May 17, 2020

Leading firms saving up to $1bn from adoption of 'zero-based' strategies

Procurement
zero based bugets
ZBx
Procurement
James Henderson
3 min
Zero based budgeting is saving leading organisations up to $1bn, according to Accenture
Leading global companies are achieving savings of up to $1bn from the adoption of ‘zero-based strategies’, according to Accenture.

The research, wh...

Leading global companies are achieving savings of up to $1bn from the adoption of ‘zero-based strategies’, according to Accenture.

The research, which surveyed 85 of the biggest organisations around the world, revealed that companies are moving beyond simple zero-based budgeting (ZBB) to a more holistic approach, or ZBx, that allows companies to uncover additional savings to fund growth initiatives.

The ‘Beyond the ZBB Buzz’ study by Accenture Strategy analysed the practices and results of zero-based initiatives implemented by leading global companies across different industries - from consumer goods and banking to retail and life sciences.

The study highlighted the exponential growth in ZBB adoption of 57% per year from 2011 until today, and found that the majority of companies surveyed (91%) have met or exceeded their financial targets.

“ZBB is rapidly helping organisations accelerate growth strategies and pivot to new digital business models,” said Kris Timmermans, Senior Managing Director and Supply Chain & Operations Strategy lead at Accenture Strategy.

“Due to the savings realised, leading global companies are taking ZBB to the next level by applying a zero-based mindset – what we have termed ZBx – across all business functions to gain forensic visibility into spending and funnel savings back into high growth initiatives.”

Companies are adopting ZBB primarily to improve profitability (96%). Yet, nearly half (48%) said they were influenced by competition and 40% cited slow growth as a catalyst.

SEE ALSO:

Surprisingly, the research did not point to the common perception that companies turn to zero-based strategies in crisis mode in an M&A scenario or as the result of pressure coming from private equity funds and activist investors. Only 14% say M&A was a driver and even fewer (8%) cited PE or activist investors as a factor.

Figures also show that leaders are applying a zero-based mindset to other business functions, such as sales and marketing (52%), labour (43%) and logistics (42%). Companies are taking out inefficient money that doesn’t support business strategy and redirecting those resources into growth initiatives, digital investments and other capabilities.

Among the hardest obstacles to adopting a zero-based mindset are cultural buy-in (67%), change management (41%) and data visibility (33%).

However, once the initiatives are in place, there is a common desire among the companies surveyed to ensure they are durable, with 77% investing in control and monitoring to make the results of their zero-based initiatives part of continuous improvement.

“Unlike traditional cost management techniques that use a ‘cut-the-fat and gain-it-back’ approach like every fad diet does, adopting a zero-based mindset requires a full cultural transformation within an organisation.

“It must become ingrained in how people think and work so that it begins to just happen naturally – that’s how you prevent the ‘weight’ from coming back,” said Timmermans.

Share article

Jun 16, 2021

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

supplychain
Boeing
Airbus
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