Earlier this week, Google announced plans to get into the alternative energy business. The Web search and advertising giant plans to spend $500 million to buy companies and hire engineers to develop new and more affordable solar, geothermal, wind, and other alternative energy sources.

The “Renewable Energy Cheaper Than Coal” initiative plans to “produce one gigawatt of renewable energy capacity that is cheaper than smog producing coal. Google execs expect to achieve this gigawatt milestone — which could power a large city — within “years, no decades.”

Noble goal. But, it raises a question: Who the heck would buy power from their search engine provider? The short answer: Google itself.

In fact, when announcing the initiative, Google execs were careful to state that the move to find cheaper power was fueled by a need to lower its own electricity bill. The company’s patented data centers house hundreds of thousands of servers that run their leading search engine.
With rising oil and energy prices, power consumption has become top of mind for most large, data-centric companies — from the high-tech to the financial sector. In fact, as recently reported here Ken Leinweber, Strategic Sourcing Manager, Procurement and Operations Strategy at Sun Microsystems estimates that “IT on average spends 25% of their budget on power. In the next five years or so, folks will be spending more money on power than they will on the hardware.”

Just consider the additional commodity savings you’ll need to identify and capture to offset those rising power costs. If that’s not a rallying cry for sustainable supply strategies, I don’t know what is.

Our fearless field reporter, Andrea Soltysiak, is back with more insights from Aberdeen Group’s recent CPO Summit in Boston. This time she recounts the sometimes radical comments from supply management pioneer Roy Anderson on how we must adapt to the changing business landscape.

In a recent presentation at Aberdeen’s CPO Summit, Roy Anderson, vice president of global procurement, travel and publishing, MetLife mentioned that 67% of current businesses will end this decade due to new owners, bankruptcy and/or a change in their business model. To keep a business running, he cites that a sustained growth of 10% is required and cost control of 80% is a must. This makes the procurement organization extremely valuable to your company.

Last year’s post Your Company is Being Acquired. Now What?, highlights Luc Volatier, CPO at Numico’s advice for the acquirer and the acquisition target from a procurement perspective, mainly in the pre-close, post-announcement phase. In this post, we’ll feature Bob Darrah, Director, Global Supply Chain at laser technology developer Newport Corp., which acquired Spectra-Physics in 2004. Darrah provides a post-acquisition perspective and lessons learned along the way.

In an article written by Dave Hannon at Purchasing Magazine last year, Darrah states that there were a clear list of challenges and benefits that came with the acquisition. The biggest challenge was the consolidation of suppliers across various organizations in the company. Darrah tells Purchasing, “There are a lot of common suppliers in our various vendor bases and ERP systems. Rationalizing those and getting the organizations ‘acquainted’ with each other so we can leverage our synergies and spend have been our areas of focus since the acquisition.”

Prior to the acquisition, Newport purchasing was a decentralized, which made supplier consolidation difficult. But the newly acquired Spectra-Physics created a Global Sourcing team of six strategic sourcing specialists who were given the two-pronged task of identifying new global supply sources as well as rationalizing and consolidating the company’s existing supply base and commodity list, cites Purchasing Magazine. Newport took the Global Sourcing team concept and combined it with the manufacturing site procurement groups. This was met with hesitation but was gradually accepted after the benefits were seen and realized.

Next was technology integration. Spectra-Physics had been using various ERP systems at 10 different sites. Newport decided to standardize all of its sites onto one platform. The concept is to rollout a new site each quarter.

