April 2012
Humana's profit drops on higher costsHumana posted middling quarterly results this week as it struggled to adhere to cost reduction initiatives.

Humana, one of the nation's larger health insurers, said this week its first quarter profit fell 21 percent as it paid out more in claims from customers. What's more, the company also affirmed it increased spending during the first three months of this year in an effort to more readily contend with an uptick in the number of customers participating in its Medicare Advantage program, a segment that is highly profitable for the company.

The Associated Press reports the company's quarterly results came in below analysts' expectations. Louisville, Kentucky-based Humana noted it expects its earnings to increase over the course of this year, offering shareholders a range of between $7.55 and $7.75 per share. The health insurer had previously forecast earnings of anywhere between $7.50 and $7.70 per share.

According to company executives, Humana is bullish on future growth prospects for the remainder of its fiscal year because of what they deemed a favorable climate in claims. Though its profit fell in the first quarter, Humana's earnings report was not entirely lackluster.

The company said its first quarter consolidated revenues were up 11 percent from the same period in 2011. In total, the company reported $10.22 billion in consolidated revenue in its last fiscal quarter. Total premiums and services also climbed in the quarter, increasing 11 percent from 2011.

Humana chairman and chief executive Michael B. McCallister affirmed the uptick in enrollment in the Medicare Advantage program would help fuel future growth. The division is lucrative for the health insurer, and Humana has aggressively courted customers to join the program.

"Our compelling senior value proposition and favorable demographics have made Humana one of the fastest growing Medicare Advantage and PDP companies in the nation," he said in a statement. "This growth trajectory has contributed solidly to our results for the first quarter and our continued confidence in our projected results for the full year."

Investors were largely underwhelmed by the firm's quarterly earnings report, as shares fell more than 6 percent in trading on Monday morning.

Fighting bankruptcy, American Airlines struggles to hit cost reduction goalsAs American Airlines battles insolvency, the airline is struggling to carry out cost reduction initiatives, according to reports.

AMR, the parent company of American Airlines, filed for bankruptcy protection late last year, the latest of the nation's major airlines to fall victim to surging fuel prices and an uneven economic recovery. Since the airline industry was deregulated in the late 1970s, carriers have fought to improve profitability, but their efforts have been hindered by increased competition and slim operating margins.

American Airlines, one of the nation's most iconic carriers, is endeavoring to avoid the fate of others within the sector, but company executives are facing mounting challenges as they seek to implement business cost reduction plans, NPR reports. The carrier asked a federal bankruptcy judge in New York City this week to allow it to cut its workforce by more than 13,000, a move that would help it bolster earnings.

However, the carrier's unions have strongly criticized American Airline's efforts, and are ratcheting up their opposition as officials weight the cost reduction measure. For its part, American Airlines said trimming its payroll by such a figure would help lower its overall costs for years. If the judge ultimately approves the company's petition, it could help increase the carrier's competitiveness, executives say.

"The fact is that our labor costs are the highest in the industry," according to Bruce Hicks, a spokesperson for American Airlines. "While other airlines have gone through the same restructuring process over the last 10 years and are all sustainably profitable now, we continue to be the only major airline losing money. We've lost $10 billion in the last 10 years."

The airline's unions are vehemently opposing the job cuts, though, arguing American Airlines' failure to improve its financial standing is the result of poor management, not an inflated payroll. In 2003, the company's pilots, mechanics and flight attendants returned more than $1.8 billion in wages and profits in a move aimed at preventing layoffs. However, union officials expressed outrage after the carrier's executives took home hefty bonuses the same year.

Moreover, American Airlines' unions also noted that Southwest Airlines is the most unionized carrier in the U.S. Unlike American, however, Southwest has managed to continually post gains in profitability over the better part of the past decade. American Airlines executives, however, contend that there are major differences between the two carriers that are affecting the divergent fiscal results.

"Southwest has a number of great advantages, particularly on their work rules and productivity side," Hicks told the news provider. "As well as a single fleet type. They're a terrific airline with great results, but that's not the contracts that we have."

Now, U.S. Airways has complicated the debate, as the carrier has increasingly expressed an interest in acquiring American, The New York Times reports. U.S. Airways is aggressively courting American's unions. Company chief executive Doug Parker recently laid out to American's unionized employees where they could expect in terms of benefits and salary should the two carriers merge.

U.S. Airways is continuing to drudge up support for a potential merger, and Parker recently contended combining the two companies would help bolster earnings over the long-term, Bloomberg reports.

"We are eager to demonstrate to the creditors of AMR that our plan would result in higher returns than the AMR stand-alone strategy," Parker said. "We're highly confident the value created by our two companies is very large relative to the value of a stand-alone AMR."

