In this morning’s Pharmaceutical/Healthcare Transformation breakout session, Reema Alzoubi, a Manager in Pfizer’s Worldwide Procurement group, discussed some interesting cultural challenges that they face internally and externally. Not too surprisingly, they found the solution on both fronts to be personal contact with their stakeholders.

Pfizer initially had a difficult time moving their European suppliers towards a more automated, electronic world. As Reema said, it seems that “overseas they like paper.” But rather than further exacerbating the problem with process mandates or allowing payments to float unpaid in a paper vs electronic void, they did something far too few people probably think of these days; they picked up the phone. Reema credits those personal contacts with a few key vendors overseas as helping to push others to comply since “everyone talks to everyone.” So as word spread, other suppliers came into compliance.

Internally, their process adoption and compliance issues stem from the vast perceived cultural divides between different groups. As Reema explained, “manufacturing thinks they’re so different from development and sales thinks they’re so different from manufacturing.” I’m not surprised one bit that folks in the lab think their sourcing and purchasing needs are totally different than front office operations. But it was impressive to hear that the procurement team (which often has a difficult time getting a seat at the table in pharmas) could sit people down, do a little hand holding and get them in line. It just goes to show that sometimes there’s no automated substitute for actual human to human conversations.

Justin Fogarty is Managing Editor of Supply Excellence and will be covering Ariba LIVE 2008 from Las Vegas this week. Any feedback or questions about the event or blog can be directed to Justin at jfogarty[at]ariba[dot]com.

Another big issue that’s been coming up over and over again at Ariba LIVE this year is the challenge of finding and retaining good, qualified people. Staff retention is still a huge challenge for category experts, procurement and strategic sourcing roles. And if Professor Wheelan’s concerns about education stagnation aren’t remedied, this problem could continue for a long, long time.

Roy Anderson described an interesting program that MetLife has set up with Rutgers’ Center for Supply Chain Management to help fill the ranks of their procurement department with top, upwardly mobile talent. Over the course of two years, the recent grads are trained and prepared to take over leadership roles. In the words of Roy, the young professionals are then equipped to “lead in the next generation of procurement.” But Roy leads a literally award winning procurement department. So, it’s hard to imagine the challenges they face are worse than average.

But if you think finding talent in the US is bad…try the rest of the world. In a session on LCCS I attended yesterday, the issues around effectively staffing an International Purchasing Office (IPO) were raised by all three panelists and even some audience members. Aside from the usual cultural (corporate and regional), language and time-zone issues, simply finding job candidates with the right skillset is tough. And that’s not just for countries with sub-standard education, as an audience member from Emerson pointed out. He said that even with competitive salary offers and a well known company, they’ve had open positions for months…in India…where there’s a highly educated workforce.

This is definitely an issue we’ll explore more on the blog in the future. So if you have any thoughts about the causes and cures, please drop me an email or post in the Comment section.

Justin Fogarty is the Managing Editor of Supply Excellence and will be covering Ariba LIVE 2008 from Las Vegas this week. If you have any questions or feedback about the event or blog, you can reach Justin at jfogarty[at]ariba[dot]com.

Private Equity (PE) firms don’t usually come to mind when you hear the terms “strategic sourcing” or “procurement.” But Shant Mardirossian’s solo mainstage presentation and contributions to the Views from the C-Suite roundtable today showcased a very interesting use of spend management principals as a pivotal piece of how PE firms are extracting value from their holdings in tough economic times, which for PE’s means less leverage due to the credit crunch and squeezed returns due to high priced raw materials.

Shant is a Partner and the CFO of Kohlberg & Company LLC, a mid-market firm with holdings that include Bauer (hockey equipment), Singer (sewing machines) and Central Parking Corp. They specialize in buying “troubled” companies and turning them around. At Kohlberg, that process includes cost reductions through the use of services and technology AND combining purchasing power for indirect spend across multiple companies they manage. That doesn’t mean they handle purchasing and sourcing across their various holdings - they let the experts from each individual company handle that. But when working together will give them greater leverage with suppliers without interfering with the needs of their internal customers, why not save some time and money?

