Amazon says Fire sales scorching, but earnings disappoint

on Tuesday, January 31, 2012

Amazon says Fire sales scorching, but earnings disappointAmazon surprised investors by posting disappointing earnings this week, as surging costs continued to erode the company's profit margins.

Seattle, Washington-based Amazon said Tuesday that profit in its most recent fiscal quarter plummeted 57 percent. Amazon's net income declined to $177 million from $416 million the same period the year prior. Sales, on the other hand, rose 35 percent to $17.4 billion.

Still, analysts had projected sales at the world's largest online retailer would rise even higher in the quarter, forecasting an $18.3 billion median estimate. Moreover, Amazon said operating income fell to $260 million from $474 million in 2010. 

Nevertheless, many analysts said the company has suffered through periods of reduced profit margins in the past. Amazon chief executive Jeff Bezos is known for his aggressive and ambitious business strategies, and the online retailer has invested heavily in the development of new manufacturing facilities over the past year.

What's more, the company is rumored to be losing money on its latest product offering, the Kindle Fire, which is competing against Apple's iPad. Amazon said sales of the Fire were robust in the quarter, and analysts noted the company is not concerned with posting losses in the short-term. In fact, Amazon is much more focused on its long-term strategy for growth, one in which the Fire plays a critical role.

Though it is likely losing money on each Fire it sells, Amazon is hoping customers who purchase the tablet devices – which retail for $199 – will purchase books, music and other media through Amazon's online store. Some analysts' estimates suggest Amazon could ultimately make thousands of dollars from the sale of each Fire.

Regardless, the company's earnings took a beating in the most recent quarter. Amazon spent heavily on new production facilities in 2010 and as a result, it was unable to implement business cost reduction initiatives that would have improved profit margins. Ongoing supplier contract negotiations also hurt the company's earnings performance.

Still, Bezos emphasized the success of the Fire, affirming the tablet is poised for future dominance within the sector. He also said sales growth was solid in the fourth quarter and the company has positioned itself for continued success through its supply chain management and ongoing procurement auditing.

"We are grateful to the millions of customers who purchased the Kindle Fire and Kindle e-reader devices this holiday season, making Kindle our bestselling product across both the U.S. and Europe," he said in a statement. "Our millions of third-party sellers had a tremendous holiday season with 65 percent unit growth and now represent 36 percent of total units sold."

For its full fiscal year, Amazon said net sales jumped 41 percent to $48.08 billion from $43.20 billion in 2010. However, the company's 2011 full year operating income fell 39 percent to $862 million, and its net income declined 45 percent to $631 million. In the year prior, the company reported full year net income of $1.15 billion.

Amazon is banking on the success of the Fire to fuel future sales growth and preliminary figures suggest it could do so. The company noted Kindle unit sales, including both the Fire and e-reader devices, surged 177 percent during the nine-week period ending December 31. The online retail giant also noted the Fire has quickly become its bestselling, most gifted and most wished for product.

According to Bloomberg, Amazon traded at 141.9 times earnings over the past 12 months. The price-to-earnings ratio at Cupertino, California-based Apple, on the other hand, was 13. 

 
Share/Bookmark

Carnival: Costa Concordia wreck could lower full year net income $175 million

on

Carnival: Costa Concordia wreck could lower full year net income $175 million The recent sinking of the Costa Concordia has already caused cruise ship bookings to plummet, among other deleterious consequences, according to reports.

The Costa Concordia sank earlier in the month after it traveled into shallow seas. Tourists aboard the ship said that its sinking played out like that of the Titanic, with confused crew members directing passengers to remain in their seats – even as the boat began to split. The Wall Street Journal reports that Carnival Corp., which owns Costa, said the wreck would hurt the company's full year profit by more than $100 million.

Officials from Carnival are struggling to ascertain how they can fuel earnings this year amid a consumer backlash. Company executives said that passenger bookings fell in January, but they asserted they did not believe the wreck would affect its business model in the long-term.

In a regulatory filing, Carnival said it expects the wreck to significantly impact net income for the company's 2012 fiscal year, which ends on November 30. In total, the company estimated that the wreck would lower net income between $155 million and $175 million.

Analysts said the cruise company would likely implement business cost reduction measures in an effort to drive profitability. However, they noted Carnival's path toward profitability would be riddled with obstacles, as officials will have to decide where, exactly, to carry out such cost reduction initiatives. Carnival could rework spend management and indirect spend, some experts said, while others urged the travel company to consider shifting its supplier contract negotiation strategy.

Italy-based Costa does not account for a substantial portion of Carnival's overall business model, according to officials. Costa's entire fleet of ships makes up only 1.5 percent of Carnival's totally capacity, but analysts said the estimated cost of the wreckage has already surpassed $500 million. Travel experts further posited the company's revenue would take a hit this year as consumers could opt to travel on perceived safer cruise liners.

For its part, Carnival acknowledged bookings were down, but it said it remains optimistic about future growth.

"Costa's booking activity is difficult to interpret because of the significant re-booking activity stemming from the loss of the ship's use and related re-deployments," the company said in a statement. "However, we believe it to be down significantly. Despite these recent trends, we believe the incident will not have a significant long-term impact on our business."

 
Share/Bookmark

Exxon Mobil benefits from high oil prices

on

Exxon Mobil benefits from high oil prices          Exxon Mobil posted earnings that surpassed analysts' expectations, as an uptick in oil prices fueled its quarterly profit.

The Texas-based oil giant said Tuesday it benefited from significantly higher oil prices in its fiscal fourth quarter. Prices of the company's crude were 27 percent from 2010 between October and December, an uptick that helped fuel a 2 percent rise in net income. Exxon Mobil also noted full year earnings for 2011 hit $41.1 billion, representing a 35 percent jump from the year prior.

Improved supply chain management also kept costs down at the world's largest publicly traded oil company. Exxon Mobil said revenue in the quarter climbed 15.6 percent to $12.16 billion. The company increased investment into oil sourcing, spending approximately $36.8 billion in 2011 on identifying new sources of crude and natural gas, according to The Associated Press.

Nevertheless, production at the company's drilling wells fell roughly 9 percent in the fourth quarter. Analysts noted investment into new drilling locations could take years to pay off, but the company is poised for growth in 2012. Earnings at Exxon Mobil's exploration and production division rose 18 percent. Its refining business took a hit, on the other hand, posting a 63 percent drop in income.

 
Share/Bookmark

Beneficial rains send corn, soybean prices down

on Monday, January 30, 2012

Beneficial rains send corn, soybean prices downCorn and soybean futures fell on Monday following news that beneficial rains could boost crop yields in Argentina and Brazil.

The prices of nearly all commodities have surged over the past few years, as flourishing demand from throughout the world – particularly emerging economies such as Brazil, Russia, India and China – outstripped supplies. U.S. companies have struggled amid a weak economy to offset price gains onto consumers, and have launched business cost reduction initiatives and other campaigns as they sought to rein in spending.

While commodity prices have remained largely stagnant over the past few months, corn and soybean futures fell in trading on Monday. Bloomberg reports that corn dropped for the first time in eight sessions and soybean futures suffered their biggest decline in four months on speculation that rains in South America will help fuel crop yields, allaying supply concerns.

Approximately 90 percent of the fields in Argentina and Brazil will get as much as three inches of rain over the course of the next 10 days, according to a report from Global Weather Monitoring. The rains are expected to help fuel crop yields of both corn and soybeans.

"Rainfall will be beneficial for boosting yields," Prime Agricultural Consultants market analysts Chad Henderson said in an interview. "The rains should halt any further deterioration in yields and slow buying of U.S. grains."

Businesses that use corn and soybeans have witnessed profits dwindle as prices have surged over the past few years. Some food manufacturers and other companies have had to cut spend management and indirect spend, while others have worked with procurement consultants and overhauled supply chain management as they endeavored to improve squeezed profit margins.

