Successful e-sourcing starts at the top
By Brian Miller, Vice President of Services, Intesource
Procurement teams today are focused on more than just securing savings and reducing costs – they need their supply chain to be a key driver of value and profitability throughout the organisation.
E-sourcing plays an important part of this growth, but to expand its impact, e-sourcing needs to be leveraged as more than just a cost-cutting tool; it needs to be an integral part of the overall procurement strategy.
Often, this is a major shift for many organisations, and it’s not always easy. A successful e-sourcing expansion requires a change in way businesses perceive the value it provides and its role in the purchasing process; additionally, many procurement executives will find that employees aren’t always immediately receptive to the mindset shift.
It’s up to those in charge of the implementation to get the organisation focused on e-sourcing as a business driver.
Overcoming buyer scepticism and resistance
When compared to old-school approaches to procurement, e-sourcing is a radically different method of purchasing; dependent upon cold, hard data and supplier competition.
For veteran buyers, this represents a stark contrast to their tried-and-true methods, and the dramatic results often promised by e-sourcing advocates, such as double-digit savings, increased automation, and the breadth of categories that can be sourced through this method, adds to the initial scepticism.
In many cases, buyers’ discomfort and doubt leads to resistance. For e-sourcing to be successful, it cannot be allowed to fall by the wayside as a purchasing afterthought or footnote. There are many ways to keep the process front-of-mind, but we’ve found that the best tactics focus on positive reinforcement, highlighting buyers’ success, promoting the new savings opportunities for the business, and building excitement throughout the organisation.
Starting at the top
The c-suite sets the tone for the rest of the company and it’s no different when it comes to procurement. That’s why we recommend that a company executive – whether it’s the CFO, CPO, or even CEO – remain involved with the e-sourcing initiative throughout the entire implementation. And reaffirm the company’s dedication to the process at various times throughout the life of the programme.
How can a c-level executive contribute to a strategic sourcing initiative? By articulating and reiterating its importance to the procurement process. And again, the point isn’t to crack the whip, but rather to highlight the positive – calling out the opportunity for the business and reinforcing the commitment to maximising the value of the supply chain.
Competition is King – even for strategic suppliers
In many cases, buyers believe they’re already getting the best possible deal from their supplier, based on the strength of their relationship and perception of the market. But the data says otherwise; incumbent suppliers lower their prices 55 percent of the time when challenged, demonstrating why a competitive supplier environment is the key to securing lower costs.
So how can managers entice buyers to put pressure on so-called ‘strategic’ suppliers? We’ve often seen procurement managers successfully spur buyers into action by tying the procurement team’s goals to e-sourcing, and strongly and clearly articulating the company’s e-sourcing policy. For example, company goals which mandate that a certain volume of spend be subject to an e-sourcing auction will drive buyers to take a second look at their suppliers, and put the business up for bid. And more times than not, buyers will find that there are more savings out there.
Getting buyers’ buy-in
A company-wide dedication to strategic sourcing requires complete support from buyers. But what’s in it for them? For buyers to buy-in to e-sourcing, they often need skin in the game, as well.
We’ve seen two common methods that ensure buyers are onboard. First, build e-sourcing metrics into your buyers’ KPIs and annual goals. By doing so, you’ll be tying their e-sourcing efforts directly into their success – and ensuring that buyers who are open to the process are rewarded appropriately.
Additionally, companies can celebrate their culture of sourcing through employee recognition programmes, providing rewards for the buyers that secure the most savings, and recognising the most successful savers.
One company, for example, has instituted a ‘Million Dollar Savings Club,’ recognising the company’s elite savers with a plaque and celebration. Also, procurement newsletters that highlight the top purchasing performers showcase buyers’ success to the whole organisation.
E-sourcing can be a major shift for many organisations, and roadblocks should be expected. But a positive, proactive strategy that promotes a culture of savings and buyer empowerment will overcome those challenges.
It starts with the c-suite providing support and excitement, a clear company policy that drives buyers into action, and a culture of positive reinforcement that rewards buyers for sourcing success.
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.”