An interesting perspective that might have some lessons in it for larger companies with fairly autonomous business units. And if Shant was right about this eventually moving beyond indirect spend to actually include direct materials in the future, then that could be even more relevant beyond the world of PE firms.

Since his work brings him in contact with a relatively large sample size of companies, hearing him validate that the trends of in-sourcing and near-sourcing are becoming more and more common is another strong data point on the topic. According to Shant, wage inflation in China and rising costs of transportation are reversing the tide and bring supplies and manufacturing closer to home.

Justin Fogarty is Managing Editor of Supply Excellence and will be covering Ariba LIVE 2008 in Las Vegas this week. Questions and feedback on the event or blog can be sent to Justin at jfogarty[at]ariba[dot]com.

One theme that I’ve seen several presenters stress is the importance of building and maintaining good relationships with suppliers. In the words of IACCM President Tim Cummins, you “must be [your suppliers’] trading partner of choice.”

MetLife’s VP of Global Procurement, Roy Anderson, said having that type of cooperation with their supply base is key to his team innovating in their procurement and sourcing projects. Working with suppliers, they are able to overdeliver to his internal stakeholders, often times anticipating their needs BEFORE they even realized that need exists. (With that kind of performance, it’s no wonder Roy received a Spend Management Excellence Award earlier today).

Chevron’s approach to the issue relies on easy access for their 8,000 suppliers, who like their employees, have a single sign on to their system from anywhere in the world. Oftentimes it’s those little things - like 24/7 access from anywhere on earth - that make or break adoption…and therefore savings associated with a process.

Justin Fogarty is Managing Editor of Supply Excellence and will be covering Ariba LIVE 2008 from Las Vegas this week. You can reach Justin at jfogarty[at]ariba[dot]com if you have any questions or feedback about the event or blog.

First, I gave you the Good News about the Global Economy from Professor Charlie Wheelan’s mainstage presentation this morning. Probably left you feeling pretty darn good about the state of the world. One big happy place full of potential for 6 billion enterprising souls.

Well, I hate to rain on the parade, but the Professor also warned of three very ominous looking clouds on the economic forecast…

1. Wage & Education Stagnation - The fact that median wages for high school dropouts in the US have dropped a staggering 27% is troubling news. But rather than site the usual suspect - outsourcing - Wheelan stated that it’s more due to the inability of the undereducated to add economic value in their jobs. Those people are then in danger of being replaced…by technology. Add in the education stagnation the Professor displayed (flat high school graduation rates and only small increases in college grads) and you can see two dangers on the horizon: further disparity of wealth in the US and more Americans losing their jobs to technology and outsourcing. There was a silver lining to this topic (unless you’re a supermarket checkout clerk or an airline that refuses to think about their passengers’ needs). Businesses that add value for their customers by thinking more holistically about how their product or services fits into their customers’ day are still poised to succeed.
2. Gas Tax “Holiday” (and other silly pandering policies) - I have yet to hear an economist who thinks the McCain/Clinton Gas Tax Holiday is a smart move. Professor Wheelan likened it to a family sitting around the kitchen table saying, “the family budget isn’t working, so let’s spend the college savings fund.” Ditching a tax that pays for infrastructure, deters consumption and provides needed revenue to deal with an economic problem - like oil/energy - that isn’t going away just does not compute to a quantitative, pragmatic, academic mind.
3. Entitlements - Like the Gas Tax Holiday, Professor Wheelan (and just about everyone else who’s looked at the projection that has entitlements eating up ALL of the Federal budget by 2040) says the math on entitlements does not add up. Professor Wheelan says that failure to address the financials, while still ensuring basic services to citizens and staying out the way of the private sector in the progress is both challenging and essential.

That Good and Bad news is the context that should shape the rest of the sessions here in Las Vegas. So, is the global economic glass half empty or half full? Give us your opinion in the Comments.
Justin Fogarty is the Managing Editor of Supply Excellence and will be covering Ariba LIVE 2008 from Las Vegas this week. If you have any questions or feedback about the site or event, you can contact Justin at jfogarty[at]ariba[dot]com.