Farmers, on the other hand, have seen revenue and profits jump. The beneficial rains in South America could increase supplies, though, which would ease demand on producers of the commodities.

On the Chicago Board of Trade on Monday, corn futures for March delivery fell 1.56 percent to close at $6.31 per bushel. Soybeans for March delivery declined 2.77 percent to close at $11.85 per bushel.




 
Share/Bookmark

Netflix picks up 220,000 streaming subscribers

on Friday, January 27, 2012

Netflix picks up 220,000 streaming subscribersNetflix officials said that an uptick in the company's subscriber base in its latest fiscal quarter helped fuel earnings.

California-based Netflix reported robust quarterly earnings this week, surprising analysts' expectations. Netflix said that it signed 220,000 domestic streaming users in its last fiscal quarter, bringing its U.S. userbase to 21.7 million. The company noted, however, that it continued to lose customers in its mail order segment, affirming 2.8 million people ended their subscriptions, bringing that division's total to 11.2 million.

Last year, Netflix went from a Wall Street darling to the scourge of shareholders, announcing that it planned to offer a more intricate pricing plan that separated its streaming and mail delivery segments. Company officials argued that the move would help increase profit but customers revolted, canceling their subscriptions in huge numbers.

Shares of the company's stock plummeted over the past six months as a result, but the company's latest financial report helped bolster investor sentiment. Netflix chief executive Reed Hastings said that the company's financial prospects were improving, and that it had successfully implemented cost reduction measures over the past few months that had increased profitability.

Moreover, he affirmed that profit margins at the company's streaming division were improving, an encouraging trend as the media firm has had to spend heavily to acquire additional content.

"Since we significantly outperformed our 8 percent domestic streaming contribution margin target in Q4, we are increasing our Q1 contribution margin target to approximately 11 percent," Netflix said in a statement.

Netflix customers are spending more and more time watching movies and television shows through its streaming service, Hastings said. During the last three months of 2011, Netflix users spent more than 2 billion hours watching content on the website and through the company's application, which can be downloaded on tablet and smartphone devices.

Netflix said, however, that it expects to post a loss in its current fiscal quarter. The company will have to scale back cost reduction campaigns over the coming months in an effort to ink new media partnerships, and that will result in a loss of between $9 million and $27 million, the company forecast.

Nevertheless, the company said its fiscal performance turned a corner at the end of last year and that it expects its streaming subscriber base could climb as high as 23.6 million by the end of the quarter. It projects its DVD userbase, on the other hand, to decline to around 9.4 million.

 

Share/Bookmark

4G Race to the Top in 2012

on

In 2011 it seemed clear that Verizon Wireless was leading the 4G race introducing their version of 4G LTE. The big question that is arising at the start of 2012 is what other players will begin to compete in this race? And how will other carriers deliver on 4G network and devices?

Verizon Wireless started off strong last year with a powerful platform called LTE. Verizon’s LTE software includes approximately 10 equipped wireless devices, mobile hotspots, and tablet PCs. Although Verizon’s aggressive network upgrade had some unforeseen weaknesses. For several months Verizon began to experience technical problems with its 4G network. This caused several service blackouts and complaints about the network. Brian Higgins the Vice President of Product Development at Verizon Wireless state “one thing we have learned being of the first carriers to offer these 4G services is: yes there will be a couple of issues and yes we will earn from these issues.” With all new technology there will always be growing pains. It happens with a variety of services and networks; clearly the first carrier to launch a new service will be criticized for failures and hiccups in the process.

By the end of last year the AT&T and T-Mobile merger failed which some analysts say may have an effect on both companies.  Noted in a previous Strategic Sourceror blog, AT&T’s strategic sourcing of wireless technologies will benefit and affect other companies. AT&T’s decision to abandon the T-Mobile deal may lead to AT&T’s ability to focus on new services and increase the efficiency and speed of their 3G and 4G networks.

To be able to gain back the $4 billion hit for AT&T’s failure to acquire T-Mobile, AT&T must focus on their 4G network.  AT&T first deployed two different types of networks to provide faster speeds. They first focused on updated their 3G network before moving onto 4G. This updated network did not deliver to their customers as they have hoped. AT&T promoted network speeds that weren’t quite there. AT&T’s 4G network currently covers less than half the number of customers as Verizon’s network as said in an article in E-Commerce Times by Rob Spiegel. For AT&T to continue to have a competitive edge against Verizon in the LTE arena, they must rethink their strategies.

As far as the other wireless contenders, Sprint and T-Mobile they have both been dabbling in the 4G arena. Sprint was actually the first carrier to introduce their version of a high performance network in 2010, the EVO 4G was equipped with WiMax rather than LTE in 2010. This network platform did not succeed as well as others because there was not enough maturity in the market for network speeds and devices. Sprint will continue to support their WiMax devices through the end of 2012. Sprint’s CEO, Dan Heese, said that Sprint’s upcoming LTE roll out would cover 125 million people by the end of 2012, and approximately 250 million people by the end of 2012. Sprint spent a lot of 2011 focusing on an expansion of 4G products and released the iPhone to keep up with competitors. Sprint currently offers an unlimited data service plan which gives them an advantage over competitors. Although, as Sprint begins to focus on 4G they may lose that advantage due to the heavy data users and a shortage of wireless airwaves.

T-Mobile had been holding out on adapting to 4G mainly because it lacked resources that many of their competitors have. Officials from T-Mobile believe that LTE just isn’t ready and fully mature and that the quality of some devices has not been great. T-Mobile recently has announced the Galaxy Blaze 4G considered their “4G” or HSPA+ network. T-Mobile’s HSPA+ network services are available in nearly 50 major cities. This network offers 4G speeds and improved support and performance.

The question consumers have is: who will begin to lead this 4G race? How will network and wireless devices advance in 2012? While the network speeds and devices have begun to gain focus and interest already in 2012 it will be quite interesting how this 4G race will play out.

Share/Bookmark

Business cost reduction campaigns fueling airline earnings

on

Business cost reduction campaigns fueling airline earnings The airline industry has struggled over the past decade amid volatile fuel prices, but two of the largest airlines in the U.S. reported strong earnings this week.

United Continental Holdings and JetBlue Airway both posted fourth quarter results that surpassed the expectations of analysts. Experts assert that airline carriers have had to raise fees and reorganize under intense competition and a tepid economic environment. JetBlue officials noted the company's business cost reduction campaign fueled its jump in profit and revenue.

United posted a profit of $109 million in its latest fiscal quarter. JetBlue, moreover, beat analysts' expectations, posting an operating income of $23 million in its latest fiscal quarter. JetBlue executives noted the airline carrier froze management hiring and pay through a cost reduction initiative.

Volatile energy prices have eroded profit margins at airline carriers over the past decade. While carriers largely absorbed massive losses in the past, they have aggressively raised rates on customers in an effort to drive revenue and profitability. Many carriers have extended their business cost reduction initiatives throughout their supply chains, overhauling spend management and indirect spend as a means of reducing overhead.

United, the world's largest airline carrier since its merger with Continental was approved, benefited in its latest fiscal quarter from efforts to improve efficiency. The company scrapped less popular flights over the past year, which helped increase attendance on some of its more trafficked routes. The Chicago-based airline said sales in the fourth quarter jumped 5.5 percent compared to the year prior, hitting $8.93 billion.

"We made significant progress in 2011 building the world's leading airline, while running a clean, safe and reliable operation," United chief executive officer Jeff Smisek said in a statement. "I am proud of the results we achieved by working together at the new United, and I look forward to seeing my co-workers share in our success when we distribute more than a quarter billion dollars of profit sharing on Valentine's Day."

JetBlue said net income for its full fiscal year hit $86 million, down from $97 million the year prior. The company's fourth quarter profit was still strong, company officials noted, rising more than 125 percent from the same period in 2010.