As for a current update, Darrah explains that Newport’s roadmap to implement their ERP vendor globally has progressed as planned domestically; with five of seven manufacturing sites up-and-running. Implementation is proceeding concurrently in France, Canada and Japan with global roll out completed in 2008. Newport is already seeing the benefits of a consolidated platform with respect to shared data, business warehouse reporting, common metrics and significant progress in lean manufacturing initiatives. Accounts payable has been centralized in Irvine as each site is brought online, providing greater opportunity to implement procure-to-pay initiatives. The Global Strategic Sourcing team uses the available data to drive cost reduction initiatives that have exceeded the 2007 plan and projections for 2008 look promising. “We have been able to identify and leverage existing strategic suppliers and we are undergoing offshore and outsourcing efforts to China to further optimize our supply chain and provide greater value to our customers. As for lessons learned…it’s much easier to rationalize products than cultures. Change management and leadership has been the key to the Newport/Spectra-Physics integration,” adds Darrah.

We read the warnings of horrific travel during the U.S. Thanksgiving holiday – whether via air or road. In Atlanta alone, airport officials estimated about 1.8 million people would pass through Hartsfield-Jackson during the long holiday weekend, including about 324,000 people on Sunday and 305,000 on Monday of this week. That is about a 4.6 percent increase in holiday weekend traffic from last year. AAA said its surveys indicated a record 38.7 million U.S. residents were likely to travel 50 miles or more for the holiday period of Wednesday through Sunday, up about 1.5 percent from last year. About 4.7 million were expected to fly, and about 31.2 million travelers were likely to drive in spite of rising gasoline prices, AAA said last week.

With fuel prices at high levels ($3.39 in California), Americans still have a thirst for gasoline. SUVs continue to grow in popularity. Just look at the roads and highways and you’ll see that a severe gas shortage would practically cripple the country. Americans drive more than 2.5 trillion miles per year in automobiles, light trucks and SUVs, according to a Motor and Equipment Manufacturers Association report. That’s equal to 14,000 round trips to the sun. The U.S. transportation system is the largest in the world and accounts for one-third of America’s greenhouse gas emissions – more than 515 million tons of CO₂ each year. That’s nearly 70 percent of the oil consumed in the U.S. and more than we as a nation produce.

The problem is the lack of alternatives to travel. Relatives live across the country or even in neighboring states. More and more families are moving away from their hometowns to find jobs, making major cities hubs for transients.

True Green, a book published by National Geographic, offers eight tips for travel that you can implement for long trips or just getting around your community:

1. Hoof It - get in those 10,000 steps a day you need to stay healthy.
2. Get on your bike - half of all car trips are 3 miles or less… a distance that can be covered just as quickly on a bike.
3. Become a passenger - six in ten Americans have public transportation available but only ten percent use it with some frequency and only four percent use it as their primary means of getting to work.
4. Choose a hybrid – a family driving a hybrid car will spend only $800-1500 per year in fuel compared to $2500-2800 driving a conventional car.
5. Soft Pedal – at 75 mph, your car uses 15 percent more fuel than cruising at 65 mph.
6. Small strokes – we’d save eight billion gallons of gas each year if every commuter in the U.S. just carried one more person.
7. Fuel around - high-octane fuel, which contains up to one-third less sulfur than regular unleaded gas, provides more engine power, more efficient consumption and cleaner exhaust emissions.
8. The Sky’s the Limit – a single, one-way coast-to-coast flight will dump an additional ton of CO₂ and other greenhouse gases, per passenger, into the atmosphere. That’s double the emissions you’d release by driving cross-country in an SUV.

Useful, if not obvious, tips to keep in mind when planning your holiday trips in the coming weeks.

Could your Thanksgiving feast be a bellwether for inflation and possibly (gasp) recession? Some economists think so. And the economic tea leaves seem to support this conclusion.

The American Farm Bureau Federation this week reported that the cost of a traditional Thanksgiving dinner for a family of 10 has jumped nearly 11% this year — a nearly 4X increase over last year’s increase. On average, it will cost the typical family $4.16 more to stock the Thanksgiving table this year.

Turkey saw one of the biggest jumps, with prices increasing about $1.93 per pound. Most of this increase is attributed to rising corn and gasoline and diesel prices, which are up $0.87 over last year. The Farm Bureau also cited price boosts for whole milk, cans of pumpkin pie mix, sweet potatoes, pie shells, rolls, whipping cream and fresh cranberries.

