Top procurement trends for 2017
We’ve had a sustained period of growth, and people are starting to worry the economy will soften, or that growth will get even choppier. Coupled with uncertainty following the Brexit vote and the US election, this may drive companies to try to get out ahead and curtail spending plans or look at cutting costs. Attention will likely turn to indirect procurement, which is a good thing, but only if they’re ready with analysis of the right areas to target.
That means procurement’s secret weapon in 2017 will be spend insight. Even before the inevitable cost-cutting demands happen, those at the top of their game will have sliced and diced their company spend data and be poised to take action where it will have the most impact. Prices have been squeezed hard over the last 8 or so years, so the biggest impact will come from challenging demand and scope, rather than boring old price.
To do this, sourcing will need to incorporate more PMO functionality, as future projects will encompass demand management activities such controlling waste, reducing overall demand, and eliminating excess quality. Another area to look at is cost structure transformation. Projects in this area will focus on things like process re-engineering, consortium-based purchasing and supplier continuous improvement programs. Sourcing organisations will need modern tools, and they’ll either need to develop or attract sourcing professionals with more project management skills.
Organizations that are unprepared will be chasing the same low value targets as always - cutting travel and Post-it notes, and freezing laptop upgrades.
A renewed interest in developing local and ethical sources
The Brexit vote and the US President-elect’s promise to revisit international trade agreements has introduced new exchange rates fluctuations and uncertainty from overseas partners and suppliers over future trade agreements. The only certain outcome of all this uncertainty is that overall spending will be down.
The growth of home-grown supply may lead to a small reduction in overseas dependency. And as governments’ sign up to more environmental commitments and consumers continue to show preference for socially responsible brands, procurement needs to be ready to roll up its sleeves to deliver step changes in this space. For too long, most of us have done little more than muck about in the shallow water. It’s time to dive in head first.
Greater supplier collaboration
As more companies deploy spend management platforms that automate or enable employee self-service for tactical procurement activities, procurement departments will find mundane supplier activities waning. That will give professionals across the source-to-pay process more time to focus on higher value add from suppliers, including suppliers of services.
Working collaboratively with suppliers to develop innovative solutions is second nature to much of the retail and manufacturing sectors, but its high time the services sector stopped talking and started acting. This is a team objective, not just a leadership one. Procurement should reposition itself as a business enabler by proactively analysing spend data patterns and supply markets. We must deliver insights and recommendations that let business leaders make key decisions on how to meet their financial goals.
Suppliers are likely to welcome this shift; they would rather focus on value too. Both sides have always held collaborative supplier relationship management as a goal, but we just never had time to do it. Now it should become more widespread.
Time for indirect procurement to finally get some respect
Many indirect procurement groups finally have complete spend management data--including integrated travel spend data--and tools allowing them to present analytics to help their company save money. Executives will welcome this type of support for data-based decision making on where to cut indirect costs.
Procurement could improve its positioning internally by handing over the tools, analysis and responsibility to the business. We have to lose our “policing” persona and progress toward empowering the business with analytics that allow them to make local decisions. Functions within firms that have earned the respect of the businesses and executive stakeholders will find that proverbial seat at the table is there . . . with the chair pulled back and ready.
Reverse auctions for SaaS
Certain SaaS software has become commoditised enough to make the prospect of “rip and replace” a lot less daunting, and in some areas there is very little hesitation to switch out. This means that sourcing groups in some cases can get away with quick and easy reverse auctions on solutions that just a year or two ago would have required complex RFPs. That means those SaaS vendors are under more pressure to compete, and there are better deals to be made.
Continued technology evolution
Integrating sourcing, purchasing and procurement technology, and its interface, into wider business applications, has been single-handedly transformational for every organisation that has had the acumen to implement it to date. If you haven’t done it yet… start today! In 2017 those CPOs who have already implemented enabling systems are fit to position Procurement at the centre of their company, armed with arguably the best business data available.
Technology will continue to evolve over the medium to longer term to a mode with a core “container” with a myriad of transactional apps. Companies will see the impact as they start to control a much larger percentage of indirect spend.
By Alex Kleiner, GM & VP Customer Success, EMEA at Coupa Software
Follow @SupplyChainD on Twitter.
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.”