Still, formal meetings between the two carriers have not been held. While a merger could materialize over the next few months, some industry analysts questioned whether executives at both firms would be able to orchestrate a deal, especially as American's labor dispute continues to play out.

Amazon earnings beat expectationsAmazon reported strong quarterly earnings this week.

Amazon, the world's largest online retailer, beat analysts' revenue estimates in its latest fiscal quarter, Bloomberg reports. The Seattle, Washington-based company said sales during the first three months of this year hit $13.2 billion, representing a 34 percent climb from the same period the year prior. Analysts had estimated sales would rise to $12.9 billion, according to the news provider.

Amazon's net income fell to $130 million. The online giant has aggressively spent to expand its network of distribution centers and warehouses, and analysts contend it is likely absorbing a loss on the sale of each of its new Kindle Fire tablets. However, shareholders have long forgiven Amazon for its tight operating margins, as it has continually posted strong sales and revenue figures.

Over the past decade, Jeff Bezos, the company's chief executive, has shown a willingness to make long-term bets as he eyes future growth. Though Amazon is likely losing money on the sale of the Kindle Fire, experts said the retailer is poised to more than recoup that loss over the next few years, as consumers purchase media and other products through the company's flagship ecommerce store.

As a leader in strategic sourcing and supply chain management, Amazon is continuing to eye future growth, even as it faces mounting competition from both brick-and-mortar and Internet-based firms. Amazon's latest warehouses throughout the U.S. are designed to deliver products even faster to customers, a move analysts assert will also help the company continue to fuel sales growth.

Amazon shipped 4.7 million Kindle Fires in its fourth quarter, although it did not reveal data for its most recent fiscal period. The company is still fighting for market share against Apple, whose iPad is still the dominant player in the segment. According to an analysis from IDC, Amazon's Kindle Fire commands 16.8 percent of the tablet market, making it the second most popular choice among shoppers.

Industry experts said Amazon's strong earnings suggested the company would likely maintain its pace of growth throughout the year. JPMorgan Chase & Co. analyst Douglas Anmuth said Amazon's strategy has continued to bolster earnings. He noted he expects the company's profit margins to grow during its current fiscal year.

"Underlying user growth trends remain strong," he said. "We project margins to improve in the back half of the year."

Amazon's operating cash flow climbed 1 percent between January and March, the company said, rising to $3.05 billion. Bezos said the company is positioned for long-term growth, as he defended Amazon's decision to continually invest in new technologies and expand its system of distribution facilities. He also stressed the success of the company's Kindle Store, the dominant player in the eBook segment.

"I'm excited to announce that we now have more than 130,000 new, in-copyright books that are exclusive to the Kindle Store – you won't find them anywhere else. They include many of our top bestsellers – in fact, 16 of our top 100 bestselling titles are exclusive to our store," he said in a statement.

The company's Kindle Fire remained its top selling and most gifted product in its online store in the first quarter, according to Bezos. He added Amazon's sales in North America surged 36 percent from 2011, rising to $7.43 billion, underscoring how the retailer is continuing to experience growth even amid a tepid economic climate.

…it could mean survival. President Obama’s State of the Union address in January proposed enticements for businesses that relocate manufacturing back to the U.S. His proposal to Congress included federal tax incentives as well as imposed tax penalties on those businesses that refuse to reshore. 

Reshoring isn’t a new concept to procurement professionals. Many businesses have evaluated their sourcing activities in foreign markets and are making moves to nearshore or reshore their suppliers. According to a recent report digested by Spend Matters, the current top three concerns of global trade professionals include slump in global demand, volatility in commodity prices, and rising wages in manufacturing hot spots. The majority of surveyed individuals attested that sourcing from locations outside of China would be more important in 2012 than 2011.

Businesses who have decided to exit the Asian market and nearshore or reshore suppliers have done so strategically to improve their own supply chain efficiencies. Their supply chains have been affected by natural disasters and the continuing rise in prices due to wage increases, as well as the sharp rise in fuel prices and transportation costs. At a recent forum, President Obama offered statistics from a study that showed that the total cost of ownership when manufacturing in the U.S. is only 12% higher than manufacturing in China. It was lower by 20% in some cases.

Despite the numbers, many businesses haven’t invested the time and effort required to evaluate nearshoring and reshoring solutions. While reshoring hasn’t become a trend yet, come the passing of future legislation, it may become a necessary step.
U.S. exports climbing, bolstering nation's economic competitiveness U.S. exports are increasing at a rapid clip, a phenomenon that is indicative of an overall economic recovery, NPR reports.

The Obama Administration has continually stressed the importance of increasing the nation's exports. In his 2010 State of the Union, President Obama extolled the importance of enacting policies that would support the nation's manufacturers and ultimately drive productivity and output.

In his address, the president also affirmed the administration's goal of roughly doubling U.S. exports over the next five years. Doing so, Obama argued, would also help create more than 2 million jobs. Critics balked at such an objective, but the U.S. is actually moving toward doing just that, according to the news provider.

