Inprova Group: Procuring innovation
Procurement innovation will be a big talking point in 2019. Operational systems and tools such as machine learning, smart buying platforms, supplier integration hubs and ‘boxed’ analytical tools will all help procurement teams to complete source-to-pay processes more effectively.
But this isn’t the type of innovation I want to focus on here. Yes, it’s exciting for the industry, but the area where I see the greatest potential for value creation is the procurement of innovation itself. By that I mean buying early stage services and products and nurturing innovation amongst suppliers. I’m interested in how experimental sourcing and open-minded, supportive supply chain management can change traditional industries, markets and production.
The subject of procuring innovation and procurement’s role in generating value is one that is close to my heart. As head of procurement at Inprova Group, a UK-based procurement services provider, I work predominantly in the housing sector where there is a dearth of disruptive innovation.
There are many reasons for the slow adoption of emerging technologies in housing. This includes the high levels of regulation around building and maintaining homes, a blinkered focus on reducing costs above all else and an assumption that doing things differently will cost huge amounts.
But housing and construction, like many other services, are now under intense pressure. A lack of available homes, new burdens around safety and compliance and issues around labour and materials supply (made worse by Brexit) are putting existing business models under review. My hope is that this increasing pressure, however painful it feels now, could be a positive catalyst for innovation and market disruption.
But for this to happen, there needs to be a culture change in housing. For me, that’s the biggest challenge around procuring innovation.
There are three ways to do this. The first is organisational change. An advocate at the top of an organisation, who has access to senior executives, must champion the role procurement can play in unlocking innovation. This is about changing perceptions as the procurement department is often seen as a tick-box police force, blocking the road to transformation.
Timing is also key. This high-level advocate must ensure the procurement function is brought in early enough in the process to have a true impact. Traditionally, buyers are brought it at the end stage of a project, tasked with sourcing the goods and services that other teams have identified. If procurement leaders are going to play a more integral role in encouraging and embedding innovation, they must be involved from the beginning.
If there isn’t a board-member championing the role that procurement can have in driving innovation, then this task may fall to the procurement team themselves. This is the second approach and to do this successfully, buyers must understand the problems that senior stakeholders are wrestling with and demonstrate their value by providing strategic solutions. Procurement must lobby to become far more involved in setting the overall direction of the organisation.
Strategic procurement leaders are needed to enable this. These are highly skilled professionals that have the capacity to go out and horizon scan, future proof and forward map the supply chain. But in the housing sector, with the exception of larger organisations, many procurement teams are underfunded, under-skilled and overworked with day-to-day sourcing. They are controllers of spend and not drivers of organisational efficiency and delivery.
Recruiting high-level procurement strategists isn’t an immediate pay off. There will be a cost up front and the benefits might not be seen for one or two years. This is another reason why such a role isn’t commonplace.
There are, of course, other, more immediate ways the buying team can begin to earn its innovation stripes. Driving organisational change is a lengthy, complex process, but a look into the procurement toolbox will reveal some quicker, tactical wins. This is the third approach.
For example, in the public sector, Prior Information Notices (PINs) can support the purchase of early stage goods. A PIN can be a call for competition, in place of a longer contract notice. It is sometimes used to buy emerging technologies which are only supplied by a limited number of companies. The PIN can be used to identify potential suppliers in an emerging market, and subsequently reduce the time to tender once those suppliers have been identified. It is also a useful tool for identifying potential partners in emerging markets where the supply chain is not well established and difficult to identify.
Encouraging suppliers to develop inventive ideas is another challenge. SMEs are often drivers at the bleeding edge of technology, but many don’t have the capacity or knowledge to successfully tender for big contracts. This means that many housing organisations are never exposed to the rich vein of ideas being developed by smaller suppliers. Inprova Group is tackling this by providing tender training to SMEs and working with national consortia that bid for work on behalf of independent suppliers.
Flexible procurement routes such as dynamic purchasing systems (DPS) can also give smaller companies access to markets without the cost of tendering for frameworks. With existing framework life cycles, if a supplier misses the tendering window by one month then they are locked out of a contract for four years. A DPS is different as suppliers can join at any time so long as they meet the selection criteria. With the speed of digital development, this type of flexible system is vital in allowing organisations to purchase the latest technologies.
Driving innovation is a messy business. There are many challenges around early adoption, with the journey often longer than predicted and many detours down unplanned routes. But with the right leadership, skills and internal support, the procurement function is the best team to take the wheel.
Neil Butters is head of procurement at Inprova Group
He has worked in various procurement roles across the public and private sectors for ten years. In the NHS he was employed as a procurement contractor, before taking on a strategic procurement role for a centralised procurement service provider. He joined Inprova Group as head of procurement in 2016.
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.”