"JetBlue's solid fourth quarter results capped a very good year for JetBlue," JetBlue chief executive Dave Barger said. "Throughout 2011, we executed on our network strategy in key markets such as Boston and the Caribbean, resulting in record revenue performance.  At the same time, we maintained our focus on cost control while running an efficient operation, which helped mitigate the impact of rising fuel prices."

Airline carriers have increasingly invested in oil sourcing over the past few years, as they struggled to keep costs down amid surging oil prices. Carriers are carefully eying geopolitical situations throughout the world as they work to determine whether oil prices will surge unexpectedly in 2012.

While other airlines are planning to scale back flights this year, JetBlue officials said the company would augment flight and seating capacity across its fleet. Executives said that they planned to increase seating capacity as much as 11.5 percent in the current fiscal quarter. For the full 2012 fiscal year, the airline carrier said it would expand seating capacity as much as 7.5 percent.

Delta, Southwest and U.S. Airways also beat analysts' expectations in the fourth quarter, Bloomberg reports.



 
Share/Bookmark

Time Warner Cable posts strong earnings on robust high-speed internet segment

on Thursday, January 26, 2012

Time Warner Cable posts strong earnings on robust high-speed internet segmentTime Warner Cable's earnings impressed analysts this week, as the company said its net profit surged 44 percent in its latest fiscal quarter.

Time Warner is seeking to command an ever-larger piece of the high-speed internet market in the U.S., which is exceedingly lucrative for many businesses. The company is one of the biggest cable television providers, but its march into the high-speed internet market has already begun to pay off, experts said.

The company posted a net profit of $564 million in its fourth fiscal quarter, which ended December 31, 2011. The company has implemented a successful business cost reduction campaign as a means of improving efficiency, and it has overhauled supply chain management and indirect spend as it strove to improve efficiency.

Time Warner is the second-largest cable provider in the U.S. – trailing only Comcast – and it is hoping to become the dominant firm in the high-speed internet sector. The company's revenue climbed 4 percent in its latest quarter, hitting $5 billion. The uptick in revenue was fueled by the company's rapidly expanding internet service segment, which posted an 8.6 percent rise in revenue.

The company announced earnings prior to the start of trading on Thursday. Time Warner Cable chief executive Glenn Britt affirmed the positive earnings underscored the company's successful expansion in the high-speed internet market. He said the firm is poised for growth in 2012, and that it expects earnings to remain robust this year.

"Time Warner Cable’s 2011 results demonstrate the continued strength of our business amidst rapid change in technology and the consumer marketplace. We have a full slate of strategic and operational initiatives planned for the year ahead, all designed to generate strong cash flow, enable future growth and provide attractive returns to our shareholders," he said in a statement.

Time Warner Cable also released its full-year financial results on Thursday. For the 2011 fiscal year, revenue jumped 4.3 percent from 2010 to $19.7 billion. The company's business services division also posted stellar growth, as revenue within the segment surged 32.7 percent from the year prior. The company's advertising revenue, however, remained flat at roughly $880 million.

The New York Times reports many cable companies have increasingly moved to tap into the nation's burgeoning market for high-speed internet. The market for cable subscriptions, according to experts, is largely saturated.

 
Share/Bookmark

Clarity

on

In my experience, people rarely act in their own self-interest or even logically follow what they believe to be their own core values. The easiest demonstration of this is in our political system, where the new first choice of hard-core conservatives and tea party members is Newt Gingrich, a guy who believes in global warming, wants to take a humanitarian approach to immigration reform, is for strengthening the role of the executive branch at the expense of all others, and is on his third wife. Meanwhile Mitt Romney, the guy paying a 15% tax rate (isn’t that what Republicans want?), gets booed for it during a debate last week.

Clarity – knowing what you really want and the path to get you there - doesn’t always come easy. In business, during times of recession, organizations quickly rationalize the need to cut spending, which more often than not leads to layoffs and plant closures. But in doing so they lose their best people and negatively impact morale, which only serves to continue the downward revenue spiral and puts them in a weak position when things turn favorable again.

It’s during these times that companies should really focus on their revenue models, looking for new markets to expand into and new innovations that they can take advantage of. Cost cutting should still be on the table, but with indirect spend as the primary focus. Sure it’s probably only 30% of the spend pie, but the savings dollars for these untouched categories will often be significant.

Most people (Mitt Romney aside) didn’t get into business to close plants and fire people. It’s time to get back to our core business values.
Share/Bookmark

J.C. Penney chief executive outlines company's plan to reinvigorate brand

on

J.C. Penney chief executive outlines company's plan to reinvigorate brand J.C. Penney's new chief executive, Ron Johnson, has a history of orchestrating successful retail campaigns. In his quest to reinvigorate the department store, he plans to unleash all of them.

Johnson arrived at J.C. Penney from Apple, where he oversaw the technology giant's wildly successful retail operations. Though making the jump away from technology and toward apparel may seem like a stretch, the same basic underlying principles apply. In his new role at J.C. Penney, Johnson plans to improve the company's operating margins and performance through cost reduction campaigns, among other initiatives.

At a meeting on Wednesday, Johnson told attendees that he aims to make J.C. Penney a shopping destination for just about every kind of U.S. consumer.

"We want to be the favorite store for everyone, for all Americans rich and poor, young and old. This isn't your favorite department store. Our ambitions are much higher. We want to be your favorite store."

He has his work cut out for him.

J.C. Penney's performance has lagged behind its peers over the past few years, as the mid-tier retailer has competed in a bifurcated market. Sales at its stores open at least one year fell 2 percent in November 2011, while its December same-store sales figures were hardly better, climbing only 0.3 percent.

Johnson's first order of business is to develop a new pricing model at the company, The New York Times reports. The retailer will replace its old scheme with a three-tiered system comprised of regular prices, month-long specials and clearance sales. The switch will help drive the company's profit higher because nearly three-fourths of total revenue currently comes from items sold at a discount of 50 percent or more, according to Johnson.

Many retail chains have had to aggressively reduce prices in an effort to lure cash-strapped customers, but Johnson said J.C. Penney simply ran too many ineffective campaigns last year. He plans to reduce the chain's total number of yearly sales events from an average of more than 1 and a half per day to only 12. Implementing such a sales structure will further help achieve cost reduction quotas, positioning the company for a comeback.

"So customers ignored us 99 percent of the time," Johnson said of the high number of unique sales events. "At some point, you, as a brand, look desperate if you have to market that much."

Johnson said he did not plan to close any of the company's more than 1,100 U.S. stores – at least initially.

"Why would we go close stores when we haven't gotten the whole concept right yet?" he said. "It doesn't really make sense."

 
Share/Bookmark

Record iPhone, iPad and Mac sales power Apple quarterly results

on Wednesday, January 25, 2012

Record iPhone, iPad and Mac sales power Apple quarterly results Apple, the world's biggest technology company, beat analysts' expectations with its latest quarterly results.

The Cupertino, California-based company said on Tuesday that its profit in its first fiscal quarter more than doubled, the precipitous uptick fueled by the strength of its wildly popular iPhone 4S. Aside from its jump in net income, Apple also posted record revenue for its latest fiscal quarter, logging $46.33 billion in the 14 weeks ending December 31, 2011.

Apple's profit of $13.06 billion – $13.87 per diluted share – was more than 100 percent higher than the $6 billion it posted in the same period in 2010. Its revenue also surged compared to $26.74 billion from the year before, while the company's. gross margin climbed to 44.7 percent, up from 38.5 percent in 2010.

Apple's stellar earnings were supported by record sales of its iPhone, iPad and Macbook offerings. The company said it sold 37.04 million iPhones in the quarter, a 128 percent surge from the year before. What's more, Apple said iPad sales jumped 111 percent to 15.43 million units, with Mac sales climbing 26 percent to 5.2 million.

Since Apple unveiled the iPhone in 2007, the company has sold more than 183 million of the devices. The success of the iPhone and the iPad has eaten into the popularity of the company's iPod, however, as sales fell 21 percent in the quarter. The tech giant reported sales of 15.4 million units.