U.S. exports, one of the many benchmarks of economic productivity, are up more than 34 percent since January 2010, and manufacturers are continuing to experience increased demand for products. While growth in industrialized countries has stalled over the past few years, the economies of Brazil, Russia, India and China (BRIC), among other developing nations, has remained robust, helping fuel the uptick in exports.

American firms have been successful in their efforts to improve supply chain management and overhaul procurement services, which has helped increase the nation's global competitiveness. Some economists had argued the U.S. should shift its focus away from manufacturing and toward other industries such as technology, but the positive export figures underscore how U.S. firms are succeeding, even against countries such as Germany and China.

Experts assert the increase in export activity is not relegated to one industry or specific niche. Rather, it has been a broad recovery over the past two years, with agricultural products, advanced electronics equipment and other goods benefitting. American beef makers have also profited, according to the news provider.

"We ship to Amsterdam; from there, it goes to 19 countries," said Jim Caruso, the chief executive of Maryland-based craft beer maker Flying Dog. "The top countries for us are England, Sweden, Italy and the Netherlands."

Moreover, manufacturers are not the only U.S. companies contributing to the positive exports data. Service firms, such as those that specialize in supply chain consulting, are also experiencing torrid demand from abroad. Such businesses have increasingly relied on growth in Asia and Latin and South America to help fuel overall growth, and they are playing a significant role in the nascent recovery.

George Mason University economist Tyler Cowen told NPR that improvements in technology have played a significant role in driving exports, particularly in terms of manufacturing. Wages are higher in the U.S. than they are in, for instance, China, but advanced equipment and machinery are helping offset such a competitive disadvantage, Cowen noted.

"A lot of it is being driven by smart machines," he said. "The U.S. has high wage rates, which is a disadvantage, but if machines are doing a lot of the work, that doesn’t matter."

The rebirth of the U.S. automobile sector has also helped bolster the nation's exports, The Associated Press reports. U.S. exports of car parts jumped 98 percent in 2011, and are projected to climb 90 percent this year, according to Michelle O'Neill, the U.S. Deputy Under Secretary of Commerce. She noted export growth among automakers is expected to remain robust over the next decade, especially as U.S. firms target growth in Russia, which is poised to join the World Trade Organization (WTO) this summer.

Upon Russia's joining the WTO, the nation will have to cut tariffs aimed at supporting domestic producers, a shift that will benefit U.S. companies, she added.

"They're seeing enough market potential to go after the market now rather than waiting for the reduction. The data says: they're going now," O'Neill said in an interview.

Still, though the nation's exports have grown over the past few years, job growth has been slower. Cowen said skilled workers capable of operating advanced equipment are likely to see an increase in job opportunities, but he said the future is not as bright for those without such expertise.

Apple: iPhone, iPad sales surged in last fiscal quarter The world's most valuable company, Apple, reported robust quarterly earnings Tuesday.

Cupertino, California-based Apple said this week sales of its popular iPhone and iPad devices continued to grow in its last fiscal quarter. Apple said sales of the iPhone surged 88 percent from the year prior, as demand in Asia grew. In the first three months of this year, Apple sold 35.1 million iPhones.

Sales of the iPad were similarly strong, as the company reported it sold more than 11.8 million of the tablets in its last fiscal quarter. That figure represents a jump of more than 100 percent from the same period in 2011. Apple's earnings  benefited from the marked uptick in sales, as net income rose to $11.62 billion from $5.99 billion in the year-ago period.

Apple also reported revenue of $39.19 billion in the first three months of 2012, up significantly from $24.67 billion in 2011. The company was largely able to avoid many of the demand problems that plagued the company last year, as chief executive Tim Cook, an expert in supply chain management, has helped reshape the technology giant's global supplier system.


Bill Dorn and I will travel to Baltimore, Maryland for the Institute for Supply Management’s 97th Annual International Supply Management Conference and Educational Exhibit, held May 6-9 at the Baltimore Convention Center. This event features opportunities for those in the supply management industry to trade ideas and solutions as well as attend educational workshops and visit with exhibitors.

This will be my first time attending this annual event and look forward to meeting industry professionals as well as listening to experts speak to their experiences and present new advancements. I am particularly excited about the featured keynote speakers ISM has recruited, including executives from American Red Cross and The Perryman Group, as well as Wolf Blitzer, Emmy Award-Winning Journalist, CNN Anchor of “The Situation Room with Wolf Blitzer.” I also look forward to discovering more of beautiful Baltimore!

You can find Bill and I visiting with our friends from ThomasNet at booth #515, catty-corner from the Attendee Lounge in East Side Exhibit Halls A, B, and C. If you are interested in scheduling a time to meet with us at the event, please feel free to contact me at mmiller@sourceoneinc.com.

