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.

In the Cinco De Mayo issue of Fortune, the magazine presents this year’s Fortune 500, their annual list of the 500 largest United States based corporations. As you might expect, it’s a treasure trove of interesting facts and highlights some very different approaches to the challenges and opportunities of globalization.

Page 225 has a great chart showing how globalization has impacted the revenue of US companies. Looking at 32 companies with greater than $50 billion in revenue that report non-US revenue, Fortune showed that 9, Exxon, HP, Dow, Chevron, IBM, Proctor & Gamble, American International Group, Ford Motor and United Technologies get more than 50% of their revenue outside the US. ExxonMobile tops the list with 72.2% of revenue coming from outside the 50 states. General Electric is on the brink of tipping the scales with 49% of revenue coming from outside the US.

The issue also highlighted 3 supply management and market strategies to respond to globalization:

• Boeing takes us inside the factories around the globe to show how suppliers are working together to produce systems that will ultimately allow the company to assemble a carbon-fiber 787 Dreamliner in just 3 days versus the 4 months they require to manufacture a typical aircraft. Good thing too, with a backlog of 892 planes, the Dreamliner is more than a year behind schedule because of some of the trials Boeing and its suppliers have suffered in perfecting the system (our friend Jason Busch at SpendMatters has been keeping us up to date on this).
• Ford is working to standardize its design for the Fiesta, their 3rd attempt to produce a “global” car. In perhaps its most notorious attempt to produce a global product, the 1981 Ford Escort, the US and European versions ended up with exactly 2 parts in common. While cost plays a significant role in this effort - they’ve reduced the number of seat structures from 28 to 2 - the effort seems to be driven as much by a desire to further define the Ford brand and follow in the footsteps of companies like Toyota and BMW, who are able to offer extremely similar autos in every corner of the globe.
• While Ford is focused on standardization, McDonald’s is taking a very different approach. Outside of the US, they’re localizing the menu, packaging and even store decor. Some of the best ideas are then shipped back to the US - most notably it’s Consumer Reports topping coffee. This approach has made Australia the company’s global coffee lab and led to products that you won’t find on any US menu, including the Big Tasty (a burger cooked up in a German test kitchen which is too large for the US drive-thru-centric market), the Croque McDo (a French toasted ham and swiss) and the Maharaja Mac in India.

While the jury is still out on the ultimate success of these efforts, they show that there is no one size fits all approach to taking advantage of global opportunity.

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 While House Office of Management and Budget (OMB), where he analyzed the fiscal implications of Federal policy.

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.

The most important part of the spat between British Airways and Virgin Atlantic over biofuels is not whether BA is stuck in the “old economy” and can’t adapt (as tempting as that might be given the headlines about opening day at Heathrow Terminal 5) or whether Richard Branson is the ultimate public relations wizard.

The real key is that the perfect solution to airline pollution doesn’t exist yet, almost by definition. The reason that going green is both difficult and full of opportunity is because the solutions aren’t easy and aren’t yet available. Instead, it will require substantial experimentation and multiple false starts in order to find the right answers.

I once read that in the early 1910s, there were literally hundreds of car companies in the United States. These companies tried multiple platforms, manufacturing techniques and marketing approaches. And we all remember the number of supposed “killer apps” from the dot.com era of the late 90’s (think: sock puppets). As industries mature, part of the natural order of things is that many ideas will be tried and few will be successful. You need the “failed many” in order to find the “successful few.”

For all we know, the use of biofuels in airline fuel may be a total non-starter. However, the companies that are long-term leaders are precisely those that are willing to try new approaches without certain return, recognizing that many of their seeds won’t take root. You can’t grow anything without first planting the seed and taking your chances.

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.

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.

The massive run up in commodity prices followed by last week’s sudden sell off has everyone wondering … are commodities the next bubble to burst? In fact, typically cool headed coverage in journals like the Financial Times warned of a looming “big fall” in commodities. But let’s not get too far ahead of ourselves here.

Relatively high prices for commodities - or at the very least oil and the other commodities it impacts - are here to stay for quite some time.

As the US economy stutters and the Fed lowers interest rates to provide a spark, the dollar gets even weaker. And since crude oil is traded as a hedge against the dollar, oil prices will remain high. There’s also quite a bit of evidence that shows the recent run up in oil prices (and even other commodities) is not exclusively linked with demand. So even if China’s consumption slows, that will have less of an impact on crude prices than the pressures from low interest rates and a weak dollar.

And as we know, oil prices have broad reaching impacts on other commodities. Food prices will remain high as long as oil prices are steep. Why (besides the obvious transportation costs)? Biofuels. With crude prices so high, everyone looks to biofuels for a solution, but what happens then? Crops are used to fuel vehicles with ethanol, not feed people and livestock. These demand streams compete for crop space and result in sustained high prices throughout the food chain.

Until these links are broken - which won’t happen anytime soon - the likelihood of a commodity nosedive is very slim. Sure there will be profit taking days, like last Thursday, for traders along the way. But most commodities will likely hit a soft landing later in the year if there is a sustained recession. There are too many interconnected links holding these prices up to have them all come crashing down quickly.

Bob Zieger is a Category Manager for Plastics & Raw Materials in Ariba’s Global Services Organization.