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 justin[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.

As Supply Excellence’s Managing Editor (which is a euphemism for “Principal Cat Herder”), I would be a remiss if I didn’t point out that the blogging efforts by many of our contributors are a byproduct of their ‘day jobs.’ These folks spend their days digging deep into their respective categories to uncover the opportunities and risks that impact buying decisions, global markets and supply chains. Their findings are published quarterly in SupplyWatch, a collection of category/commodity analyses, LCCS country spotlights and supplier profiles.

If you’ve found the posts from our contributors insightful, I invite you to take a look at some of their latest SupplyWatch articles:

• Rachel Rutkoski - Transportation & Logistics: Hot on the heels of her Truckload and Less-Than-Truckload posts (which pointed out opportunities for savings and improved contract terms for shippers), Rachel’s Transportation & Logistics Core Category Detail dives further into the excess capacity brought on by the soft economy. The most important point, which she touched on briefly in the blog, is that it’s wise to look at freight contracts more holistically, rather than simply trying to cut short terms rates. If you can lock in better terms for accessorial charges (which have risen a staggering 900% in the last 10 years!), the savings over the life of the contract could be substantial.
• Mike Petro - Metals: In a 2 part post, Mike broke down the real root causes of the steel price surge (Part 1 & Part 2). Taking that analysis quite a bit further, he and the rest of the metals team discuss strategies for dealing with the challenging market. The case study of a medical instruments manufacturer saving 33% on syringe manufacturing by outsourcing it to a specialized partnership of suppliers is a great example of spend management savings in spite of rising raw material costs.
• Bob Zieger - Plastics, Rubber & Raw Materials: Recently Bob explained the diminishing dollar’s impact on oil prices…and why that means high prices for some time to come. Now he and the Plastics, Rubber & Raw Materials team dig further into how decreasing demand in some categories and the credit crunch further complicate the pricing equation.

Let’s also do a quick community poll: Which article in this quarter’s SupplyWatch best helps you address a current challenge in your supply chain? Leave your answers, questions or observations in the Comment section of this post and I’ll make sure they find their way to the right Category Manager’s desk.

Justin Fogarty is Managing Editor of Ariba’s Supply Excellence blog. He can be reached for story ideas, feedback or questions at jfogarty[at]ariba[dot]com.

When we last left our daring trio of Spend Management Town Hall panelists, they were debating the best ways to get a handle on services spend in the ever tightening global economy. The esteemed panel, which included the CPOs from both Kellogg’s and Whirlpool, had turned their sites on services spending to counter the double-digit inflation striking the core commodities their teams buy.

Another key strategy on the panelists minds: global trade. As is often the case these days when discussing low-cost country sourcing (LCCS) or global trade, the panelists spent most of the time discussing their China strategy. While the debate ranged all over the map — from rising labor prices to the emerging consumer class — three core themes emerged for Supply Excellence readers to consider when crafting a global sourcing plan.

Buy where you make - With the dollar’s demise and oil and transportation costs skyrocketing, Kellogg’s and Whirlpool are both re-evaluating their global sourcing strategies. And nearshoring is once-again becoming more prevalent. Factor in an increasingly skilled workforce in our neighbors to the South and Whirlpool SVP of Global Strategic Sourcing, Mark Brown said, “it’s kind of a jump ball between Mexico [and China] to service the US market.”

Alistair Hirst, Kellogg’s VP of Global Procurement, stressed the importance of sourcing “as locally as we can,” albeit for different reasons: to hold down transportation and tariff costs, satisfy local content needs, and get products to market faster. After all, consumers like their Corn Flakes as fresh as possible.

Michigan State University Professor Joe Sandor noted that the cereal king was following up the ”buy where you make” philosophy that has been so successful for leading Japanese automotive manufacturers, such as Honda or Toyota.

The panelists noted a number of new dynamics when sourcing South of the Border, including banditos and local government corruption. But, when weighted against the rising costs of doing business in China, the lower transport and border crossing cost, Mexican truckers newfound ability to transport deep in the US, and a host of other factors are making nearshoring a more attractive proposition for many companies.

You can’t turn back the clock - No great shock that our panel weighed in on the side of free trade. In the words of Alistair Hirst, “we certainly encourage free trade” and “think [renegotiating NAFTA] would be a huge mistake.” Professor Sandor seemed to agree, yet took a more human angle in admitting “clearly global trade hurts some people, but the fact is it helps more than it hurts.”