An article in yesterday’s Philadelphia Inquirer reported that inflation has spilled over to impact supply costs in key business sectors. Reporter Harold Brubaker touches on the rising supply costs that have caused companies like Campbell, Kellogg, P&G, U.S. Steel and Rohm & Haas to see lower profits and, in turn, caused them to raise prices.

Robert Schiffner, Campbell’s CFO said he expected costs to rise 6 percent to 7 percent, instead of the previously anticipated 5 percent during the company’s financial conference call to report first quarter earnings on Monday. Concern was primarily around the increasing cost of wheat, dairy, cooking oils and diesel fuel for delivery trucks.

John Mothersole, senior economist at Global Insight Inc. agrees. His company’s index of raw material prices is up 25 percent this year, led by crude oil, chemicals and rubber. However, he doesn’t believe these increases will affect consumers - mostly due to the softness in the U.S. economy and the pressure to hold back on price increases. Sky rocking commodity prices “don’t square with fears of recession” in the word’s largest economy, said Roberr Garnder, economist with Royal Bank of Scotland Group.

Yet, the overall prognosis is that a recession is unlikely even with the downturn in the housing market, record oil prices and the credit crunch that has paralyzed certain segments of the capital market. Good news now – let’s hope it sticks.

So, your CEO has caught the sustainability bug and now you’re personally on the hook to reduce energy consumption, waste, and greenhouse emissions.

You’ve started by implementing some easy eco-fixes with your internal operations, but your factories are still spewing more smoke than a bachelor party at a cigar bar. Retrofitting your old production equipment to be eco-friendly will take years and millions (if not billions) of dollars. And your overzealous CEO has told the street your company will cut its environmental footprint within the next three years.

What do you do to bridge the gap until your operations catch up with your CEO’s ambitious sustainability goals? Businesses and governments around the world believe they have an answer: carbon offsets. In the most basic terms, carbon offsets allow companies to compensate for their own emission lapses by buying green credits from other companies that have done a much better job at lowering their greenhouse gas output. And, by the market reaction, they seem to be onto something.

New research indicates that the market for voluntary carbon offsets grew 200% last year to more than $90 million. And that doesn’t even include the carbon offset exchanges run by governmental agencies, such as the European Union or the Northeastern states coalition here in the U.S.

At first blush, carbon offsets may appear to be a cop out, merely allowing larger, inefficient companies to continue to spew pollution. However, a new article in Fast Company magazine correctly indicates that the free market system will soon increase the cost of carbon offsets to a level that will force even the most reluctant companies to embrace more efficient and environmentally friendly operations.

According to the article, “Carbon taxes, government-mandated carbon-trading markets (such as the EU market, or the regional initiative in the northeast United States), and voluntary offsets are designed to channel money toward the low-hanging fruit. As the cheap reductions are achieved, the price of carbon, and carbon offsets, will go up. That’s the point of the market-based system.”

That said, the article suggests that achieving a true market-based system will require some enhancements to the current carbon offset programs. Yet, the improvements should be forthcoming. Congress has requested that the Environmental Protection Agency beging developing standards to measure and validate claimed offset savings. And an independent group, such as the Center for Resource Solutions is developing certification program for offset providers.

Upshot: carbon offsets are a near-term fix to help reduce the aggregate amount of greenhouse gas emissions in the world. Yet, over the longhaul, the rising cost of offset credits will force companies to overhaul their operations to become more efficient and eco-friendly. Polluters that don’t, will pay a steep price that will eat into profits and overall market value.

With Aberdeen Group’s CPO Summit winding down, our field reporter Andrea Soltysiak is rounding out the Boston leg of her trip. What better time for her to report on the highlights of Merck’s presentation at the event on corporate travel strategies. The secret to their success lies not only in negotiating great deals with airlines and hotels, but demand management activities to control how and when employees book travel.