As I mentioned yesterday, I was really looking forward to Professor Charlie Wheelan’s talk on the Global Economy and he lived up to my expectations. Given that his work deals with the intersection of economics and public policy, it’s no surprise that the context of his talk was around the choices we face as a nation and on the global scale. As with any major decision, our results will depend on how we interpret and react to the facts on the ground, or as he framed them, the Good News and Bad News.

So what Good News on the global economy did the Professor have…

1. Globalization - I know it’s been a while since you saw that publicly placed in the “Good” column since this is an election year. But the Professor’s point on why globalization is a very positive thing was twofold. First, bringing 1,000,000,000 people, who were living subsistence agricultural existences, into the global economy unlocks a tremendous amount of human potential. To put a Vegas spin on that point, the odds that a “special individual” who goes on to cure cancer or otherwise positively impact the world is greatly increased when you add that number of people to the intellectual capital pool. Second, was the upside of high population density, which the Professor believes will lead to further specialization. The theory is that greater density leads to greater competition. With that greater competition, people will continue to adapt professionally into more specialized roles and thus add greater value to society.
2. The death of the Unisaurus - I think most of the audience must have missed it when DaimlerChrysler quietly pulled the plug on the UniMog, which was some kind of massive SUV weighing as much as two Chevy Tahoes or…one Tyrannosaurus Rex. The Professor interprets low demand for such a vehicle for purpose of transporting kids and groceries as proof that indeed “green pressures are here to stay.” He made a strong Economics 101 case for continued high fuel prices (high demand and a limited supply). Although I’d say it’s debatable whether or not his belief that we’re seeing increased interest by consumers in sustainability, which economists consider a “luxury good”, due to our relative wealth…rather than the pain we’re feeling at the pump.
3. The 2nd Industrial Revolution - Professor Wheelan believes we’re at the cusp of a massive boom in productivity for two reasons. First, the efforts by Google, university libraries and publishers to digitize literally every book on their shelves will make “all of human knowledge accessible to you in your livingroom with a PC.” And second, the tremendous potential to improve human lives that was created in recent years with the sequencing of the human genome.

Some great signs if you look at the world as a glass half full. I’ll be back later today with the other side of the coin…the Bad News.

Justin Fogarty is the Managing Editor for Supply Excellence and will be reporting all week from Ariba LIVE 2008 in Las Vegas. If you have any questions or feedback about the site or event, you can email Justin at jfogarty[at]ariba[dot]com.

I’m on the ground in Vegas after a short, bumpy flight from San Jose. As you may already know, Ariba LIVE 2008 kicks off here tonight (that is if I’m allowed to consider a reception at Tao as ‘on the clock’). So there will be three days full of sourcing, procurement, finance and legal professionals talking about best practices, economic conditions, case studies and networking. There may even be some unwise expenditures on the casino floors by otherwise financially savvy individuals.

I will be covering the event for Supply Excellence with an emphasis on discussing some of the mainstage presentations, breakout sessions, Town Hall booth and attendee interviews. Personally, I’m especially looking forward to Professor Charlie Wheelan’s presentation tomorrow on the state of the global economy. If you’re not already familiar with Professor Wheelan from his work as an NPR commentator, I’d highly recommend checking out his book Naked Economics: Undressing the Dismal Science or Yahoo!Finance column.

The theme of this year’s event is Spend Management Pioneers, so the presentations and breakout sessions with executives from a host of companies and industries should also produce some very interesting take aways. So I’ll do my best to bring some of the highlights to those of you who aren’t lucky enough to be here.

Justin Fogarty is the Managing Editor of Supply Excellence and will be reporting this week from Ariba LIVE 2008 in Las Vegas. If you have any questions or feedback about the site or event, you are welcome to contact Justin at jfogarty[at]ariba[dot]com.

