Tuesday, 26 February 2013

Case Study: Procurement’s Impact on 2013 Airline Profits

Authored by Mickey North Rizza

Recently the International Air Transport Association (IATA) made a bold prediction for 2013:
Airlines will earn global net profits of $5.17 billion despite volatile fuel prices and weakening demand.

But like all predictions for 2013, it will be interesting to see if and how, the global carriers meet the IATA’s expectations. Oddly, the articles about this prediction fail to mention procurement’s role in achieving these savings.

 
If you’re still trying to understand why cost reductions have a bigger and faster impact on the bottom line than driving top-line sales, here’s a simple explanation: a dollar saved goes directly to the bottom line, but a dollar earned goes only to the margin.

Procurement is naturally leaned on when sales are harder to come by, and companies always revert back to ‘trimming the fat’ when stuck in a cyclical, economic rut. Yet most of these procurement teams will struggle to uphold their value when company growth begins to multiply and organisational priorities shift. The best procurement teams, however, are leaned on year after year, regardless of how well the economy is performing.

If you’re not driving profits, valuation and supporting corporate strategy, there’s a good chance that the procurement team is missing the mark and missing a major opportunity to elevate your position within the boardroom.

This is only one example of
how important cost-cutting and procurement– is to overall business strategy in 2013 (even if it’s not mentioned directly). Maybe by the end of 2013 we’ll see more business articles with procurement in the headline.

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