We have all likely been on the receiving end of a CFO asking why you chose the expensive, direct flight when a lower option existed. Or, we’ve stayed at a less-than-desirable hotel because it was the only one “in policy” within 10 miles of your meeting.

Yes, travel procurement executives have a tough job. Merck, the pharmaceutical giant, is no different as Howard Richman - Executive Director Global Procurement and Lisa Marie Meehan - Director of Travel and Procured Services discussed at this week’s CPO Summit. With 10,000 “travel buyers” and a $400M travel spend (40% restaurant, 31% air and 23% hotel) the company’s Global Business Services (GSB) organization wanted to create a standardized and corporate-wide travel policy. So, they partnered with procurement.

The journey began with challenges we can all imagine (or relate to): non-compliance to corporate policies and lack of access to data and reports while striving keeping employees (“travelers”) satisfied.

In 2004, the organizations unveiled a sourcing management process that used Six Sigma methodologies to build cross-functional teams. With senior leadership support, a team was created with individuals representing HR, Finance, Telecom, Risk Management and others.

Throughout the process of defining the team’s charter, gathering and analyzing data, creating and implementing the strategy and performing value management, the team uncovered critical success factors:

• Proactive executive support
• Compelling business case
• Dedicated commitment
• Dedicated cross-functional resources
• Use of sourcing tools and technology
• Understand supply market and business needs

Throughout the journey, Meehan and Richman explain that it’s key to realize roles and responsibilities will shift – you have to be flexible. Additionally, there has to be a strong alignment between travel and procurement.

With that said, even with your top negotiator on the phone with travel companies, Merck realized a 15% savings by just having travelers book 14-days in advance of their trip. Procurement not necessarily needed but strict policy enforcement is. Merck runs reports to highlight those not complying with the 14-day advance policy; the team adds up the total cost and shows management. Sure, $25 here and there doesn’t particularly matter but if all 10,000 travel employees are incurring that extra cost it equals an unnecessary $250,000 spent. Now, that’s something management may want to see.

Guest blogger Andrea Soltysiak has another great report from Aberdeen Group’s CPO Summit — this time on one of my favorite subjects: sustainability. She reports on Material Science’s walk-before-you-run approach to developing a successful sustainability program.
Green supply chain has been a common theme on this blog, so I jumped at the chance to hear Kirk Eberhart, global director of supply chain at Material Sciences, present on the topic.

The difference in Kirk’s presentation versus others I’ve heard is that he has implemented green strategies and has results to show for his procurement efforts; not to mention that Material Sciences manufactures a “quiet” steel to reduce noise pollution. So, not only is a green strategy part of its procurement organization, it’s also part of its product strategy.

Material Sciences’ green strategy is based on the following principles: mitigate pollution, avoid creating waste and eliminate the use of toxic substances. That sounds good, but how do you get started? Kirk’s advice begins by looking internally. For example:

• Recycle in the office (reuse printer paper, recycle aluminum cans)
• Post avoided cost to show impact (what was your suppliers’ price break when you return used printer cartridges?)
• Look at waste fluid products (oils, greases, etc.)

Once these approaches have been deployed, it’s time to take a look at your suppliers. Do you know your suppliers’ feedstock analysis? Production processes? Packaging strategy? Distribution methods?

Next, talk with energy suppliers, look for energy star ratings and understand chemical alternatives. Yes, getting information from suppliers, especially to questions surrounding their eco-friendly practices, may be challenging but you can include these questions in your RFI process (% waste recycled, % raw materials are from recycled materials, ISO 14000 certified, NPDES permit).

One tool that Kirk suggests is signing up for the ICE-Alert, which previous SupplyExcellence posts have mentioned and encouraged.

Do you have other green strategies to share?