Interested in attending? Visit ISM’s event website for registration details.

Nestle buys Pfizer's infant nutrition division for $11.9 billion Nestle agreed this week to purchase Pfizer's infant nutrition business.

Switzerland-based food conglomerate Nestle announced this week that it had inked a deal with Pfizer to purchase the division for $11.9 billion. Nestle is hoping to expand its food offerings in the global market. Pfizer, on the other hand, has endeavored to unwind profitable divisions as it works toward cost reduction goals.

The New York Times reports the deal would help Nestle expand in Latin America and in the Asia-Pacific region and the Middle East. Pfizer's nutrition business collects more than two-thirds of its revenue from emerging markets, a fact that enticed a formerly reticent Nestle.

"Pfizer Nutrition is an excellent strategic fit, and this acquisition underlines our commitment to be the world’s leading nutrition, health and wellness company," Nestle chief executive Paul Bulcke said in a statement.

Underscoring how demand for the Pfizer unit jumped amid heightened interest from international firms, Nestle will pay cash for the pharmaceutical giant's infant nutrition business. Pfizer put the division up for sale in July 2011, as the company continues to focus on its core drug-making business, according to the Times.

Wal-Mart is known for having "low prices, every day, in everything". Along with significantly lower prices, however, they’re also known for their tainted reputation. The company has been criticized for a number of its policies and business practices regarding employment and product suppliers, and now, they have bribery to add to the list. Today, Wal-Mart has announced that it has been conducting an "extensive investigation" since 2011 into whether or not the company has been complying with federal law prohibiting them from bribing foreign officials. The announcement came days after the New York Times reported that top executives in the company’s Mexico division tried to cover up an extensive bribery scheme from their headquarters in Bentonville, AK.

On Saturday, the New York Times reported that in September of 2005, Sergio Cicero Zapata, a former executive, emailed a senior Wal-Mart lawyer describing how the Wal-Mart de Mexico foreign unit paid brides in order to obtain permits to build stores in Mexico. Wal-Mart, then, allegedly sent investigators to Mexico City and found that there were indeed $24 million in suspect payments. Instead of reporting this to US or Mexican law enforcement, the company’s leaders ended the investigation and remained quiet. Wal-Mart advised the US Department of Justice about their probe into whether the company had complied with international laws, but it is believe that this was after they learned of the Department of Justice own investigation into the bribery allegations.

If this is true, Wal-Mart is in for a not so good treat. According to Reuters, if these allegations are proven true, it will lead to a time-consuming world probe, substantial financial penalties, and of course, the departure of top executives. In order to begin "remedying" the situation, Wal-Mart may terminate the executives involved with the bribes and/or cover-up in hopes of reaching an out of court settlement with the US Department of Justice for possible breaches of the Foreign Corrupt Practices Act(FCPA). This law prohibits US companies from bribing foreign government officials. If the company can show that the players in this scheme have been removed, the Department of Justice may look at them more favorably on the company and their current management officials.

In addition to showing that they have rid their company from unjust department heads, they will also have to convince the Department of Justice that the scheme was isolated to just Mexico. Since Wal-Mart has major operations in countries like Japan, China, the UK, and Canada, it will hard to them to show that the brides were confine to just one country.

Wal-Mart has experienced bad press before and has recovered from it with minor cuts and bruises since it is still considered one of the world’s largest corporations. This time, if these allegation hold truth, the company may be in for a world of destruction in terms of its business relationships and financial position in the marketplace (their stock has already decreased 3.1 percent). The company’s current Chief Executive Mike Duke and former CEO Lee Scott are two of the senior executives who were allegedly aware of the bribes. Their fate as well as the company’s is yet to be determined.
Wind power industry must focus on cost reduction, Siemens executive saysThe chief executive of Siemens Wind Power said this week that alternative energy companies must focus on cost reduction in order to maintain competitiveness.

The global wind power sector has grown at a rapid clip over the past decade, as European and Asian countries, as well as the U.S., have bolstered the sustainable energy sector. The U.S. federal government has offered green companies tax incentives and subsidies aimed at propping up the sector, and governments elsewhere in the world have similarly promoted such favorable tax programs.

However, a number of such tax incentives are set to expire this year, and industry watchers are fearful that without government support, the wind power sector will be unable to compete with traditional energy producers. Felix Ferlemann, the chief executive at Siemens Wind power, said that in order to ensure their future, wind power producers must scrutnize business cost reduction initiatives.

"Currently, profitability is not always a given," he said. "The wind industry struggles with low margins ... This is not a sustainable situation. We are under pressure to reduce costs quickly. And we have made this our highest priority."

