Four ways procurement must improve in 2018
1. Align procurement skills and...
The Hackett Group’s recent CPO Agenda report detailed four areas procurement must be improved. They are as follows:
1. Align procurement skills and talent with changing business needs
In 2018, 77% of respondents consider alignment of procurement skills and talent with changing business needs to be of “high” or “critical” importance compared to 73% in 2017.While the total increase is of minor significance, it is notable that the percentage that consider this area to be of critical importance jumped from 10% to 17%, a rise of 70%. To meet this challenge, leading procurement organisations are looking at new talent/skill areas, with 28% of respondents evaluating the addition of non-traditional, insight-related roles and skills (e.g., physicists, data scientists) to the organisation.
2. Measure and manage procurement performance and business value
In 2018, 76% of organisations ranked measuring and managing procurement performance and business value as high/critical in importance, but only a little more than half (56%) believe they have the ability to address the challenge. As procurement organizations mature, they start looking beyond traditional areas of tactical supply assurance and price. In parallel, procurement spends more time on strategic business enablement, an area that requires more coordination and collaboration with internal stakeholders and suppliers based on criteria outside of negotiated cost alone. Increasingly, service delivery requires advanced business skills such as negotiation, relationship management, problem-solving and strategic thinking. Moving into these areas, procurement serves as more than a buyer/negotiator; it becomes a consultant and change agent.
According to the study, 81% of procurement organisations still get most of their hard dollar recognition for purchase-price reduction success. However, none of the survey respondents obtain hard-dollar recognition for avoiding profit impacts (e.g., from avoided regulatory costs, re-sourcing costs, etc.); only 34% get soft-dollar recognition. To incorporate digital transformation into procurement’s value elevation, the function must continually look for business value-contribution opportunities beyond price reduction. These include protecting revenue and brand integrity, and supply risk management.
3. Obtain more value from existing suppliers through supplier relationship management
Strategic partnership with the business requires taking on more responsibility for supplier relationship management (SRM) initiatives. Today 74% of respondents acknowledge the importance of obtaining more value from existing suppliers through SRM, but 51% have only a low or moderate ability to meet this objective.
SRM is not a new investment area for procurement. The Key Issues Study results document a high level of interest in moving SRM activities (along with supplier onboarding, performance management and more) to a Center of Excellence (COE) or similar leveraged model, possibly to make better use of these relatively scare skills. The implication is increased interest in linking supplier-centric processes to wider source-to-pay efforts and strengthening the acuity of supply market intelligence.
Organisations are also planning or piloting collaborative customer/supplier activities through their supplier innovation efforts. Increased competition has made today’s suppliers more willing to invest in technologies and share ideas with customers with whom they have positive, collaborative relationships. Supporting supplier innovation promotes increased coordination between buyers and suppliers, strengthening partnerships and increasing motivation on both sides to invest further in the relationship. Thirty-five percent of respondents are evaluating the use of a supplier network in 2018 as a means of improving communication, collaboration, supplier profile maintenance, transaction processing and supplier catalog management.
4. Obtain more value from existing categories through category management
By understanding spend categories better, procurement can pursue sourcing initiatives in ways that go beyond one-time events. Improving category management helps them manage the entire lifecycle in the value chain of goods and services. Eighty-three percent of Key Issues Study respondents consider obtaining more value from existing categories through category management to be of high/critical importance, but only 56% currently have the ability to meet this objective. Moreover, 25% also consider as critically important the deepening of procurement’s influence on complex indirect spend categories, to drive value beyond sourcing. And, 44% are evaluating or piloting migration of analytics to a Center of Excellence for category management. Doing so will help procurement organizations centralize the evaluation of contract and supplier lifecycles and holistically manage specific groupings of materials or services that have similar supply and usage characteristics.
Even if major spend categories are properly sourced and the supplier base is rationalized, procurement must still find further ways to help the enterprise tap suppliers for more value. Using a category strategy execution framework can help organizations apply the appropriate value drivers, techniques and tools to meet the value objectives in other areas including strategic sourcing, SRM, value engineering, process reengineering, demand management, and compliance management.
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.”