Our guest blogger Andrea Soltysiak is back on the case, this time profiling the comments from CPO Summit keynote speaker Michael Treacy. Although, I must admit, this long-time management guru and author (whose Discipline of Market Leaders is a must read) seems to have softened in his old(er) age. The usually controversial Treacy takes aim at the importance of productivity.
From Lou Dobbs to Gartner, a panic surrounds offshoring and outsourcing. Yes, I am all for creating new jobs. As a worker and manager, I want the comfort of knowing my job is in demand and my team’s jobs are secure. However, as a consumer I am not willing to pay more for American-made products. And, as keynote speaker and best-selling author Michael Treacy points out, I’m not alone. But it’s not offshoring and outsourcing that are causing job loss.

Treacy, author of Discipline of Market Leaders: Choose Your Customers, Narrow Your Focus, Dominate Your Market and Double-Digit Growth: How Great Companies Achieve It - No Matter What, highlights General Motors in his presentation. In the last 25 years, 67,000 jobs were lost per million cars produced at GM. Nineteen thousand jobs were lost due to onshore outsourcing; 8,000 lost due to offshore outsourcing. What happened to the remaining 40,000 jobs, Treacy asks? Productivity gains.

Productivity is the real enemy. He cites that only 300,000 jobs are offshored each year. A pretty small fraction when looking at the overall job market.

Traecy also predicts that “All work will migrate to where work gets done best”. He claims that we will compete for our jobs on a global basis, except those jobs deeply affected by location (think doctor’s office). The reality is that there are five tutoring companies today that will match your child with someone in India to help with his/her homework.

Interesting thoughts. Do you agree?

Andrea Soltysiak, long-time advisor, public relations, and marketing specialist to supply chain and supply management software companies is hobnobbing with the stars at Aberdeen Group’s CPO Summit in Boston this week. Her first report from the conference gives us a rundown of just how impactful the audience of senior supply management executives in the audience have been. (Although, I’m certain Andrew Bartolini, Aberdeen’s senior supply management analyst, rigged the books when it came to how many attendees were Red Sox fans.)
Welcome to (Rainy) Boston.

The CPO Summit kicked off this morning with welcome remarks from Stephen Gold, president, and Andrew Bartolini, director of global supply research at Aberdeen. To understand the power of those in the room at this year’s event, the combined spend under management is $1.1 trillion. To put this into perspective, this room would make up the 11th largest nation in the world. Pretty impressive for only 200 people (my best guess by counting heads).

This year’s conference will focus on five key themes that the next few posts will cover: leadership, globalization, people management, process management, and category management. Broad yes, but considering all the speakers are practitioners we should hear valuable lessons learned and sound best practices from executives representing MetLife, National City, P&G, Aetna and Smiths Aerospace.

Aberdeen introduced a polling concept to set the stage for this year’s event. Before we dive into the spend management specific topics, it turns out 37% of the attendees are Red Sox fans; 28% enjoy ALL Boston teams; 20% watch the undefeated Patriots on Sundays and 15% are looking forward to the new and improved Celtics this winter.

As all sports magazines and talk radio programs tout – it’s a good time to live in Boston.

Moving on to spend management, the majority of those in the room are responsible for 50-70% of spend under management. The top strategy to improve spend under management is to improve visibility. And, the top priority for this group in the next three years is to increase spend under management. It may seem like I’m writing in circles, but there’s a clear theme here: these folks want to manage it all.

Aberdeen’s annual CPO Summit will take place this week in Boston. The agenda for this year’s event includes a great line-up of speakers and panelists billed to provide a look into the future of global supply management and strategies for achieving a competitive edge. Among those taking the stage will be National City Corp CPO Jean-Jacques Beaussart, who has been an occasional voice on this blog. I’m looking forward to hearing more from him about improving supply management initiatives through the effective recruitment and management of people resources. Other presenters come from a diverse range of industries and backgrounds, which always makes for an interesting and productive exchange of best practices. But don’t take my word for it; I’ll be inviting guest bloggers to share some of the high points with you throughout the week. Stay tuned.