The Economy and Spend Management: A European Perspective (Part 2)

In Part 1 of this post, I caught up with BravoSolution's Nader Sabbaghian on a range of topics including how suppliers are refusing to participate in new projects if they're worried about buyer creditworthiness or long payment terms. Today, we continue this discussion.

Spend Matters: What are the areas that are top of mind when you talk to customers today?

Nader: It's straightforward. Procurement can help in three areas: increased attention to generating efficiency and savings, reducing mistrust, and making consolidation/M&A work more effectively through better cost synergies. In some countries we operate in, customers are behind the US from a leading edge tools and techniques perspective. One element that procurement can help is implementing tools and techniques to speed the business objectives of executives.

A general appreciation of procurement professionals is a major trend. We are seeing in Europe that procurement professionals are being given bigger roles. They are listened to more. Even conservative organizations are also more receptive to ideas of change. As companies fight for budgets and programs, things are getting pushed forward faster. Not just auctions -- we're seeing programs such as contract compliance, cross-business realignment (terms, prices, etc.) gain steam. Some can have immediate effect.

Spend Matters: Could you give me an example?
Nader: Take terms and contracted pricing. We often see in European organizations that companies are paying widely different prices across business units. Technology and process changes can rapidly introduce significant savings opportunities. Similar approaches and even the same applications can create advantages in other areas. Spend visibility, spend analytics -- can quantify exposure of the organization to supply chain. Some companies have accelerated programs in terms of risk assessments.

Spend Matters: How specific can you get here?

Nader: A major global aircraft components manufacturer wanted to go far beyond what their current spend and supplier analysis programs were telling them. They needed to incorporate some very sophisticated risk management capabilities as an add-on by enriching spend data with new fields. They're interested in seeing not only what the particular financial position of a supplier is but also in figuring out to what extent they are exposed to the supplier and vice versa. They're looking at volumes and new contracts. They must know the budget impact on the supplier to understand how important they are to the supplier in the context of the overall market.

Spend Matters: What else are European companies thinking about?

Nader: M&A is another major focus. We see a lot of opportunity here for companies to achieve savings through volume aggregation, gaining greater visibility into spending, realigning and restructuring organizations and the rationalization of contracts in general. This is probably very similar to the role of procurement in M&A in North America at the moment. But one other area where Europe is different is around hedging. You seem very excited over this in the US at the moment. But in Europe, hedging is often looked upon as more akin to gambling than sourcing. We tend to -- for the better or worse -- buy or tie contracts to the market price for underlying commodities.

- Jason Busch

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