This week, a report by AT Kearney found that 90 per cent of companies believe their procurement function has become more strategic
. Where before its role was to cut costs, now it is to factor in overall value. This finding is not unique – it’s been a hot topic over the past couple of years and it is merited. At the macro level, public sector procurement is touted as a new tool to stimulate economic growth. At the micro level, it’s a way to develop products cost-effectively. Both are achieved through using procurement in a new way.
But I imagine Ryanair
chief Michael O’Leary does not buy into this school of thought. In his CEO statement at the airline’s ha
lf-year results, announced this week, he revelled in the economic situation the world finds itself in and the opportunities presented by relentlessly cutting costs.
In general, reports talk about re-organisation and contingencies to mitigate input price inflation. O’Leary is positively giddy about it: “The recession and higher oil prices continue to force competitors to consolidate and cut capacity and routes, which creates further growth opportunities for Ryanair as European airports compete aggressively to win our route and traffic growth.”
Ryanair is already 90 per cent hedged until the second half of 2013. Of course this may come back to bite him, but at least he knows the score. And referring to the rise in fees the company is having to pay Dublin Airport, he said Aer Lingus interpreted them as “insane” while Etihad thought them “too excessive”.
And O’Leary has form for using his results statements to take aim at suppliers. In 2009, during a spat with Boeing
over the fact that it had made efficiency savings, but was not going to pass any of them on to Ryanair, he said: “We see no point in continuing to grow rapidly in a declining yield environment, where our main aircraft partner is unwilling to play its part in our cost reduction programme by passing on some of the enormous savings that Boeing has enjoyed both from suppliers and more efficient manufacturing in recent years.”
Reaction to O’Leary himself tends to prompt strong opinion. A lot of the general public, including a large number of his passengers, strongly dislike him – to put it lightly. Comedians and journalists love him for what he says. I imagine procurement professionals have their own views on him personally. But his approach is one that should be considered. He is all about cutting costs to the absolute limit – the man himself has said that he is looking at ways to charge for ice cubes and it seems to serve him well. In the results, Ryanair reported a 20 per cent rise in profits.