Apple has continued to upgrade and innovate with its line of product offerings over the past decade. The company has also implemented business cost reduction measures, overhauled supply chain management and reworked indirect spend and spend management.  The strategy has helped galvanize earnings, as sales of the iPhone and iPad now account for nearly 75 percent of the company's total revenue.

"We're thrilled with our outstanding results and record-breaking sales of iPhones, iPads and Macs," Apple chief executive Tim Cook said in a statement. "Apple's momentum is incredibly strong, and we have some amazing new products in the pipeline."

Apple has hoards of cash at its disposal, money the company has famously been loath to spend. Company chief financial officer Peter Oppenheimer asserted robust earnings in its latest fiscal quarter would add to the firm's already overstuffed company coffers.

"We are very happy to have generated over $17.5 billion in cash flow from operations during the December quarter," he noted. "Looking ahead to the second fiscal quarter of 2012, which will span 13 weeks, we expect revenue of about $32.5 billion and we expect diluted earnings per share of about $8.50."

Apple has presided over one of the longest streaks of earnings growth in modern corporate history. Until its 2011 fourth fiscal quarter, the company had beat analysts' expectations since 2002. While sales did not rise as significantly as forecast in the three months ending in September 2011, Cook agued consumers delayed new iPhone purchases in anticipation of the unveiling of the 4S.

Google's Android operating system has eaten into the iPhone's dominance, but Apple has successfully chipped away at the global smartphone market over the past few years. The firm lowered prices of older-model iPhones when it launched the 4S, and it has expanded coverage across three of the nation's major telecommunications providers.

The New York Times reports that the number of Americans who reported owning an Android phone dropped last year between October and December, as more iPhone owners indicated they planned to purchase the latest iteration of the popular mobile device.

Investors were impressed by the company's earnings announcement, as shares jumped more than 8 percent in trading.

 
Share/Bookmark

Customs to shutter inspection center at Brooklyn port, potentially driving up costs of bananas, beer

on Tuesday, January 24, 2012

Customs to shutter inspection center at Brooklyn port, potentially driving up costs of bananas, beer U.S. officials are planning to close a major inspection station in Brooklyn, a move that could ultimately drive banana prices higher.

The New York Times reports that in an increasingly global trading environment, the transportation of goods is an exceedingly complicated endeavor. Delivering a piece of fruit from Latin America to New York is a calculated affair, as companies strive to drive profit margins through enhanced logistics tools.

Customs officials have thrown a proverbial wrench into that finely tuned machine, however, announcing their plans to shutter an inspection station in Brooklyn's Red Hook terminal. Companies that ship and transport food products and other items through the port are scrambling to respond to the news, as they team with supply chain management and procurement consultants in an effort to rework their global logistics operations.

By closing the Red Hook terminal, U.S. Customs and Border Protection will effectively require companies to unload myriad containers each year and subsequently transport them by truck to another terminal capable of inspecting their cargo. Moving thousands of container vessels each year is challenging in and of itself, but businesses are worried they could lose money and time as they truck goods to New Jersey or Staten Island, where the closest customs inspection stations are located.

Port operators contend that the additional transportation could ultimately drive up the cost of bananas for consumers. While companies will likely endeavor to implement business cost reduction programs as a means of offsetting the uptick in transportation costs, such initiatives – unless executed without error – are unlikely to depress fuel costs in the long-term.

Bananas are not the only items whose price would likely rise as a result of the closure: the Red Hook terminal processes approximately 15 percent of all beer delivered to the region, meaning prices on a 12-pack could jump 75 cents or more, according business officials. Executives from food and beverage companies are hoping to find an alternative solution, but their options are limited.

"Basically you're just taking beer on a ride to Staten Island, and right back from where it came from," Phoenix Beverages vice president Greg Brayman asserted. "It's a huge deal."

U.S. Representative Jerrold L. Nadler said that companies are going to struggle to contend with the additional costs associated with the closure of the inspection center. Nadler noted that Brooklyn's ports are an important economic driver in the region and that the move could ultimately kill jobs and increase traffic along the Verrazano-Narrows Bridge.

"It's a tremendous incentive for these shipping companies to say, 'Why bother with Red hook?' " Nadler told the Times. "It's imperative to the economy that we have a port on both sides of the river," he added, referring to the Hudson.

Moreover, other state lawmakers said they feared the closure of the inspections station would increase security risks in the state. Representative Michael G. Grimm asserted thousands of uninspected containers would be transported throughout New York City, which could potentially be targeted.

"Over my dead body are they going to be sending trucks through my district," he exclaimed.

For its part, customs said that it extensively studied whether or not to close the Red Hook inspection station. After a thorough review, officials determined that the total amount of goods that were inspected each year did not warrant the agency's expansive presence in the port. A spokesperson for the federal organization also noted that goods would first pass through a security screening before they are transported to either Staten Island or New Jersey.

 
Share/Bookmark

How flooding in Thailand is making hard drives more expensive

on

How flooding in Thailand is making hard drives more expensive  

Though floodwaters have receded in Thailand, businesses across the globe are still struggling to contend with the resulting shock to their supply chains, The New York Times reports.

Flooding in parts of Thailand last year affected technology companies throughout the world, prompting executives to overhaul supply chain management as critical manufacturing facilities were damaged. Makers of computers and other electronic equipment struggled in the wake of the serious floods to secure new suppliers, which affected many such firms' earnings.

Though the floods that swept throughout Thailand in 2011 have largely retreated, they inflicted so much damage in the Southeast Asian nation that many businesses are still struggling to resume production. Thai companies play a critical role in the supply chains of companies such as JVC, Panasonic and Hitachi, and the flooding is continuing to cause headaches for executives.

Of the 227 factories authorized to operate in Khlong Luang's industrial zone, only 15 percent have restarted production, according to Nipit Arunvongse Na Ayudhya, a director at a firm that manages a large industrial zone just north of Bangkok. He said that the nation has faced myriad obstacles in its quest to emerge from the devastating effects of the historic flooding.

"The recovery has not been that easy," he noted.

For technology companies, the slow recovery is a continual source of anxiety. Thai companies supplied critical electronic components for products ranging from televisions to tablets. The abrupt halt in production there left foreign businesses with little choice as to where they could potentially secure new supplies. Some firms have worked with procurement consultants in an effort to improve performance, while others have instead reviewed supplier contract negotiations, searching for potential third party manufacturers.

Even when placed on a global scale, Thailand's woes are substantial. Prior to last year's unprecedented flooding, the country was responsible for the production of 40 percent to 45 percent of the world's hard disk drives. While corporate executives had hoped for a speedy recovery, the bleak reality of the nation's troubles is exacerbating concerns at computer companies.

Ultimately, consumers will likely face the ramifications of the country's dilapidated manufacturing sector. For businesses, hard drive sourcing is rapidly becoming the buzz word de jour, as prices of the important technology equipment have surged more than 40 percent in the wake of the floods. Such steep prices could remain until the end of 2012, according to HIS iSuppli analyst Fang Zhang.

"By the end of the year, [hard drive prices] could come back to preflood level for certain drives," he contended.

Statements from some of the biggest players in the hard drive market corroborate such an estimate. Manufacturing capacity at Western Digital, for example, was severely hampered by last year's floods. Western Digital chief executive and president John Coyne asserted that the company's factories – responsible for more than 30 percent of the world's hard drives – would not return to preflood output until September.

Moreover, Coyne affirmed that more than 60 other companies that manufacture hard drives in Thailand were also significantly impacted by the storm. Other firms are still struggling to sort through piles of rusted equipment and damaged factories. Their options are rather limited, however, as many such companies do not have enough funding to fix their facilities.

While firms such as Western Digital are endeavoring to find a way out of the crisis, their purchasing services departments are struggling to secure new component suppliers. The Thai crisis shows no signs of abating, and experts assert affected companies will likely have to wait for their suppliers to come back online.

