Thursday, September 24, 2009

Panelist appearance on BlogTalk Radio: Spend Management vs Spend Intelligence

I had the fortune today of being part of a panel discussion on Jon Hansen's BlogTalk Radio show PI Window on Business. Jon's topic for today was around the topic of Spend Management and, specifically, the difference between spend analysis and spend intelligence. The panel consisted of two other business professionals; an author, speaker and consultant on management consulting and a professional that handles Sarbanes-Oxley compliance issues within businesses.

Hansen's idea for the show stemmed from an article titled Spend Intelligence: The Next Wave of Spend Analysis (Sudy Bharadwaj - Supply Chain Management Review 9/1/2006). The show covered a number of interesting points including the idea of there even being a difference between spend analysis and spend intelligence, the role of on-demand reporting and Software as a Service (SaaS), change management issues that organizations face in adopting a new, best practice approach and other interesting topics.

The show aired live on 9/24/09 and the on-demand audio is hosted below. I look forward to any comments you may have.

Tuesday, September 15, 2009

Scrapping or mothballing ships may keep capacity articially low and rates high

The story by Simon Parry of the UK’s Daily Mail is an excellent overview of the true current crisis in the ocean freight sector ( ). This is a “must read” article if you want to know what is really happening in ocean freight and how it will continue to impact all of us over the next few years.

Like many supply chain professionals I like and read the Journal of Commerce daily, and am up-to-date on the changing numbers side of this issue. In short, the current (depending on your sources) idle ship statistics are approximately:

Container traffic = 12-15%
Roll On – Roll Off traffic = 20%
Tanker traffic = 2-15%

While oil production has dropped about 13%, only about 2% of tankers are listed as idle. This is partly due to incomplete reporting, but more likely due to oil producers leasing the idle ships to store crude and keep “market” supplies lower –

Simon’s article, however, not only presents the numbers, but has also covered personal viewpoints and details that are typically missing from mainstream industry-related publications. It is really quite good.

You may want to check with the Journal of Commerce occasionally to get updates. Here are links to a few of their recent articles (FYI - Box ship = container ship. TEU = 20 foot container. Divide by 2 to get 40 foot container equivalent).

This year container lines are set to scrap ten times more ships than average and the most ever recorded in one year –

Close to 15% of container ships may stand idle by end of 2009 –

Roll On – Roll Off = car, truck, equipment carriers –

By the way, Baltimore Ro-Ro shipments (the nation’s top overall Ro-Ro port and No. 2 in automobile exports) are down 14 % this year.

Scrapping or idling ships in this manner serve to drive capacity down and provide the basis for higher rates. We have spoken to rising ocean freights rates in a recent post (see below).

Wednesday, September 2, 2009

When it comes to parcel mode optimization, AP reporter gets it "kind of" right...

When The Associated Press reporter Samantha Bomkamp released her piece As consumers slow down, FedEx and UPS adapt (AP News, September 1, 2009), she got it kind of right. After all, sending paper overnight through the guaranteed services FedEx and UPS provide might be considered a luxury for businesses that have the alternative to use USPS or the "deferred" services that FedEx and UPS provide [see inset frame below for full article].

Bomkamp's contention is that consumers and small businesses that have relied on the overnight services (FedEx Priority Overnight and UPS Next Day -- both services offer next morning delivery of documents and packages by 10:30 am) have re-evaluated their spendthrift ways of days gone by when times were good and revenues plentiful. For those that still require the enhanced offerings for delivery -- including tracking, delivery signatures and guaranteed services -- the solution has been to opt for the carriers' less-expensive modes of delivery, such as two-day and three-day delivery services. And while there is no doubt that these deferred services are priced lower than the overnight services, the knee-jerk reaction to cost-reduction misses the mark as a cost-reduction strategy for those who need overnight delivery as a competitive advantage.

A trusted connection of mine who was formerly employed by one of the top-three global commercial real estate firms forwarded me an internal e-mail communication from the company's CEO that urged all employees to cease the use of overnight delivery services in favor of the slower, less expensive carrier offerings. Think about that for a minute. These are some of the most successful and driven real estate professionals in the world being asked to relinquish a competitive advantage of timely delivery of urgent and important real estate documents (offers, contracts, plans, payments, etc.). Competitors that get offers in ahead of others stand to gain an advantage.

It would seem that a better option would be to reduce the cost of the service that is required. In the example above, our organization attempted to position our logistics spend management service offerings in front of the corporate office to do just that. Bomkamp's article below discusses a small media relations firm in VA who's CFO was trying to strike a balance between reducing headcount and reducing indirect spend. He was able to make a mode optimization, like that referenced above, which saved the organization $14,000 annually. The firm reported that they employed a staff of 13. Not a bad savings, but not the optimum approach. I would doubt that his $14,000 in savings accounted for any of the thirteen's annual salary.

That said, we have been hearing this message for the last 24 months; its reduce expenses or reduce headcount. When the full costs of hiring (and re-hiring) are evaluated, reducing headcount is a backwards approach to cost-cutting. Granted the balance sheet effects are immediate and the modeling compelling, but the approach is short-sided. Services like PA & Associates' make more sense to explore prior to the last-ditch measure of cutting headcount. Ask CFOs if they have taken cost-cutting measures during the last year and they will report they wrung the general ledger dry of all expenses. However, when we dig down into many of the indirect spend categories we find that best practice procurement, strategic sourcing and true spend management techniques have not been employed. Its a mentality of, "we flip the light switch on in the morning and turn it off at night; we're going to get an electricity bill and there's nothing you can do about it". That's just not the case.

The economic downturn has produced two sets of cost-cutters; those who have made the easy and obvious cuts to survive and those who have fully changed their mindset on what it means to run lean. Our clients comprise the latter group and have employed our methodologies as best practice spend management techniques in multiple areas of their operations for real and lasting cost reduction and continuous improvement (spend management). Many are saying that we'll never be the same when things completely recover. I differ with them in that human nature is to resist change and opt for the path of least resistance. We will see some that will make lasting change and it will become their new culture. We will, however, see a large number of those that will go back to their old, wasteful ways when revenues return. How easily we forget.