Procurement research shows suppliers are next frontier for innovation
It’s fair to say that historically the procurement industry is unlikely to have been considered ‘innovative’. However, recent findings from our Procurement Innovation Pathway research* into how innovative procurement considers itself to be show that it is a term that is increasingly likely to be associated with the business function.
Our research surveyed the opinions of 100 UK senior managers responsible for procurement in organisations of all sizes and showed conclusively that almost all respondents are headed on a journey of innovation, designed to drive the business, as well as improve their own processes.
Innovation is essentially about finding new ways to do things, sourcing different solutions to problems, challenging the norm and being ready to take bold steps on new ground – all in the interests of improving an organisation’s prospects.
Times have changed and our research shows that today’s procurement professionals actually consider themselves to be innovators. They also see (and like the fact) that the businesses they work within are innovative and that their role is increasingly pivotal to this. Most procurement people are, at the very least, involved in a broad range of business innovations — and some are actually leading it.
I’m sure it’ll come as no surprise to learn that supplier relationships top the list of key innovation focus areas for procurement as it realises the benefits of building a more sustainable supply chain in tune with the business goals, through a two way relationship.
In fact there are five keys areas for innovation on the supply side that almost half of our survey respondents all agreed upon and these are:
- Supplier Relationship Management (57 percent)
- Sourcing suppliers for product innovation (49 percent)
- Introducing processes/technology to improve collaboration (47 percent)
- Reducing supply chain risks (45 percent)
- Automating processes to save time/resource (42 percent)
Procurement’s innovation focus is broader than this however; increasingly involved in driving business innovation, they’re hooking into wide ranging business change initiatives and in some cases even leading them. Let’s take supply chain collaboration as an example, 84 percent of respondents claim they are currently involved in supply chain collaboration, 40 percent said they currently leading it, and 50 percent expect to be leading it in this innovation area in the future.
This picture is mirrored when it comes to procurement technology investment. Clearly technology has a central role to play in shaping and driving innovation. The two technologies most commonly in use today among procurement professionals are heavily supplier focused, with supplier information management top at 51 percent and contract management in second place at 49%, while SRM tools are among the most common technology investments planned for the coming 12 months.
Overall, more than 70 percent of survey respondents see procurement technology as being equally vital to process efficiency and genuine innovation. Procurement systems are now also perceived as delivering equally to the department and the business as a whole.
Effective supplier management – from evaluation and on-boarding to ongoing performance review – is a fundamental requirement of any business that is serious about spend management and risk reduction. But without the right tools, managing a supplier community that can often be made up of several thousand companies can be a hugely labour intensive and costly.
This is where procurement technology comes to the fore by enabling procurement professionals to become more innovative by freeing up time by automating a range of processes. This automation, including evaluating suppliers, onboarding, capturing supplier health and safety accreditations frees up procurement to become more innovative. Also, SRM and eSourcing tools can also give procurement far greater visibility into potential supplier or supply chain issues meaning innovative solutions can be used to resolve these problems before they become more significant.
Procurement is recognising that technology must do more than just prop up existing processes; it must drive on multiple levels – departmentally and business wide, delivering process efficiency and innovation.
Without question procurement is making a seismic innovation effort; but our report also suggests that it may not be realising its full potential and focusing more on ‘safe’ innovation. A willingness to take risks (20 percent) and a investing in R&D (19 percent) are clearly not considered priorities for procurement.
So could procurement innovation be hampered and restricted by its own inherent aversion to risk? Although business innovation is typified by creating new opportunities and attempting new things this doesn’t appear to be in procurement’s spectrum. Or perhaps they just haven’t yet jumped into the innovation world with both feet yet.
Our research also suggests that procurement isn’t really sure whether it wants to be the ones driving decisions or just part of a collaborative team that makes it happen. To become real innovators, procurement professionals must foster the right business relationships, nurture the correct set of new skills and seek to break ground in their approach to technology. That’s the challenge ahead.
*Wax Digital’s research was conducted by Morar Consulting
Daniel Ball is the Director at Wax Digital.
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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.”