Joe Payne and William R. Dorn, executives of Source One Management Services, LLC and authors of "Managing Indirect Spend: Enhancing Profitability Through Strategic Sourcing," were recently interviewed by ShoestringVenture.com where they describe why they wrote the book as well as delve into a specific topic covered in the book that speaks to best practices when sourcing indirect services.

Article Excerpt:

"Many companies consider purchasing facilities, marketing, financial, administrative, and IT services to be complex and that they are too customized, and suppliers are too diverse to adhere to the guidelines of strategic sourcing. Chapter 22: Sourcing Services delves into this topic and proves that fundamental strategic sourcing principles can be utilized to create competition, evaluate offers, and negotiate contracts for services, regardless of the targeted purchase. While the process remains relatively similar, when sourcing intangibles, you need to consider different variables, such as service levels as they apply to performance, and not just when and how products are delivered."

Payne and Dorn continue on to describe the nuances to consider when looking to source services and consideration points that can provide discount opportunities.  These considerations include services tied to a material cost, warranties and preventative maintenance, and union relations. The authors provide a real-world example of putting strategic sourcing into practice by indicating a successful sourcing project, including services as well as other indirect products, which resulted in approximately $4 million in savings across 26 categories of spend.

"Managing Indirect Spend" is available for purchase on Amazon.com and a full table of contents and detailed synopsis can be found on the official strategic sourcing book website.  
EBay reports robust earnings EBay reported earnings this week that beat analysts' expectations.

The company's shares rose the most in eight months after the online purveyor of goods said its sales and profits in its latest fiscal quarter were robust. EBay noted its earnings were fueled by growth in its PayPal segment, among other divisions.

EBay chief executive John Donahoe, said the company is expanding beyond its core business of online auctions. He said successful cost reduction and supply chain management campaigns have helped fuel profitability, and now the firm is pursuing growth outside of its traditional market sphere in an effort to drive future revenue.

According to Donahoe, EBay is charting growth in the mobile space. The company expects mobile payments to jump 75 percent this year to more than $7 billion, underscoring how consumers are increasingly shopping on their smartphones.

"PayPal continues to be a star," BGC Partners analyst Colin Gillis told Bloomberg. "The traction in the marketplace has been slow and steady."

EBay's first quarter revenue climbed 29 percent to $3.28 billion, the company said. PayPal's revenue increased 32 percent over the same period of time, while volume also rose 24 percent.

Audi buys Ducati for $1.1 billion Germany-based Audi purchased Ducati this week, a move that will enable the automaker to add luxury motorbikes to its vehicle offerings.

Bloomberg reports that Audi, owned by Volkswagen, will buy Italy-based Ducati Motor Holding as it works to lure shoppers with an arsenal of luxury motorcycles. The supervisory boards at both VW and Audi approved the purchase Wednesday, according to the news provider, and the deal is expected to be completed as soon as regulators in both European nations lend their approval.

Audi will pay roughly $1.1 billion for Ducati. Juergen Pieper, an analyst at Bankhaus Metzler, said that Ducati is highly profitable. He said that Audi would likely try to integrate the brand with its luxury automobile offering. The company will have to overhaul spend management to ensure the deal is practical, he added.

"Ducati is a strong brand in a very specialized segment – a bit like Lamborghini," Pieper noted. "It'll give Audi a bit of a marketing boost and it's very profitable, but you still have to ask whether there's not better use for $1 billion."

Brand-name drugs driving up healthcare costs, study's findings suggestThe unnecessary use of higher-priced medications is a leading cause of waste in the healthcare sector, according to the results of a new study.

Pharmacies and hospitals routinely dispense higher-cost drugs over their generic, cheaper counterparts, according to a report released by Express Scripts, a major pharmacy benefits manager. In 2011, the use of such high-priced medications actually cost workers' compensation payers more than $2.1 billion, the study determined.

Express Scripts' report, "2011 Express Scripts Workers' Compensation Drug Trend Report," said that the use of high-priced medications is effectively hurting profitability and lessening the effects of business cost reduction initiatives. What's more, it noted that workers' compensation companies are struggling to cover the costs associated with the administering of such drugs.

Aside from waste generated by the use of brand-name drugs, the study also said that a number of other factors are hurting cost reduction campaigns. The report stated the use of out-of-network pharmacies and third-party billers, for instance, cost workers' compensation firms more than $107 million in 2011. What's more, $40 million of waste was generated from the use of higher-cost delivery channels.

Tim Pokorney, a pharmacist and clinical director of workers' compensation at Express Scripts, said the findings were not at all surprising, particularly considering how many pharmacies promote name brand drugs over less expensive versions of medications.

"By applying clinical evidence and behavioral science insights to workers' compensation, we can save billions of dollars and improve health outcomes," Pokorney said in a statement. "It is critical for employers and payers to get a handle on the costs associated with workers' compensation prescriptions, and we have the solutions to help them to do so, leading to better outcomes for injured workers with minimal disruption."

