function to be viewed more strategically, it needs to showcase other elements of its work to demonstrate the value it brings beyond just making savings.
“While a stagnant economy proved a fertile breeding ground for successful cost reduction strategies, the function needs to adapt to the new environment and demonstrate its versatility if it is to always be seated at the board table. For example, highlight how the department’s risk management programmes minimise the potential impact that a disaster could have on the business bottom line or the added value it can bring to the company’s corporate social responsibility programme and show how procurement is driving innovation within the supply chain, giving the company that competitive edge.”
Whilst changing the perception of the function within the enterprise is paramount, so too is having the capacity to do it. That means developing different skill sets within the function and recruiting people able to reinforce the current team and fill in any capability gaps. It also involves a holistic understanding of the business’ overall vision and objectives and spotting the opportunities for procurement to contribute and to take the lead.
“Evolving with the current needs of the business means taking procurement out of its comfort zone and delivering beyond its current remit,” concluded Mark.
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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.”