Taking the heat out of procurement
Our record-breaking hot summer has seen sales of beer, burgers and ice cream soar. Good news for the UK’s retailers but a big challenge for procurement to ensure its suppliers can keep up with demand.
As temperatures soared at the start of July, the UK’s leading supermarket predicted record sales of the things we all love to buy as the mercury rises. The retailer expected to sell in excess of one million burgers, one million hot dog rolls, six million ice lollies, approximately one million tubs of ice cream. almost 50 million bottles or cans of beer and one million bottles of wine.
However, despite record sales of certain items, the knock-on effect of these hot temperatures, alongside last year’s harsh winter, is likely to hit consumers’ pockets in the long term. The sizzling heatwave saw grain harvests and grass growth fall in production, and it has even had an adverse effect on pig fertility, resulting in an increase in the price of piglets.
Although we can never predict the weather in advance, you can have a contingency plan in place and work with the supply chain to understand what extremes of temperature could mean for crops or grain production. Therefore, it’s essential that procurement prepares for these possibilities.
Here are five tips our hot glorious summer has taught us about staying in control of the supply chain and costs:
1. Contingency plans
If any part of your supply base is located abroad, chances are the hot temperatures are having an impact there too. It is therefore, essential that businesses ask suppliers the right questions from the start of their relationship. Even with non-business critical purchasing activity, adopting a proactive approach to supplier evaluation and contracting means that you can assess their capabilities in extreme weather conditions from the outset. Sounds obvious - but it’s very easy to overlook this line of questioning.
2. Your suppliers’ suppliers
It’s not just your primary suppliers you need to think about – what about their suppliers too? It’s important to understand which parts of your supply chain could be affected by the weather and ensure key suppliers have adequate solutions in place if production suddenly becomes an issue.
3. Sales peaks
As temperatures soar, the UK races to the supermarket to fight over the last pack of burger buns, grab some sun cream and a paddling pool for the kids. Multiple lines are fast-moving during a hot spell so it’s essential that plans are made with suppliers to ensure they can upscale on orders of particular items when demand is high.
4. Event planning
It’s impossible to predict the weather, but we do know when certain events that are likely to lead to increased demand for certain items are happening. The World Cup and the Royal Wedding were just two events that took place last summer that generated an uplift in sales of barbeque items and alcohol. These events coupled with the good weather saw an even bigger increase in sales and procurement professionals should always be looking ahead to plan for these types of events and what a possible increase in temperatures at the same time could mean for sales too.
5. Lock down prices
Can you fix prices with suppliers so that if their costs increase as a result extreme weather, they’re not passed on to you? It’s a discussion to be had at the sourcing and tendering stage so that prices are fixed for a period of time. In exchange for a lengthier contract or more favourable payment terms, it may be possible to get suppliers to agree to fixing their costs or putting in place a maximum uplift in pricing.
Clearly, the weather, good or bad can have an impact on your procurement and more time spent planning for our next hot or cold spell now could certainly ensure it doesn’t leave you hot under the collar next summer.
Daniel Ball is the Director at Wax Digital
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.”