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.

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.

I spent most of last week at the annual IACCM Americas conference in Scottsdale. The “Collaborate to Innovate” theme was a great way to frame the discussions, which included globalization, risk management, organizational delivery models, and the impacts of automation and technology on contracting and contract negotiation methodologies. Lots of networking, best practices, success stories and of course…cautionary tales. But the speaker who really grabbed my attention and sparked a lot of discussions was Danny Ertel, the co-author of The Point of the Deal: How to negotiate when YES is not enough.

Danny raised some interesting points based on the premise that the very approach most of us bring to contract negotiations hinders innovation - a goal of most organizations. He argued that measuring negotiators by “what did you get?” and “how little did you have to give up?” results in contractual terms and conditions that are not conducive to problem solving and innovation.

Instead, if successful implementation is truly the goal, he recommended six guiding principles to think about in negotiations:

1. The Deal is a Means to an End - If innovation is a goal, we need to reconsider restrictive terms and SLAs. Alternatively, we should be focused on objectives, sharing of information, and how we can get there with our trading partners. While it is a reality for many on the sell-side, closing the deal as quickly as possible is not an option that will maximize success.
2. Broader Consultation Means Better Implementation - Too often, naysayers who are critical to implementation success are excluded from negotiation. Obviously there are limits, but when deciding who to include (and exclude) in negotiations, consider both those that are critical in negotiation decision making as well as those critical to implementation.
3. Making a First Impression - Negotiation is the first, best example of how you will deal with your trading partner. It creates a precedent for how implementation and the ongoing relationship will take place.
4. Airing Nightmares Can Strengthen Relationships - We often attempt to hide past failures in fear that we’ll scare off business. Instead, think systematically about the risks that matter and discuss as openly as possible that which will improve the chances of success this time around.
5. Don’t Negotiate Over-Aggressively - There is no point in getting your trading partners to over commit. It won’t make them, or you, successful. The goal should be a true win-win that benefits both sides.
6. Define the Finish Line - Too often, organizations look at closing a deal as the end. Emerging best practices make transition to the implementation team part of the negotiator’s role. Some organizations are now having joint debriefing meetings with negotiators and implementation teams to this end. This better facilitates collaboration and success, and gives negotiators and implementers a better understanding of the other’s challenges, which will help everyone be successful.

Good food for contracting thought.

Ken Miklos is a Senior Product Marketing Manager for Ariba’s Visibility and Contract solutions.

If Spend Management has a limiting axiom, it might be the idea that there is a limit to how much cost you can take out of an item, service or process. After all, cost can not go to zero…can it?

With a slightly different perspective on things, it turns out that cost can nearly go to zero. A couple of months ago in the New York Times, I picked up a couple of interesting sourcing related facts: In 1984, it would have taken an American working at the average salary 435 hours to earn enough to buy a PC and 456 hours to earn a cellular phone. These two staples of modern life that many of us lug nearly everywhere we go would have taken you more than 1/3 of a 2,000 work year to earn.

Today, the PC will take the average American 25 hours to earn - a reduction of 94.1%. Pretty good, I’d say. But, the cellular phone is even better since the average American can earn the cost of one in just 4 hours of work - a reduction of 99.1%. So while the cost of a cell phone has not gone to zero, it can be had for less than 1% of what it would have cost you 24 years ago if the “currency” you’re spending is work.

Last month, I had the opportunity to speak at the Sourcing Interest Group’s Regional Meeting (free registration required) in Atlanta about some of the changes and challenges that Spend Management organizations are facing now that the cost of cell phones are down to (nearly) zero. Seldom in recent history has the pressure within companies to reduce cost been in such stark contrast with economic trends that are driving prices upward.

This pressure revealed an ugly, unfortunate truth. At many companies, the sourcing process has simply not become an operating platform to facilitate making the best business decisions. Companies that executed category-based sourcing programs as part of a race to capture value at the turn of the century are now being forced to revisit poor decisions. Some sourcing organizations that had preached at the pulpit of cost reduction without a sustainable strategy and process behind them are finding doors closing when their companies should need them most. Even the best sourcing organizations, many of whom are frustrated by their ability to use their enabling technology beyond executing a few RFx and reverse auctions, are having to revisit mediocre processes to ensure that they produce the best return on their organization’s “investment” in expense.