In an election year at a time of economic uncertainty and populist (sometimes borderline jingoistic) rhetoric coming from both sides of the aisle, how the US deals with labor and trade issues is somewhat up in the air. So, Mark Brown’s advice that “maybe the strategy is, you better be flexible and you better be able to react quickly because our ability to predict is somewhat limited” was the smartest tip the audience heard that night.

Predicting the future - And speaking of looking ahead, all three panelists were eager to point out that anticipating what’s next is the multi-million dollar question for supply chain professionals.

So, where is the next China? For Whirlpool, the answer is currently Vietnam, where a lot of their supply chain has moved. But Mark Brown wasn’t quite willing to say where their supply chain may shift after that.

On the other side of the coin is emerging markets. Again, China is strong possibility, which as Professor Sandor said is “not just a place for cheap labor, it’s the fastest growing market for end products.” No real shock there. But luckily, Kellogg’s Alistair projected that “Russia’s going to be a huge developing market for the future.” (Although Mr. Hirst may want to check his long-term demographic trends. Russia’s population continues to decline. So the consumer boom there may be short live. Literally.)

Still more Town Hall recaps to come as we look at the panel’s discussions of Environmental & Social Responsibility and Risk Management next week. In the mean time, listen to the full podcast of the Global Trade discussion. And download 10 Tips for dealing with these trends in Global Trade so you can start taking action today.

Business Week’s Bangalore Tigers blog had a very interesting post this week on how one Indian BPO firm is using sophisticated algorithms to measure what they call a “confusion index”, which identifies customer support callers who are likely to be converted to buyers. Those hot prospects are then routed to highly skilled reps who are trained to upsell them on the spot. It’s a twist on an interesting trend we’ve seen more and more of lately - hybrid support routing processes.

In a hybrid model, the easy calls (“Is the computer plugged in?”) are handled by a Level 1 or 2 group, while more complex questions are escalated to more highly skilled Level 3 reps. Often times, the Level 1 and 2 employees are located in low cost countries, where highly scripted calls can be handled with ease and far less expense. On the other hand, the Level 3 folks might be located on US shores, where their higher costs are justified by their experience, customer service skills and efficiency at solving support issues. In theory, it sounds like a great process, but there are still issues to consider before jumping into the hybrid model with both feet.

The most important question to ask yourself is, who are your customers. If they are sophisticated, tech savvy users the risk may not outweigh the cost savings.

We all know the MTV generations despise waiting. So although their escalation time to Level 3 support for say a wireless router that’s not working properly may not be a great deal of time, when that Level 3 expert can diagnose the issue quickly, the customer comes away angry that she had to answer a scripted laundry list of silly questions. In other words, if your customer feels they know more about the products you’re selling than your first x layers of customer service reps did…you have a problem.

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.

The American Chamber of Commerce in China released it’s annual white paper on the state of American business in China and it seems to back up a lot of what we’ve all been hearing lately; the cost of doing business in China is increasing. With 2/3 of US businesses claiming rising labor costs and other inputs are chipping away at China’s competitiveness, it’s no wonder so many companies are reevaluating their low cost country sourcing (LCCS) strategies. For example at the recent Spend Management Town Hall, Whirlpool’s SVP of Global Strategic Sourcing, Mark Brown, said “it’s a jump ball between Mexico [and China] to service the US market” (mp3 available here).

Lower labor costs, followed by access to alternative suppliers and localization strategies for local overseas manufacturing, are the main sources of motivation behind LCCS strategies. However currency fluctuations, extended supply chains, supplier capacity and product quality concerns are critical risk factors that must be managed in any LCCS strategy.

Best in class companies are approaching up to 40% of their direct material spend being sourced in LCCs with an average cost savings near 20%. So there’s certainly still savings to be had, but not without clearly defined goals and strategies. In my experience, these 10 components are critical to ensure your LCCS strategy keeps both your costs and risk low:

• Have a LCCS strategy - Seems obvious…but you’d be surprised. Invest in an analysis of your spend to determine the best country fit by category, realistic cost savings targets and organization requirements to manage your program.
• Total Cost of Ownership - Thoroughly test your savings assumptions based on a TCO framework that includes currency changes, all logistics costs including emergency freight requirements, extended working capital requirements, etc.
• Supplier qualification - Thoroughly prequalify new LCC suppliers, including site visits, and ask yourself what type of supplier you are willing to work with.
• Invest in supplier implementation resources - On the ground, technical sourcing teams will work with suppliers to make sure your identified sourcing savings really stick to your bottom line.
• Low cost may be close to home - Not all categories should be sourced overseas - think near shore (Mexico, CEE)
• Supplier development programs - Work with your suppliers overseas to explore mutually beneficial ways tot take waste out of their production process. These suppliers are typically very receptive to your expertise.
• In country audit and testing - Don’t discover quality surprises at your loading dock. Test your shipments in the LCC country of origin.
• Leverage 3rd parties overseas - Don’t try this all yourself. 3rd party specialists exist to assist you with LCC strategies as well as supplier research, qualification, implementation and development.
• IP - Protect your intellectual property by sourcing sensitive components and assemblies from different suppliers. Don’t rely on the rule of law to protect against potential IP theft.
• Be realistic - LCCS is a journey and it takes time to do it right. There are few quick wins that truly stick to the bottom line, however a diligent approach will permanently restructure your cost base.