We’ve come a long way since San Francisco’s City Council banned plastic bags 13 months ago. At the time, the move seen as more of a late night TV punch line than a serious attempt to promote environmental sustainability. But in the wake of more legislated bans (as China, Ireland, Uganda and a host of cities across the globe have done) and demands by consumers that the brands they buy move to green their products, you can see why companies are exploring their packaging to see where improvements can be made.

Just to get our head around the scale of the numbers involved here, let’s take China’s recent ban on plastic bags. Whether you think it’s a case of pre-Olympic greenwashing or not, it’s hard to deny that a move which saves an estimated 37 million barrels of crude oil per year is a step in the right direction. To put that in perspective, the US imports about that much crude from OPEC nations every week. So when we extrapolate the numbers in anticipation of more cities and countries following China’s lead, you can see we’re not talking about an insignificant drop in the consumption barrel.

So should your company consider shifting to more sustainable bags and packaging? Here are a few benefits to consider:

• It’s an “easy win” - Many companies are interested in making sustainability a long term goal, but struggle to identify where to start. Unlike your product line, which involves a host of suppliers and manufacturers that are heavily integrated in the daily operations of your organization, your packaging supplies are pretty straight forward. In most cases, spend is attractive enough to entice new suppliers’ interest in gaining your business. So pulling the trigger on new packaging is a very attainable, short term opportunity.
• Suppliers want to collaborate with you - Many packaging manufacturers are being pressed to identify innovative solutions for their customers. Take advantage of their knowledge and creativity, and allow them to share best practices in “green” with you. You can benefit from their experience!
• Bags = Moving Billboards - We’ve known for a long time that branded bags a great way to market a company. Therefore, it’s a no brainer that easily identifiable “green” bags can help promote your brand AND your commitment to green efforts.
• Customer demands - Judging by the sheer volume of “green” product ads on TV these days, customers are either demanding more environmental awareness from companies OR Madison Avenue is very out of touch. Consumers appear to be rewarding companies that adopt sustainability and punishing those that don’t. Dragging your feet can damage the brand loyalty your company has worked hard to create and maintain.
• Legislation - If consumer demand doesn’t sway you, will a global patchwork of bag bans? If not, how will your various locations cope with the local mandates? It’s better to be seen as a leader, out in front of this issue, rather than playing catch up later.
• You’ve got options - There are a host of vendors offering a very wide range of packaging choices - from 100% post consumer recycled bags to plastic bags made of recycled materials. And if you’re flexible on things like color, the cost for making the switch can be reduced significantly.

Ellen Terchila is a Senior Consultant on Ariba’s Spend Management Services team. Ellen specializes in strategic sourcing in the retail sector.

Knowing my passion for the Detroit turnaround, CPO Agenda Editor Geraint John this week turned me on to his exclusive interview with Chrysler’s new procurement chief John Campi. As noted here, the ex-Home Depot supply management lead has his work cut out for him. Chrysler has the least buying power of the Big Three and, thanks to the iron fist approached used by its former parent, Daimler-Benz, has many supplier relationships to mend.

The good news: according to the CPO Agenda interview, Campi is dusting off the proven collaborative, risk-sharing supplier management approach that made Chrysler the darling of the automotive industry during fomer CPO (and later President) Tom Stallkamp’s rein. Admitting his company’s faults, Campi told Geraint that Chrysler’s first order of business is to “regain trust and engagement with the supply base.”

Campi’s game plan for rekindling supplier relationships is straight from the pages of Stallkamp’s heralded SCORE program. The tenants of Campi’s initiative are straightforward: collaborate with suppliers to remove year-over-year costs from the supply chain through new designs, lean processes, new manufacturing methods, or other innovations. Chrysler will share yielded savings with suppliers on a 50:50 basis.

The concept, while simple in design, requires discipline to execute effectively and consistently through both economic boom and bust times. (As evidenced by the Daimler-Chrysler fallout with its supply base, any deviance from the promised plan can severely sour supplier relations and put a company’s supply chain at risk.) Under Stallkamp’s rule, the program yielded billions of dollars in savings through enhancements in quality, reduced inventory, streamlined material handling and distribution, and more efficient ways to design and produce parts or assemblies.