Now is the time we will see how permanent a part of the operating DNA the sourcing process has become. The winning organizations will take a structured approach to Capability Deployment to make the Spend Management process THE default process for making purchasing decisions…and keep cost heading towards zero.

Justin Sullivan is a Senior Manager in Ariba’s Spend Management Services Group. In addition to his strategic sourcing and technology expertise, Justin worked for a number of years in the White House Office of Management and Budget (OMB) where he analyzed the fiscal implications of Federal policy.

With the outcome of what some are calling “the most important U.S. Presidential race ever” still uncertain, many business executives are fretting over the economic, tax, and trade policies of the eventual President No. 44.

Yet, savvy procurement and supply management professionals aren’t waiting for the election outcome. They know that, regardless of who wins the White House, they must devise strategies and tactics to overcome the prevailing issues of the day: global economic malaise, new pressures (and opportunities) of globalization, risk management, and sustainability.

This is the premise behind the upcoming Spend Management Town Hall at Michigan State University (MSU) next Monday night. The first in a series of debates among industry thought leaders and top procurement, supply chain, and finance executives, the MSU Town Hall will showcase how leading companies are applying spend management techniques and approaches to address the leading business and socio-economic issues of the day. Featured panelists at this inaugural debate include:

• Mark Brown, Senior Vice President of Global Strategic Sourcing at Whirlpool
• Alistair Hirst, Vice President of Global Procurement at The Kellogg Company
• Professor Joe Sandor, Hoagland-Metzler Endowed Professor of Supply Management and Supply Chain Management at Michigan State University

I have the enviable honor of moderating this illustrious panel. And, unlike Tim Russert, I plan on pulling no punches. I will get right to the most pressing supply management questions:

• How has the declining U.S. dollar impacted your sourcing and supplier strategies?
• How have rising labor, commodities, and shipping costs caused you to rethink your China sourcing strategy?
• How are you assessing quality, performance, and supply risk in your global supply chain?
• Is the push for environmentally responsible supply a long-term business strategy, or just a passing fad?
• What can procurement do to hold down healthcare and other complex services costs?
• …and more.

I am pleased to extend a special invitation for Supply Excellence readers to attend what I’m certain will shape up as a lively debate. You can register or get more information on the Spend Management Town Hall here.

Can’t attend? Use the comments section of this post to submit a question you’d like me to pose to the panel. I will be sure to report back on the answers and approaches these leading supply management organizations are taking to overcome the challenges of today’s global economy.

Last week, I had the opportunity to present at the Sourcing Interest Group’s (SIG) meeting on Green/Sustainability in Sourcing in Seattle. Talking with the other speakers and attendees, I was once again struck by just how seriously companies are taking this issue. This is not a feel good effort by people in Prius’s (or is the plural Priui?) and Birkenstocks. Instead, world class sourcing organizations are devoting significant attention to plotting a strategy that balances both the economic needs of the company and the green demands of their leadership, employees, shareholders and customers. This is further complicated by the increasing length of the typical supply chain and outside influences.

The key topics addressed included:

• Legal and regulatory environment. Multiple outside influences are pushing companies to get moving, including institutional shareholders, regulatory bodies (especially in Europe) and customer groups. Expectations are that some sort of Cap & Trade system will be implemented in the US within the next few years, most likely similar to the structure of the European ETS (Emission Trading Scheme).
• The Green Landscape. Companies are bundling environmental efforts with product safety, supply chain risk, etc. into a coherent approach under a single corporate ownership.
• Near-term opportunities. There’s a broad recognition that we can’t boil the ocean (forgive the global warming pun) and efforts need to be focused where they’ll have the most impact. Approaches have been developed that leverage the established methods of building a sourcing pipeline by adding environmental and supply chain impact criteria to the assessment. The end result is an opportunity map that highlights categories where there is both green and economic value, so that sourcing groups can best allocate scarce resources.

Overall, I was left with the impression that this is a trend that’s not going away and is in fact likely to accelerate over the coming years. Companies need to have this on their radar so that they’re not surprised when it becomes mandatory.

Kris Colby, a Director of Ariba’s Spend Management Services group, recently authored a white paper on the subject of minimizing risk – An Ounce of Prevention: Steps Your Organization Can Take Now to Reduce the Risk of a Product Safety Incident.

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.