 

 
Share/Bookmark

Chesapeake Energy to cut natural gas output, as hydrocarbon nears record low prices

on Monday, January 23, 2012

Chesapeake Energy to cut natural gas output, as hydrocarbon nears record low prices 

Natural gas prices have plummeted over the past decade, prompting at least one large U.S. producer to drastically reduce output of the hydrocarbon.

U.S. natural gas production has soared over the past decade, helping drive prices to exceedingly low levels. The biggest contributor to falling gas prices has been a surge in hydraulic fracturing, more commonly known as fracking.

Fracking is an exceedingly controversial issue in the U.S., as the federal government has thus far allowed states to enact and enforce laws governing the practice, in which thousands of gallons of water and chemicals are blasted thousands of feet beneath the ground's surface, which helps free natural gas stored in shale formations.

Public health and environmental scientists' assessments of the potential deleterious medical and environmental threats of fracking differ from those of oil engineers. Moreover, experts argue about the dollar value on total natural gas reserves in the U.S. Some oil engineers have pegged the figure at more than $4 trillion, while others have offered far more conservative estimates.

Nonetheless, the U.S. has rapidly become the world's biggest natural has producer on the strength of domestic fracking operations. The price of natural gas, which is considered to be a cleaner fuel than oil, has declined substantially. This has helped businesses trim operating budgets and rework spend management and indirect spend. It has also allowed companies to reallocate resources, as natural gas sourcing has become simple amid a glut of supplies.

However, Oklahoma-based Chesapeake Energy announced recently that it would reduce its natural gas drilling and production, citing the drop in prices. The decision from the energy firm underscores that while falling natural gas prices may be benefiting businesses and consumers, they are hurting drilling companies.

The Associated Press reports that Chesapeake officials decided to reduce natural gas output because low prices made some of its drilling and production wells unprofitable. The energy giant said it plans to cut production 8 percent, which would essentially leave its output in 2012 unchanged from 2011 levels. In total, Chesapeake produces about 9 percent of U.S. natural gas.

Chesapeake's announcement could trigger a ripple effect among natural gas producers, according to some analysts. As the biggest natural gas producer in the world's largest generator of the hydrocarbon, Chesapeake holds an important position among energy firms. Its decision to scale back production, meanwhile, varies significantly from past years when it ratcheted up extraction amid a fracking boom.

While cold winters in 2010 and 2011 helped fuel natural gas price gains, this year's mild winters – especially in the Northeast and Midwest – spurred an uptick in supplies. In trading on Monday, natural gas prices hovered near $2.46 per 1,000 cubic feet. The hydrocarbon approached $2.30 late last week, its lowest level since 2002.

Though a boon for businesses and homeowners, lower natural gas prices have eroded profit margins at major energy companies, prompting Chesapeake to change course. Between 2010 and 2011, the energy giant increased natural gas production 13.5 percent. In 2011, it spent more than $3.1 billion on natural gas regions. However, the cut in output will enable it to implement a business cost reduction program, as it intends to invest approximately $1 billion this year.

Chesapeake executives affirmed the company would reduce production 500 million cubic feet of gas per day in specific drilling outposts in Texas, Arkansas and Louisiana. While the move is aimed at removing a glut of supply, experts said energy companies often reverse such plans at the behest of shareholders.

 

 
Share/Bookmark

Quick Review: "Top 10 Technologies for Supply Management Savings Today"

on

Another new whitepaper came across my desk recently, written by Michael Lamoureux, Ph.D. (or as many know him, the doctor). After being pleasantly surprised by the content of the last whitepaper, I wanted to dig in a little quicker on this one. This paper, “Top 10 Technologies for Supply Management Savings Today” was sponsored by BravoSolution. A quick glance at the layout of this research paper will have you thinking that it is just a pure marketing brochure, but there really is some good content in there, and it was an easy read.

Aside from the random photos of models pretending to be excessively happy business people, the paper does a great job of jumping right into the topic at hand.

“With the right systems in place, the average company can tap cost reduction and savings opportunities that could collectively add up to 30%, or more, of spend across major direct and indirect categories”.

So what are those systems? I’m glad you asked…

The paper lists the top ten technologies for supply management savings as:

10.) Electronic RFX
9.) Electronic (Reverse) Auctions
8.) Procure-to-Pay (P2P)
7.) Contract Management
6.) Global Trade Management (GTM)
5.) Supplier Information Management (SIM)
4.) Supplier Performance Management (SPM)
3.) Spend Analysis
2.) Decision Optimization
1.) Integrated, Collaborative, Sourcing

In my view, if you want to nitpick, there really are only 9 items on this list, because the number one item on this list is in fact a proper combination of all of the technologies and tools listed above it (hopefully in a singular solution). Truth be told, the #1 item is segue to mention the paper sponsor, BravoSolution, which offers an impressive full-suite of integrated sourcing and procurement tools and services.

In reality, as a spend management consultant, I would say that utilizing every single one of the 9 tools listed (or a master tool that does them all) is not feasible or recommended for many businesses, particularly smaller companies. Reaching item #1 on the list (an integrated & collaborative sourcing solution) is about finding the right combination of the highlighted tools to fit your business. So, GTM may not be important to your small domestic services shop, but contract management may be critically important to you. Similarly, reverse auctions may not ever be right for your business, but standard eRFX tools might need to be implemented in every sourcing event. And even though this was not specifically discussed in the document, I would imagine most readers know that no solution is really one-size-fits-all. Of course a proper provider will help you decide which tools are right for your strategy.

This report is a quick reference tool to understand what a fully optimized supply chain sourcing solution would look like for your business, even if you don’t need every tool that was outlined.  Each item in the list is detailed in easy to read language and even discusses where it belongs (at what stage) of implementing a best-in-class-solution.  If nothing else, it acts as an excellent quick reference glossary for procurement and finance professionals when some of the relatively new abbreviations and buzzwords start getting tossed around the conference room table.

The concluding statements of this paper do a wonderful job of providing concise examples of many things we talked about in the market intelligence and supplier collaboration chapters of our book. The summary highlights the importance of building a collaborative supply chain with your suppliers, rather than simply asking them to place bids, and stresses the importance of market intelligence, and how that intelligence will help achieve the best results.

The entire document weighs in at a brief 14 pages, and after removing title/index/marketing, it is about half that, which makes for a very quick read. It is definitely worth your time. This report does require registration to download, which I am not a huge fan of, but it is not an excessive registration form, so you can get through it fast.  Get the report directly from BravoSolution: here
Share/Bookmark

GE's fourth quarter profit rises 6 percent

on Friday, January 20, 2012

GE's fourth quarter profit rises 6 percent  

U.S. industrial engineering giant General Electric impressed analysts and investors this week with its latest quarterly and yearly financial results.

Connecticut-based GE, which manufactures products ranging from gas turbines to airplane engines, said that its profit rose in its latest fiscal quarter. GE's net income climbed 6 percent from the same period the year before, hitting $4.1 billion. The strong profit came during the company's fourth quarter and was buoyed by strong orders for jet engines, according to chief executive Jeff Immelt.

The financial crisis significantly impacted GE, with its finance division suffering under the weight of bad loans. However, the biggest industrial company in the U.S. has fought back from the depths of the recession, posting seven consecutive quarters of robust earnings growth. GE has benefited from brisk international demand, according to analysts, and its business cost reduction measures have helped boost operating margins.

"GE's portfolio demonstrated strength and resilience, delivering earnings growth for the seventh consecutive quarter while also generating substantial operating cash flow to support investment in our business and dividend growth," Immelt said in a statement.


 
Share/Bookmark

Apple unveils detailed supply chain report

on Thursday, January 19, 2012

Apple unveils detailed supply chain reportApple is renowned for deft supply chain management, but the company is also notoriously tightlipped about its procurement operations – until now.