The report's findings also suggest that narcotic analgesics had the highest annual cost per user in 2011. Such medications accounted for approximately 38 percent of total drug spending, researchers from Express Scripts said. They also noted the top six therapy classes, including anticonvulsants, anti-inflammatory and dermatological medications, represented more than three-fourths of overall drug spending last year.

Apple overhauls supply chain management, bolstering iPad production Though supplier issues hurt production of the last iteration of the iPad, the newest version of Apple's iconic tablet has not suffered the same fate.

CNN reports that Apple's deft supply chain management has helped the technology giant avoid a repeat of the issues that plagued the iPad 2. The latest version of the iPad is already available in 35 countries, and is set to go on sale in an additional 12 this Friday, but Apple said it expects to meet surging demand for the consumer electronics product.

Last year, the 9.0-magntiude earthquake and subsequent tsunami that battered Japan caused substantial damage to factories on the island nation. The subsequent shock to the global supply chain effectively hindered manufacturing at many of Apple's suppliers, which in turn hurt overall iPad production.

This year, however, the Cupertino, California-based company said it has been able to continue churning out iPads at a rapid clip, following a major overhaul of its supply chain. Experts said the company would likely continue to meet global demand, even as it rolls out the popular tablet in nine more countries at the end of next week.


Joe Payne and William R. Dorn, authors of “Managing Indirect Spend: Enancing Profitability Through Strategic Sourcing” and executives of Source One, were interviewed by BusinessInfoGuide.com, an online resource for entrepreneurs. The article summarizes the book’s contents and what inspired Joe and Bill to write it. Moreover, the interview gives the reader a deeper insight into Joe and Bill’s past and present professional experience as well as business tips straight from the horses’ mouths.

Interview Excerpt:

Are there any people and/or books that have inspired you along your journey?

Dorn:  I would say Steve Belli, the CEO of Source One and Abe Podolak, one of the original founders. Without their guidance and innovative thinking, neither Joe nor I would be doing what we are doing today.

Payne: I agree. Abe and Steve are the Yin and Yang of Source One, and together provide a unique style of leadership that translates through to the rest of our staff, and sets a culture of team work, creativity and continuous improvement that is very unique. You wouldn’t find a work environment like ours anywhere else.

As always, Joe and Bill are both informative and entertaining. Be sure to check out the full interview.
Resin shortage rocks global auto sectorAutomakers, some of whom are still reeling from the effects of last year's supply chain disruption, must now contend with yet another shock.

Bloomberg reports the global automotive sector faces a severe shortage of resin, a substance used in the production of fuel and brake components. TI Automotive warned supplies of resin have sunk precipitously, adding carmakers could face shortages over the coming weeks.

"The shortage is real and immediate," TI Automotive chairman William Kozyra said. "The possibility of production interruptions at some of your facilities in the next few weeks is high."

According to Kozyra, an accident at a German plant has prompted the shortage. Experts said automakers are already overhauling supply chain management as they work to find alternative suppliers in the short-term. TI Automotive, a major supplier of brake and fuel lines, has been particularly impacted by the shock to resin supplies.

Toyota spokesperson Mike Goss said the Japan-based car manufacturer is currently working to address the resin shortage.

"We are aware," he said. "We are currently assessing the situation in North America. Until that assessment is complete, any impact on our production is unknown."
Bonobos, Nordstrom ink strategic dealWhat do a five-year-old internet startup and a 111-year-old retailer have in common?

More than one would think.

Founded in 2007 by Andy Dunn, Bonobos was designed to upend the fashion world. Dunn's vision of a company that operated completely in the digital realm may now seem rather conventional, but it was one of the first such companies to find success in its novel approach to driving sales.

The New York Times reports although Dunn had initially envisaged Bonobos as a marked departure from traditional brick-and-mortar store chains, he recently inked a deal that belies the firm's digital roots. Bonobos has teamed with Nordstrom, the luxury purveyor of apparel, in a deal that could have far-reaching repercussions within the retail sector.

For its part, Bonobos is set to receive $16.4 million in cash, and its products will appear in brick-and-mortar stores for the first time in company history. The exposure will help the brand's identity, Dunn asserted, adding the partnership with Nordstrom would ensure it is not diluted. Nordstrom, on the other hand, will gain expertise in email and digital marketing, according to The Times.

"We've been thinking about where growth is going to come from across all retail over the next 10 years," Nordstrom.com head Jamie F. Nordstrom said. "And certainly square-footage growth is not where that growth is coming from."

Seattle, Washington-based Nordstrom has a reputation of pushing boundaries within the fashion world. The retailer was one of the first such chains to overhaul supply chain management and strategic sourcing. What's more, the company has one of the most advanced inventory-tracking systems of any major retail chain, a scheme that allows the firm to exert enhanced control over its product offerings.