Chrysler had also trained suppliers to be more competitive in such key areas as continuous improvement, kaizen, and flow manufacturing. And sent cross-functional teams into supplier plants to perform quality reviews and assist in improvements.

Campi told Geraint that Chrysler would also double membership in its supplier partnership council to help facilitate 360-degree performance reviews and identify ways to improve supplier relations. Campi pointed to early supplier involvment, reduced vehicle complexity, stable production schedules, and fewer post-design change orders as ways suppliers said Chrysler could reduce costs.

Chrysler’s renewed (and welcomed) approach to supply management can best be summed up by a conversation I once had with the program’s orginal architect, Tom Stallkamp: “In order to fully reap the benefits of a world-class supplier, we must become a world-class customer.” Sage advice for any industry.

Last week, the Wall Street Journal and USA Today featured terrifying reports about the state of medical records today. WSJ highlighted the incompetence and abuse by insurance companies, hospitals and the federal government, who have exposed private information about hundreds of thousands of patients in recent months. The incidents ranged from inadvertent posting of records on the web to a New York hospital admissions specialist caught selling 2,000 patient ID records (we still don’t know why, to whom and for how much $).

USA Today examined the other side of the coin, with a gut wrenching story of the challenges a mother went through trying to gain access to her deceased son’s medical records. Records, which had they been given to her before the statute of limitations run out, would have helped her malpractice case.

There’s another layer of potential complications that need to be factored into the equation; the outsourcing of records and services to offshore providers. The underlying question is a scary one at a time of identity theft and denied insurance coverage. Who owns and protects patient records - the patient OR the medical facility that pays the bills?

Low cost country sourcing has become standard practice in most any corporation, global or otherwise. And it seems that the medical services arena is looking to take advantage of these ‘perceived’ cost savings as well. The problem is, there’s much more at stake for the doctors and patients. This cannot simply be a question of cost savings and sourcing efficiency - patient identity, the ability to receive medical coverage and many other factors are at risk. And right now, there is little clarity on the accountability and enforcement of stateside regulations to allay these concerns.

For example, there have been a handful of stories in the past few years about the outsourcing of radiologists’ jobs to India. The idea is simple enough: x-rays, MRIs and such can be easily sent electronically overseas and analyzed by individuals ‘qualified’ to conduct such analysis for less cost (although The Economist’s recent report on the ~50% of India’s “doctors” who are actually quacks with no medical training or credentials does not inspire confidence). A few questions would then be: Who determines qualification standards, how are they enforced, who’s accountable for accurate analysis, particularly if medical procedures are conducted based on these analyses (think breast cancer diagnosis, blood clots, etc.)?

Perhaps this is a legitimate alternative to drive down costs, if certain safeguards are firmly in place. But in a time of identity theft, data leaks and the like, is it worth the risk? In other words, will this upfront savings end up costing more in the end in the form of legal disputes, public relations issues, breaches in patient-doctor confidentiality, and possible decline in patient care? The simple fact is, the more often data is passed from one entity to the next, the higher the likelihood of leaks or miscommunication. With the potential for providers to save on short term costs are we (the patients) giving up too much? Would regulators step in to protect records sent offshore? Even if they do, how much power can they exert abroad, where the work and records may actually reside? What recourse do patients have in attempting to obtain their medical records from these offshore companies that they likely don’t even know played a critical role in their care in the first place?

These are not easy questions to answer. But, it does serve as an example of the many implications that can stem from a seemingly simple cost-cutting measure. In the end, the decision to outsource has to make sense from the perspective of all stakeholders that receive or administer the service. Otherwise, the diagnosis, prescriptions and even amputations could be all wrong.

Crystal Liles is a Senior Consultant for Sourcing Strategy in Ariba’s Spend Management Services group. Prior to joining Ariba, Crystal served as Director of Strategic Analysis for ChoicePoint.