GEP: Five Dos and Don'ts for Procurement
I’m fond of saying procurement is a tough gig. GEP agrees. Although procurement has the power to make some positive impacts through cost control, innovation and sustainability, it’s work isn’t always appreciated or respected as it should be.
Procurement is often under the gun, the bearer of unreasonable expectations and often the “go-to” for companies looking to alleviate pain points. Gaining the perspective and priorities of “internal customers” and stakeholders will help you manage expectations, make for good optics and ensure you're prioritizing in a manner that's best for you, and your organisation.
Here’s a summary of GEP’s five worst practices in procurement.
1. How to botch a mandate
“It’s a fact that any spend, not under management, represents both potential cost leakage and increased risk to the company. The prevailing philosophy in procurement is that a CEO’s commitment to a policy of 100 per cent purchasing compliance will drive compelling benefits to the organisation, and CPOs will often work hard to obtain this commitment. The reality, however, is that it often becomes a situation of overreach. Successful management of all spend requires a significant investment in staff, technology and change management.”
Instead, a better approach would be to create a longer-term strategy, taking into account your available resources and building on your wins as you go.
2. How to get yourself ignored by the c-suite
“In procurement, we have our own lexicon of terms that are important to us but do not translate into the language or the agenda of the C-Suite. We presume that our goals are among the most important goals to others. We act as though saving money through sourcing and compliance is the only way to ensure business advantage and proclaim that if the sourcing process is not followed, all will fall apart.”
GEP suggests procurement needs to become better at converting negotiated savings into realized savings and defining the non-cost related value created in strategic deals.
3. How to overpromise and underdeliver
“We commit to service-level objectives, but often don’t measure them. If we can’t meet a timeline, we make excuses explaining how busy we are or how we didn’t get something that we need. The fact is, we don’t actually do the analysis, realistically assess our existing workload, and lay out expectations of what is required before we commit to a time frame. So, a promise of Tuesday becomes Thursday and drags on to Monday, and we wonder why others don’t always find us to be credible.”
4. How to reduce company agility
“Often, we inject ourselves into a deal in process and commit to delivering savings (by browbeating the supplier into lowering prices) without adequate research on the context of the deal or the actual market for a unique product or service. Furthermore, where we lack capacity, we often put such deals into the queue and are unable to give them the timely attention that they deserve.”
Procurement often misses out on savings due to lack of the necessary resources to execute. However, procurement also often lacks the ability to create a solid business case evaluating the potential costs vs. the cost of the necessary additional resources. This is an issue that must be addressed in order to optimize the value procurement can bring.
5. How to fail to automate
“It’s a fact. There are some remarkable procurement tools and technologies on the market right now. Without a doubt, they can help enterprise procurement teams boost efficiency, transparency and productivity. But when we finally secure the funds to purchase and implement them, we frequently fail to recognize, plan or budget for organizational change management and other non-IT support costs.”
Of course, we couldn’t fit all the good stuff GEP packed into this white paper here.
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.”