Both Bonobos and Nordstrom stand to benefit from the unorthodox partnership. Nordstrom executives will be given a crash course in digital marketing, while Bonobos will effectively augment its customer base. Forrester Research analyst Sucharita Mulpuru said large companies are often at a competitive disadvantage over their smaller counterparts in terms of implementing new strategies.

"These guys are usually slow and lumbering giants," Mulpuru noted. "But they need to make proactive investments. Because, left to their own devices, they could never emulate those businesses."

Nordstrom is hoping to buck such a characterization through its new partnership. Analysts said the move underscores how the retailer has leapfrogged rivals in its pursuit of online growth. In February 2011, the company purchased HauteLook for $180 million, and it is expected to continue to forge unconventional alliances as it works to lure shoppers – both to its brick-and-mortar stores and its e-commerce site.

Just when I was starting to think that I had seen it all, there goes Google and tells me I could actually see more, see it better and see it closer than ever. Project Glass is a development program at Google X Lab featuring augmented reality vision through technologically enhanced “glasses”.

Although the concept is not new or even recent, it is now feasible, in which a head mounted display or “Augmented reality glasses” allow the user to receive additional information on everything he/she focuses sight on. This means that when a person wearing this device does something as simple as looking up to the sky, the current temperature and weather forecast will be displayed right in sight of the user.

Google is promoting this technology by showing some of the features embedded, such as displaying the current time along with your appointments for the day, or help you re-route your trajectory on your way to work if the subway station is closed by using geo-localization capabilities and providing directions to the closest station (or best public transportation alternative). Ultimately, facial recognition features will eventually be added, which will allow you to learn facts about a person you talk to by displaying data from their public Facebook or LinkedIn profiles.

But let’s put all these cool features aside and focus on what this technology represents to the business world. While Google may be able to anticipate substantial sales on its augmented reality glasses, the real big money will likely come from a source different than the users themselves. Corporations seeking opportunities to sell more and serve better are very likely to pay for information on customers or play ads tailored to their consumers. Think about the way Amazon or Netflix work when using algorithms to determining suggestions based on your preferences, now imagine this happing on every store and every purchase you make. Companies will know what you like and will suggest you how and where to get it. Potentially, companies will be able to display’s messages telling you something along these lines: “we suggest you try this peanut butter with the jelly you are looking at right now”.

You think this is a good thing? Well, if you thought you were being bombarded with adds everywhere before, it is just about to get real. Which brings me to my final question: When will this dreamy technology be available at the stores? The answer is (drumroll): soon, very soon! The reality is that the technology already exists, as Google will be using the Android platform to operate the “glasses” and the final product is currently under testing. It is speculated that the product will be available at any point within the next 24 months.

More than ever, technology continues to play major platform for information sharing environments and information continues to be the major driving force in business. Information is power and as a consumer you will continue to share yours just by looking at your daily groceries; nevertheless, you will also have access to much more information than what you can possible manage, and now thanks to Google’s magic, anytime you wear your augmented reality glasses and look out your window you will remember that there is always more than what meets the eye.
“Green” procurement policies generally state that organizations will make an effort to purchase goods and services that minimize environmental impacts and ultimately allow the company to create a smaller footprint.  While the supply base has grown tremendously in this industry over the past several years there are still quite a few hurdles to overcome when implementing these best practices in organizations.  The following myths and challenges may sound familiar.