The Cupertino, California-based technology giant recently revealed a list of its worldwide suppliers for the first time ever. Moreover, Apple officials affirmed they would strive to improve working conditions at companies with which it executes supplier contracts.

Apple's current chief executive Tim Cook is an experienced supply chain and logistics executive, having previously run the company's sweeping supplier operations. Under Cook, Apple streamlined its expansive supplier network, trimming inventory and implementing business cost reduction measures that have boosted efficiency.

Cook also took over the helm of supplier contract negotiations, orchestrating better terms for Apple that helped free up capital in the then-struggling company. While exceedingly successful, Apple's decision to shift a majority of its manufacturing to Asian countries drew – and continues to incite – the ire of critics.

They assert the firm's work to overhaul spend management and indirect spend has come at the expense of American jobs, and that it turns a blind eye to working conditions at its factories elsewhere in the world.

Such criticisms prompted Apple to release its report on the state of its global supply chain, Reuters reports. The move was particularly surprising given the company's obsession with secrecy, a characteristic cultivated by Apple co-founder Steve Jobs, who died in October.

Apple's report contained the names of 156 companies tasked with supplying approximately 97 percent of the firm's electronics components. The businesses with which Apple works range from well-known players such as Samsung to obscure companies with fewer than 100 employees. Perhaps not surprisingly, a large percentage of its suppliers are based in Asia.

Apple completed a sweeping review of its supply chain over the past four years. Cook, who analysts said seems to be lifting the veil of secrecy that shrouds the company, asserted Apple's review took years to complete. Procurement auditing helped identify potential issues at some of its suppliers, but Apple said it found few instances of gross negligence at any of its plants.

However, the company's report states that auditors found six active and 13 historical cases of underage workers at some of its component suppliers.

"With every year, we expand our program, we go deeper in our supply chain, we make it harder to comply," Cook said. "All of this means that workers will be treated better and better with each passing year. It's not something we feel like we have done what we can do, much remains to be done."

Inspectors also found a number of other violations at Apple's manufacturing and supplier facilities in Asia, including environmental ones. The company also asserted that it found some of its Chinese suppliers had failed to properly compensate workers for overtime hours, and that some had not properly trained employees to operate dangerous machinery.

"I would like to make a significant improvement in the overtime area. I would like to totally eliminate every case of underage employment," Cook said. "We have done that in all of our final assembly. As we go deeper into the supply chain, we found that age verification system isn't sophisticated enough. This is something we feel very strongly about and we want to eliminate totally."

Apple noted it conducted 229 audits in total in 2011, representing an 80 percent uptick from 2010. The Wall Street Journal reports that the U.S. government and advocacy groups have increasingly pressed the company to investigate its supply chain. Its decision to release the findings underscores managerial differences between Cook and Jobs, analysts contend.

 
Share/Bookmark

Goldman Sachs profit drops, still beats expectations on strength of business cost reduction measures

on Wednesday, January 18, 2012

Goldman Sachs profit drops, still beats expectations on strength of business cost reduction measures   

Goldman Sachs reported quarterly earnings this week, surpassing analysts' expectations even though profit slumped.

The New York-based banking giant said Wednesday it earned $978 million in the fourth quarter, a figure 58 percent lower than the $2.23 billion logged in the same period the year prior. While net income plummeted, the financial giant's per share earnings of $1.84 beat analysts' projections.

Goldman chief executive Lloyd Blankfein told investors that the company's aggressive business cost reduction measures helped offset tepid worldwide trading. Economists and financial analysts assert market volatility in 2011 negatively impacted earnings at nearly every bank, particularly those – like Goldman – that rely heavily on trading for revenue.

"This past year was dominated by global macro-economic concerns which significantly affected our clients' risk tolerance and willingness to transact," he said in a statement. "While our results declined as a consequence, I am pleased that the firm retained its industry-leading positions across our global client franchise while prudently managing risk, capital and expenses."

In an effort to reduce overhead, the bank cut employee compensation 21 percent. It also announced layoffs aimed at improving efficiency and net income, according to experts.

 
Share/Bookmark

The SOPA and PIPA Blackout

on

 Over the past couple months two new laws were proposed by US legislators, the Stop Online Piracy  Act and Protect IP Act. As of today, January 18, many websites are taking their stand against this act and are beginning to protest by blacking out information.

The main objective of the SOPA act is to limit copyright infringement and Internet piracy on the web by giving US government unprecedented new powers. Thousands of websites are going dark today to protest against this Stop Online Piracy Act. Some believe the reaction of this act could threaten the functionality of the Internet. SOPA would give both the government and major corporations the power to shut down entire websites accused of copyright infringement without going to court.

According to Vlad Savov of The Verge, "the most outspoken protester of the bills today will be Wikipedia, whose English site will be going dark for the full 24 hours on January 18th." On Wikipedia's explainer page today the nonprofit organization states, "we are protesting to raise awareness about SOPA and PIPA solely because we think they will hurt the Internet, and your ability to access information online. We are doing this for you, because we are on your side."

Other websites who are participating in this protest are:
  • Reddit
    • Will not be offering its regular service between the hours of 8AM and 8PM
  • Mozilla
    • Will be directing English users to a similar "action page" to inviting users of its software and to voice concern
  • Google 
    • As everyone knows the Google homepage logo varies day to day depending on news, holidays, etc. Today it will be in protest by blacking out the Google logo

With this said, it is important to keep in mind that the Internet is a key resource to every industry. I wonder what would the impact be to procurement if SOPA was passed in its current state. For example, Alibaba or other major supplier directories may have a user that links to an authorized place or has an uploaded image of a trademark without permission. If someone would report this mishap, the whole site would be taken down. Any site that would be found of copyrighted material would be vulnerable under these acts. It is often hard to keep track of making sure you do not "accidently" post copyrighted material without permission on sites such as Wikipedia and Google. 
Share/Bookmark

2012 Blackout exposes the SOPA and PIPA sisters

on


Wikipedia has announced on January 16 that they will be conducting a 24 hour shut down of its English version as a protest against SOPA and PIPA. This unprecedented and extreme act has served its purpose and drawn international attention to two brewing bills.

In October 26, 2011, Lamar Smith and co-sponsors introduced the SOPA (The Stop Online Piracy Act) bill to the US House of Representatives. SOPA, if made law, will enable and empower US law enforcement's abilities to try and prosecute online trafficking of copyrighted intellectual property and counterfeit goods.

In May 12, 2011, Senator Patrick Leahy and co-sponsors introduced the PIPA (PROTECT IP Act) bill which will empower the law enforcement with additional resources to successfully "crack down" on "rogue websites dedicated to infringing or counterfeit goods." The bill was passed but is now on hold.

Major Internet giants have gone through extreme measures to draw attention to these bills to solicit the American public to voice their opinions prior to the vote scheduled for January 24, 2012.

While the bill's intent is to combat crime of online trafficking, the ramifications of what additional "power" in the government's hands concerning civil liberties is unimaginable.

The notion is noble, but naive at best. These bills are "band aides" or knee jerk reactions to a persistent problem.

The internet is an open field of opportunities. What is built on or not built on the field is dependent on what is allowed on the field. In other words, the best way to stop a problem is stop it before it happens. In order to stop a problem, the root/source must be plucked up and the resulting fruit/issues will diminish and eventually go away.

Online trafficking and piracy are merely a reflection of what has been allowed to take place. There has been too many liberties and absolutely no accountability. While speech and writing liberties should not be censored, it is important to remember that violating privacy and copyright laws are are prosecutable under US laws. They are crimes. A great example of freedom. While we should be able to do what we want, when we want, how we want in a "free nation," it is illegal to cause harm or take away another's freedom in our acts of freedom.

By working "backwards" in the internet chain of order, determining where it best makes sense to implement checks and balances will be evident. Should hosting companies be held accountable for what "their" sites publish? Should the website developers? To what extent? As long as these questions are not addressed with accountability as the driving force, online trafficking will continue. Passing bills into laws that deal with the aftermath of this crime will only hurt the innocent while the "criminals" continue to find loopholes around the system.