David Morgenstern is a Managing Director in Ariba’s Spend Management Services group with extensive experience in establishing strategic sourcing and low cost country sourcing programs. Since joining the company in 1999, David has developed Ariba’s global sourcing practices in Europe, Asia and Canada, and has served the private equity, manufacturing, automotive, consumer and public sectors. David has spent over 11 years working overseas, primarily in Asia, and holds a MBA from INSEAD. David currently leads Ariba’s global private equity and diversified manufacturing practices.

Another day, another story about soft retail numbers. When you subtract inflation and prices at the gas pump from the March data, you end up with flat or downward sloping lines for most categories. But for companies who can utilize Less Than Truckload (LTL) transport, there’s a potential upside to these dour retail numbers. Why?

In a recent post, we looked at the effect the housing decline has had on flatbed trucking. The drop has left a great deal of capacity and a buyers’ market for savvy procurement organizations. In an effort to utilize their fleets (and stay afloat), carriers have been far more willing to work with buyers on price and terms than we’ve seen in several years.

Think of the retail/LTL relationship the same way. Fewer flatscreens moving off store shelves means there’s more room on the trucks that typically carry those plasmas. Some analysts are hoping for a bump in consumer spending as tax refunds and stimulus checks make it into people’s mailboxes. But realistically, I doubt there are many economists who truly believe that a) consumers will spend all of their money on retail rather than rent, and b) that it will be the magic bullet that pulls us out of a recession. It seems more likely these anemic conditions will continue for quite some time, leaving a significant amount of empty space to fill on LTL trucks.

So if you’re an organization that can take advantage of this excess LTL capacity (retail, consumer goods, food services and industrial products for example), now is probably a good time to look at your contracts and consider your sourcing options. And I know it’s easy to focus on short term price. But the bigger opportunity is to look at your contracts more holistically, because there are savings opportunities in several areas, including:

• Rates - An obvious focus, but often limited to short term savings.
• Fuel surcharges - A necessary “evil” brought on by triple figure oil prices. But you might be surprised how many carriers are using surcharge tables that are well above true market rates. Standardizing tables across carriers can lead to major savings for years to come.
• Accessorial charges - The move towards a-la-carte fees for anything above and beyond simple dock pick-up and delivery has become a major driver in the true cost of LTL transport. Including these charges in your assessment of current costs and negotiations of future contracts is a financially prudent move.

Of course it’s important to recognize that LTL carriers are usually more regionally focused than other trucking companies. So potential savings vary by region. For example, the Northeastern corridor has more competitive rates than the Southwest.

FYI: I’ll be diving further into the LTL opportunity in the Transport Category Snapshot of the next issue of SupplyWatch.

Rachel Rutkoski is a Category Manager for Transportation and Logistics in Ariba’s Global Services Organization. Rachel is recognized by the Institute for Supply Management as a Certified Purchasing Manager (C.P.M.) and has several years experience as a supply chain and transportation analyst in Fortune 500 companies.

Earlier this week, we shared a glimpse into the Spend Management Town Hall forum that took place at Michigan State University earlier this month. In this first installment of the Town Hall recap, CPOs from Kellogg’s and Whirlpool shared how the tightening global economy has caused them to retool many of their traditional supply chain strategies. One area both companies have refocused on is devising methods and policies to better understand and manage their company’s business services spending — from temporary labor to commercial printing to consulting and legal services.

Alistair Hirst, Vice President of Global Procurement at the Kellogg Company, began the dicussion on this subject by chiding the audience of procurement and supply chain executives, including himself: “When it comes to [services spend], shame on us that we’ve not really given it the same attention as other areas of spending. It is a huge amount of money when you look at it on a global basis. With inflationary pressures the way they are today, one can’t afford to ignore services spending anymore.”

Mark Brown, Senior Vice President of Global Strategic Sourcing at Whirlpool emphatically agreed: “It’s hard to find anyone that’s not assessing services spend right now.”

