Supply Excellence — Regulators vs Profitability: How can Buyers help?

Regulators vs Profitability: How can Buyers help?

September 8th, 2008 · by Jean-Pierre Lauer · No Comments · best practices, contract management, sourcing, supplier management, supply management

Playing cat and mouse is no novelty game for the regulators and the suppliers. When people are hit by hard economic times, governments often intervene to improve citizens’ living conditions. At the same time businesses have to maintained their profitability. This is where two opposite agendas often clash. The latest examples in Europe include the telecom and energy industries.

In 2007 the European Commission introduced rules on calls roaming, limiting the costs of calls made and received abroad within the EU. Mobile operators were outraged but finally implemented the new tariff, saving millions of Euros to consumers and businesses. Emboldened by their popular move, now the European Commission is looking at data roaming and termination charges. The immediate response of the mobile operators was that it would disadvantage the consumers.

While consumers have seen their energy bills skyrocketing, energy companies are making profits of billion of Euros. EDF, one the largest European energy provider, made a profit before tax of €15.21 billion in 2007. Through programs such as the British Government’s fuel poverty package, governments are looking to tax providers and give back to the public. Like the telecom sector, energy providers are arguing against any new taxation, citing the demands of profitability, sustainable energy targets and infrastructure reinvestment as reasons they must pass the costs onto consumers. And since many energy companies are foreign owned, governments are having a difficult time finding common ground on their proposals.

So in this grand game of cat and mouse, what role can buyers play in helping their company stay on top of the situation and cope with changes to the regulatory environment?

Watch your (regulatory) space. Be aware of any future change of legislation/market forces in your portfolio of commodities.
Contract at the right time. Suppliers are likely to force buyers into contracts before a new legislation favourable to the consumer enters into law. Some offers may look appealing but there may be better to come.
Adapt your supplier management. In the example of mobile telephony, suppliers are likely to try to recover their loss of profits on other type of services. Buyers should pay attention to this and particularly use invoice reconciliation and other techniques of contract management to make sure they are paying the right price.
Lobby. Lobbying in Europe is not as developed as in the US. However private consumers should not be the only force to influence on legislation. Buyers should join forces where they feel that there is a situation of monopoly or price abuse.

Jean-Pierre Lauer is a Category Manager for Services in Ariba’s Global Services Organization. Based in London, Jean-Pierre works with corporations through EMEA.

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