Should the Senate choose to vote these bill into laws, it is critical that accountability is on the forefront of the public. The American public has an obligation to voice concerns when questionable activity arises. Sitting by and letting things play out will empower the government to test and stretch the boundaries of power. Just as child will test their parent to see what they can get away with, this same scenario will ensue. There is strength in numbers and the power of influence is unimaginable.

The internet affects every aspect of this generation globally. What is tolerated. What is allowed. These questions will lead us to our future.
Share/Bookmark

Kraft announces job cuts as it prepares to split business in two

on Tuesday, January 17, 2012

Kraft announces job cuts as it prepares to split business in twoKraft Foods announced plans this week to cut more than 1,000 jobs as it prepares to separate its business into two discrete segments.

The Associated Press reports that Kraft will cut 1,600 positions in a business cost reduction initiative as it prepares for the split. Officials from the company, based in Northfield, Illinois, said a majority of the job cuts would affect workers in the U.S. and Canada in sales and a number of other business units.

"Making these tough choices is never easy, and we recognize the impact these changes will have on many of our people and their families," Kraft executive vice president Tony Vernon affirmed. "But our plan for a more nimble company, combined with the current economic and competitive pressures, led us to this point. Taking the necessary steps now will enable us to continue investing in our beloved brands to drive growth."

Product sourcing has become exceedingly expensive for Kraft – like other manufacturers – and the company has had to raise prices on some of its food offerings to offset spikes in commodity prices. Improved supply chain management helped Kraft implement cost reduction measures, but the latest job cuts will ease the transition.

Kraft executives said in August the company would split into two separate firms, one specializing in worldwide snacks and the other a North American grocery business. The move, according to Kraft, will improve efficiency and reign in costs.

Kraft chief executive Irene Rosenfeld asserted the company has already streamlined spend management and indirect spend, and that it is readying for the pending split in its core operating segments.

"When we announced our decision to create two world-class companies last August, we said both would be leaner, more competitive organizations," Rosenfeld said in a statement. "Having the majority of our business units together in one location will provide greater development opportunities for our people and will help us continue building our brands more efficiently and collaboratively."

Kraft employs more than 127,000 throughout the world, with roughly 46,500 of those positions based in North America. To facilitate the planned split, Kraft will relocate manufacturing facilities in Tarrytown, New York, and East Hanover, New Jersey, to Chicago. The company will also close a management center in Glenview, Illinois, by the end of 2013 in anticipation of the spinoff.

 
Share/Bookmark

A Review of "Spend Visibility: An Implementation Guide"

on

Now that the holiday season is behind us, I am finally starting to get caught up on some industry publications that have hit the market recently.  Of course, "Managing Indirect Spend, Enhancing Profitability Through Strategic Sourcing" should be on everyone's reading list... but I digress.    No, the real thing I wanted to talk about today was the recent FREE whitepaper "Spend Visibility: An Implementation Guide (pdf)", compliments of Michael Lamoureux, PhD (the doctor) and Bernard Gunther; sponsored by Lexington Analytics.

So admittedly, this PDF whitepaper has been "sitting on my virtual desk" for over a month now, as it is a very comprehensive (in other words, long) 134 pages.  In fact, it very much has beginning makings of a decent book if they had just sought out a publisher, (like yours truly did recently). But once I finally committed to reading it, I found that it is actually a very worthwhile read that really deserves some attention outside of the doctor's blog.  In fact, even if you are short on time, there are enough quotes, examples and tips to keep you coming back to digest more.

From an elevator view, the report discusses a problem (or opportunity, depending on how you look at it) in which most strategic spend visibility initiatives really only are successful in driving short bursts of short-lived savings, or "quick saves".  The Executive Summary argues that most initiatives and visibility exercises only produce short term blips on the bottom line and are unsustainable in the long term.  We happen to agree with this at Source One, we are frequently told by some of our customers that they just sourced a category and that there are no savings available, yet we are able to produce both additional immediate savings as well as develop programs to help sustain or improve those savings beyond that first year of the contract.

The report starts with some strong citations from notable resources such as Aberdeen, IBM and Hackett Associates.  It basically outlines the strong savings opportunity (estimated up to 11%) that is on the table for just about any spend category.  It also details that by simply adding the process of reporting and viewing your spend carefully that an immediate savings can be found through areas such as incorrect item numbers, improper pricing, demand shift and maverick buying.  However, the report demonstrates graphically the rapid decline in sustainable savings after the low hanging fruit has been identified and the first year or so of compliance has been tracked and monitored.
The report then goes on to talk about taking things to the next level, which is of course, implementing a true strategic spend visibility and analysis plan.  This type of plan drills deeper than the standard top line reports that are seen in an early stage spend analysis or spend compliance report.  It dives deeper into areas such as fraud detection, regulatory compliance, "sacred cow" spending, part consolidation or rationalization, and more.  I am glad that the report included a reference to "sacred cow" spending in legal and marketing, though I would throw Human Resources into that bundle too.  By implementing a proper spend visibility program (with the proper resources and tools), you can virutally eliminate the short term blips in savings seen in the chart above and replace it with multiple repeatable savings successes as demonstrated in this funky chart below:

From here, the report begins to detail the basic ten-step process one should use to build a sustainable spend visibility program.  Now, I typically dislike business processes being defined in some sort of static "step" process, as I feel that every process is unique and needs to allow variation to ensure that process does not dictate outcome, but in this case, the steps are generic enough that they allow for variation themselves.   The authors outline the basic steps as follows:
  1. Get Executive Support
  2. Understand Existing Capabilities and Gaps
  3. Identify the Data Sources
  4. Identify the Raw Data
  5. Define the Schema
  6. Define the Starting Rules for Classification and Mapping
  7. Avoid the Common Tactical Traps
  8. Define the Cubes
  9. Analyze, Assess, Report, Decide
  10. Refresh, Repeat
I am particularly pleased to see that step one "Get Executive Support".  We wrote extensively on this topic in our book "Managing Indirect Spend" , talk about it right here on the StrategicSourceror.com and include it in every single sourcing project that Source One conducts with our customers.  As the author's point out, it's important for the organization as a whole to realized that spend visibility is not solely a procurement exercise, and the data (and support) cannot simply just come from AP data.  Total organization buy-in is required to maximize the adoption and obtain the savings from a spend visibility program.

At this point I have only talked about the introduction sections of the whitepaper report.  So what's in the rest of the report?  It is, in fact, one of the most comprehensive step-by-step resource guides I have seen for this industry.  It is complete with examples, suggestions, and tips to help you select (and implement) the best spend visibility guide for your organization.  Unlike other similar reports I have seen, this report is much more than a list of proprietary software requirements meant to exclude other vendors in an RFP process.  It documents specific examples and provides a "How To" guide on dealing with particular issues that are common in the implementation of a spend visibility program.

So who should be reading this report?  Well, if you are concerned about the bottom line for your company, you should be reading it. As stated earlier, an initiative as complex as this should not be something that is simply considered a "procurement initiative" even if it is driven by the procurement group.  If numbers, software and statistics aren't your thing, there is still plenty of content that talks about the challenges that a spend visibility program will face and where to find more savings opportunities. Simply put, I recommend that you take the time to review this report, its not your typical "salesy" whitepaper.

I'll wrap up this review with a simple quote that I found particularly true.  I don't even feel the need to add anything to it.
"Have a plan, track progress, and continually communicate success"
This cannot be understated.  The best way to garner continued funding and support is to measure and show progress against a plan and communicate that regularly.