The panelists cited three critical components of a successful services spend management strategy:

1. Know what your spending: “It starts with good [spend] data management,” said Brown. “If you don’t have your arms around the data, it is really tough to manage services spend.”
2. Define and ensure the right policies: According to Brown, too many companies can’t answer a simple question: “What is your [services procurement] policy and how is it governed? Good governance and policy definition in this space is as important as anything else you can do.”
3. Forge tight links with the CPOs and the businesses: Hirst attributes the success of Kellogg’s services spend management program to aligning the procurement strategy with the financial and operational goals of the Finance department and the businesses. “We knew we needed the visibility to ensure that the CFO and the businesses could see real savings hitting the P&L,” said Hirst. “Otherwise we knew we would have failed.” MSU Professor Joe Sandor, the remaining Spend Management Town Hall panelist, agreed: “Everybody [in the company] has to have the accountability to have a world-class services supply chain strategy.” He noted that procurement should function as the trusted advisor to help the businesses with getting the most from their services spending.

In a coming post, we’ll examine how Kellogg’s and Whirlpool are managing supply risk in today’s volatile markets. In the meantime, listen to the podcast of the Spend Management Town Hall here. Or download the Spend Management for Business Services platform for additional best practices you can use today.

Oh what a year it’s been for supply managers. Oil prices are up 79%. The value of the US dollar has dropped 8% against the Euro. And the price of milk (and other key food stocks) frothed up 20-60%.

It’s enough to make a guy want to swap from cream to soymilk in his morning coffee. (That is, if soy prices weren’t off the charts themselves.) It’s also enough to make the global economic situation issue #1 at the inaugural Spend Management Town Hall Forum earlier this month.

The panel of experts assembled for the Michigan State University hosted forum could not have been more representative of the global economic engine. MSU Professor Joe Sandor was joined by CPOs from Kellogg’s and Whirlpool, both of whom are consumer price index (CPI) bellwethers.

Unfortunately, the weather they were reporting was dismal. The panelists freely used the ‘R-word’ when describing the current market dynamics and suggested that the downturn started earlier and may last longer than what is being reported in the ISM index.

“This is a unique recession,” said Professor Sandor. “We feel the downturn, but simultaneously, we see rapidly rising commodity prices.”

Audience members looking for evidence of this conundrum did not have to look much further than Whirlpool. With appliance purchases closely linked to the ailing housing and credit markets, Whirlpool is feeling the pinch of waning consumer demand in the US and rising costs, particularly for commodities like steel and plastic.

“I wouldn’t call it stagflation yet, but we have two big pressures going on in our business,” said Mark Brown, Senior Vice President of Global Strategic Sourcing at Whirlpool. “We’ve seen kind of a perfect storm with the credit markets, tax calls, gas and raw material prices. The cost structure of our machines has radically been impacted by it.”

Alistair Hirst, Vice President of Global Procurement at the Kellogg Company, agreed, noting that inflationary pressures have caused the cereal giant to rethink both its supply chain and business strategies. “[The current economy] puts a lot of pressure on the inputs side, but it has also impacted the pricing side of our business model. Consumers have less disposable income” and that is changing their buying choices.

This lack of pricing power is particularly concerning because, historically, food companies have had more flexibility to pass along price increases to consumers. If consumers won’t swallow food price increases, they won’t accept price increases from other industry segments. That will put added pressure on business to further reduce costs. Yet, the panelists argued that rising fuel and commodity prices leave little room to negotiate savings.

“Nothing beats the market regularly.” said Professor Sandor. “So, the management of costs and the degree of sophistication with which you attack it is ever more important.”

One strategy Kellogg’s is using is hedging on the grain markets. “We’ll hedge out various risks of time depending upon the risk profile.” (This echoes comments from the head of supply chain at a major food service company I met with last month who said they locked into the price of wheat for a full year: “It’s the first time we ever locked into such a long-term contract.”)

Whirlpool is also taking this approach, but in a more limited fashion. “There are no missing links in the supply chain that can’t have predictability driven into it,” said Brown. Although he quickly followed up with a joke, asking if there were anyone in the crowd with any great ideas on hedging steel.

Hedging is just one of the strategies the panel recommended as an antidote to the down economy. Professor Sandor suggested that companies begin to attack new spend on categories that are not directly linked to commodities like oil, gas, metals, or plastic. “Spend management in the indirect space is becoming more critical and a differentiator.”

Later this week, we’ll examine how Kellogg’s and Whirlpool are controlling indirect spending, including business services purchases. In the meantime, listen to the podcast of the Spend Management Town Hall here. Or download the Spend Management for the Economy platform for additional best practices you can use today.