Managing risk & opportunity: Procurement Consultants look to 2013
Business consultancy Efficio advise procurement professionals to take nothing for granted in the year ahead, as supply chain risk is a central factor at a time of economic uncertainty.
In its first Viewpoint article of 2013, the company claims the main challenge for this year is to cope with the continuing economic uncertainty and price pressure on commodities. The risk of suppliers going out of business is increased during difficult times and this must be managed effectively, according to Efficio’s Chief Operating Officer Alex Klein, senior consultant Tobias Regeniter and consultant Mika Partanen.
There has been a positive start to the year as the US economy appears to be holding up, UK unemployment is down and the Eurozone crisis seems to have eased for the moment. However, indicators such as the Purchasing Managers Index suggest there is little prospect of an imminent upturn.
Article authors Klein, Regeniter and Partanen have seven reccomendations that procurement leaders can take t mitigate the worst effects of current economic conditions.
1. Exploit opportunities offered by the continued economic downturn by internally positioning procurement as a key influencer maintaining margins through cost reduction.
2. Clearly delineate the effects of unavoidable commodity price rises and ring-fence their impact.
3. Offset market price increases wherever possible. In transportation-intensive companies, for example, increases in fuel prices can be offset by driving value from other elements of the cost base, by reconfiguring the network, making greater use of back-hauling, or moving to a 3PL.
4. Keep an eye on macro level developments such as the gradual upward trend of low-cost country prices. Revise volume allocations to such regions where appropriate.
5. Leverage shrinking demand on suppliers by driving competition through strategic sourcing programmes.
6. Pressure on suppliers should be applied upfront during the sourcing exercise. Once the suppliers are selected they should be supported through active SRM.
7. Manage the risk of supplier failure. As a minimum, actively monitor the financial situation of key strategic suppliers.
According to a spokesperson for Efficio, continuing uncertainty in 2013 calls for flexibility: “Procurement leaders who can adapt to changing market conditions, for example from a situation in which cost focus is the priority to one in which the most significant factor is a marked increase in demand, will be best positioned to take full advantage of the opportunities available.
“The ability to manage risk against costs and take advantage of changing global supply chains will become increasingly crucial in the year ahead and into the future.”
The full version of ‘What’s in store for 2013: risks and reward’ can be downloaded.
Efficio is a results-focused procurement consultancy, with a track record of helping leading organisations achieve more value from their procurement. Headquartered in London, UK, the company has offices in France, Germany, Switzerland and the US. Clients include 3i, AstraZeneca, Barclays, BAT, Biffa, British Gas, Ford, Scandic, HSBC, KKR, Nokia, National Grid, O2, Tryg and Thames Water among others.
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.”