---
My compliments to the team at Sourcing Innovation, for once again providing some fantastic content without so much as even having to register.  There are no worries about getting spammed for the rest of eternity, so download the report now.
Share/Bookmark

What the Concordia Disaster Means for the Cruising Industry

on

By now you have all heard or read about the terrible tragedy in Italy. Everyone is speculating over how it happened and what went wrong. Of course for most of us we cannot truly understand the depth of what occurred since we were not there. But what does this mean for cruise travel in the near future? TripAdvisor reported a 4% increase in travelers planning to cruise this year, people are looking for more cultural trips and cruises are often an excellent source for this travel goal. But what effect will this Concordia event have on plans to cruise now? This time of year is especially important for the travel industry for bookings to occur, people are spending their year-end bonuses and tax returns as well as selecting their vacation times with their companies. Not to mention that during this dreary weather the first thing people think of is traveling to a tropical destination. CNN Money reports the following,  

In a recent poll on SodaHead asking “Are You Less Likely to Take a Cruise Given the Costa Concordia Tragedy?” one-quarter of respondents said yes, while about half replied no, and the rest answered, “I was unlikely to take a cruise in the first place!”

Not to mention the detrimental effect it will have on Carnival, Costa’s parent company. This article indicates that Carnival will be delving out a whopping $40 million in insurance deductibles alone, tack on the loss in revenue and Carnival is expected to see close to a $100 million loss in 2012.
If you ask me cruising is a preference, I think you either love it or you hate it. Hopefully people will do their research before planning any vacation, including a cruise, and make their destination decisions based on facts and reviews. While this event is certainly not an isolated one, it is not a common occurrence when you factor in the hundreds of cruises that depart daily worldwide. Travel wisely and carefully.

Share/Bookmark

Authors of 'Managing Indirect Spend' on AZTV Tomorrow

on

Managing Indirect Spend Book The primary authors of "Managing Indirect Spend, Enhancing Profitability Through Strategic Sourcing" will be on AZ TV's Morning Scramble tomorrow with hosts Tonya Mock and Lew Rees.   Primary authors Joe Payne (V.P. Professional Services) and William Dorn (V.P Operations) of Source One Management Services, LLC, will be discussing the book as well as how it relates to current events.
You can watch the interview live at 10:45 EST via the streaming link found here: http://www.aztv.com/category/195810/scramblelivestream
Share/Bookmark

Surging supplies send natural gas prices down

on Monday, January 16, 2012

Surging supplies send natural gas prices down  A surge in natural gas production in the U.S. is driving down prices and prompting many investors and analysts to place bearish bets on the fossil fuel.

 

Hydraulic fracturing, more commonly known as "fracking," has become increasingly common in the U.S. over the past few years. The natural gas extraction technique has enabled drilling companies to remove natural gas from shale formations located thousands of feet beneath the earth's surface.

The U.S. has quickly become the world's biggest producer of natural gas, and that has fueled plummeting natural gas prices. Bloomberg reports that hedge funds have turned bearish on U.S. natural gas for the first time in eight weeks, as a surplus of the commodity and mild winter temperatures have driven prices down precipitously.

Many analysts and hedge funds are now betting that natural gas prices will fall over the coming months, citing such data. Natural gas sourcing has become exceptionally simple for many companies, as supplies have surged and prices have dropped on slumping demand, experts say.

On the New York Mercantile Exchange last week, natural gas for February 2012 delivery declined by 1.00 percent, closing at $2.55 per million BTUs.

 
Share/Bookmark

China's voracious appetite for gold spurs traders' bullish outlook

on Friday, January 13, 2012

China's voracious appetite for gold spurs traders' bullish outlookGold sourcing might become one of the hottest terms of year, as analysts forecast gold prices to soar amid hoarding of the yellow metal in China.

Gold demand is surging in China, as the world's second biggest economy imported the biggest amount of the metal from Hong Kong ever recorded. The price of gold tends to move inversely with economic and political stability, as illustrated by the commodity's sharp rise over the past few years.

A recent Bloomberg survey of 23 gold traders found an overwhelmingly majority of those polled – 18 in total – expect gold prices to jump next week. Gold sales have continued to climb over the past year, with the U.S. Mint affirming it sold 85,500 ounces of American Eagle gold coins in the first 12 days of this month.

Rising gold prices have squeezed profits at many jewelry makers. While luxury brands have offset the uptick in price onto customers, many stores have instead opted to implement business cost reduction programs.

While gold surged in 2011 on economic and political instability throughout the globe, China's frenzied market is driving price gains thus far in 2012, according to Sharps Pixley chief executive officer Ross Norman.

"The thing that’s caught people's minds is the massive increase in Chinese buying," he said. "Gold has demonstrated time and time again its ability to hold purchasing power. It looks expensive and people talk about bubbles, but it's not."

On the New York Mercantile Exchange on Friday, gold futures for February delivery climbed 0.58 percent to close at $1,640.30 per troy ounce.

 
Share/Bookmark

Greece's cost reduction initiatives spurring drug shortages

on Thursday, January 12, 2012

Greece's cost reduction initiatives spurring drug shortages Greece's financial woes are well known by now, but the European nation's struggles are even affecting prices of medications, Bloomberg reports.

Greece famously tottered on the edge of economic destruction in 2011, as its budget deficit and massive debt load resulted in the ouster of the country's ruling administration. The nation's borrowing costs soared, as investors abandoned debt auctions for fear the country would default on its obligations.

As a result, Greece accepted a bailout package from the European Union and the International Monetary Fund that mandated it control its ballooning budget deficit. The financing helped calm global markets – at least for the time being – but officials were forced to implement sweeping austerity measures. They also raised taxes and created new ones altogether, all in an effort to avoid insolvency.

The drama has played out in headlines across the globe, but what does it actually mean for Greeks? While nations do not function exactly like businesses, there are many similarities. Greece essentially filed for bankruptcy protection, and its austerity measures are much like the business cost reduction initiatives companies carry out during times of fiscal strain.

Moreover, while companies battling insolvency routinely overhaul spend management and indirect spend, and refine supply chain management, Greek lawmakers' authorization of tax increases and approval of state expenditure cuts will ultimately have a similar effect.

While some economists assert such measures will have long-term positive effects on the Greek economy, there is no denying that in the short-term they are imposing stiff penalties on Greek citizens.

In the wake of the austerity measures, for example, Greeks have struggled to procure nearly all kinds of medications. Medicines such as the blood-thinner Clexane, the asthma treatment Flixotide and even aspirin have all but vanished from the country, according to data from the Panhellenic Association of Pharmacists.

In total, more than 50 percent of the 500 most widely used medications in Greece are currently affected by such shortages. While conceding the country's healthcare sector has been affected by its economic crisis, Greek lawmakers denied accusations that it is a "tragedy."

"It would be unrealistic to deny that there are many difficulties regarding all public services due to the financial crisis," Greek Ministry of Health secretary general Nicolaos Polyzos affirmed recently. "However, this cannot justify characterizing the current picture of [the] health sector in Greece as a ‘tragedy."

There are myriad factors driving up the costs of medications, but experts said the Greek government's policy of setting drug prices has contributed to the uptick. As a part of its cost reduction measures, Greece announced lower drug prices last year, but such policies have spurred wholesalers to sell supplies outside of the country, as they work to garner heftier prices for their products.

Greece's problems are particularly dire, but officials would do well to work with supply chain consulting firms if they want to reduce the amount of shortages currently plaguing the nation. Its healthcare system is so expansive – and government coffers so strained – that many wholesalers, drug manufacturers, hospitals and pharmacies must wait long periods of time before they receive payment. As a result, many such healthcare providers have had to scale back their business, or look elsewhere to drive sales.

"Wholesalers simply do not have the money anymore to play bank to the pharmacies," European Association of Euro-Pharmaceutical Companies secretary general Heinz Kobelt told the news provider.

While drug shortages have become more common in the U.S. over the past few years, they have largely resulted from manufacturing and procurement problems. In Greece, the problem is more acute, underscoring the systemic issues  complicating its path toward recovery.


 
Share/Bookmark