Myth #1:  Green products are more expensive than non-green equivalents.
This is a common misconception, green products are not always more expensive in purchase cost.  This will depend on the type of product and whether or not the manufacturing costs are built into the upfront purchase price of the item.  Oftentimes environmentally considerate product lines are similar in cost to products that may not meet the same green requirements.  This is also based on a time when there were few suppliers in the market focused on sustainable products.  Nowadays the supply base is flooded with recycled material suppliers, and as such, increased competition has driven costs down for many environmentally conscious goods.
Challenge #1: Perform a thorough price comparison analysis on green versus non-green purchases.
While some green products are in fact more costly upfront, consider the impact that purchase will have in the long term.  Some factors to consider include the transportation costs of toxic materials versus non-toxic, less liability when considering the product’s lifecycle, energy savings and reduced disposal costs.  Softer costs include less training required for non-toxic substances and therefore reduced health and safety costs for the organization. In general, when performing a thorough green versus non-green analysis, it is important to consider the upfront cost, the usage costs throughout the product’s lifecycle and finally the disposal costs. 
Myth #2: Green products are less effective than non-green products.
While this can be true in some cases, companies go to great lengths to ensure that the products they sell are sufficient for the purposes they intend them for.  Green cleaning products for example, are tested thoroughly to ensure their efficacy in comparison to their non-green counterparts. The fact is, many green alternatives have the same quality and even meet the same technical and quality specifications as their non-green origins.
Challenge #2: Finding suitable green alternatives.
The green movement has been going on for many decades but only recently have we seen a real trend towards eco-friendly consumerism. As market demand increases, manufacturers will find ways to improve green products and find better alternatives.  When implementing any new product companies generally require a trial and error period, green products would require the same type of testing and evaluation prior to putting them into a production environment. This might be a good opportunity to consider incorporating green alternatives into the testing process.  Another imbedded challenge is the availability of eco-friendly products.  Not all suppliers will carry the products and some many have limited supply.  Therefore, when transitioning to green alternatives, locate adequate sources, or multiple sources to avoid running into shortages.
Myth #3: Green procurement means purchasing goods that have recycled content.
Eco-friendly procurement can mean many different things to an organization.  Green procurement practices are not just about switching from OEM products to remanufactured components or buying recycled paper products.  Building a sustainable supply chain might involve considering the social repercussions of the manufacturing practices associated to the products being purchased.  This includes human rights violations, labor conditions, and reducing poverty.  While these factors might be somewhat extreme to some, organizations can also consider moving to more green practices such as implementing policies for recycling or minimizing consumption through reduction practices.  For instance, recycling used toner cartridges instead of disposing of them.
Challenge #3: Implementing and enforcing green procurement practices.
Organizations that have made the decision to move to more environmental friendly business practices will need to establish guidelines to direct staff.  Depending on the current practices and the culture within the company this may present a challenge, veering away from what was always done can sometimes take time and effort.  The first step to overcoming this challenge is through education.  Presenting the staff with seminars or educational materials around the benefits of green practices and the basics on how to achieve them will help the transition.  It is also important for management to express commitment to the change.  Another initial step includes establishing a baseline for future comparison on what is being purchased today, and set short and long term goals.  Management can encourage this by assigning rewards for departments that meet key goals, thus incorporating employees on an individual basis as well as company-wide.
So what are some ways that organizations can get started towards a more sustainable supply chain?
Buy “green”. Office supplies are an excellent area to get started with.  Some examples include moving from OEM toner to remanufactured and purchasing goods that are high in recycled materials. Switch from bottled water to water coolers with recyclable and refillable containers. Another consideration is generally managing the office supplies more efficiently to avoid overuse and waste of supplies.
Think “green”.  By changing some simple office behaviors you can encourage better practices, and it won’t cost much to implement.  Think before you print. Do you really need to print that email or document?  Do you need that in color? Optimize energy settings on work computers to save more energy during downtime. Encourage the use of natural light in the office as opposed to artificial light, if possible.
Involve others. Ask your suppliers for ways they can help improve green efficiencies in either their product supply or services. Include green clauses in contracts that encourage the use of more eco-friendly practices such as battery operated machinery as opposed to gas powered. This will also demonstrate the organization’s commitment to green procurement and the movement in general.
These are just a few small tips. There are endless possibilities to reduce carbon footprints depending on how aggressive of a program the organization wants to implement. In making the decision to become greener and developing a more sustainable supply chain the first step has already been accomplished.

Of course, you could always hire Source One to help you with your green sourcing needs.
Alcoa reports surprisingly upbeat resultsAlcoa surprised investors this week, reporting robust earnings.

Alcoa said its net income in its last fiscal quarter was $94 million, representing a $287 million improvement from the prior quarter. The company said strong demand and successful cost reduction initiatives helped bolster its profit margins. Analysts had expected the company to report a second consecutive quarterly drop in profit.

Alcoa chairman and chief executive Klaus Kleinfeld said the company  benefited from improving market conditions. He added officials are increasingly bullish about future growth prospects, although lingering doubts surrounding the economic recovery in the euro zone could hurt demand on the continent.

"Performance rebounded strongly this quarter due to our proactive cash sustainability actions, our relentless focus on profitable growth, and stabilizing markets," he said. "We are successfully executing on our aggressive strategy to move down the cost curve in our upstream businesses, and drive to record profitability in our midstream and downstream businesses. Challenges remain in this economy, but we approach them better prepared than ever before."

Alcoa's revenue in its first quarter also edged up, rising to $6 billion. Though the company said the realized price of aluminum – historically the company's bread-and-butter product – fell 9 percent, an uptick in shipments helped offset the drop.

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In today’s world, the Internet is an essential component of life for almost every society. Not a day passes by without billions of people checking their e-mails, researching, reading news updates, looking up weather, shopping online, and listening to music, among countless other activities. What this all boils down to, however, is that billions of people use the Internet for information retrieval. The search for information is a need that can be ultimately satisfied by the broad base of content provided through the Internet. While there is no contest that the Internet is loaded with information, it’s true that Internet-based information retrieval would collapse if search engines did not exist.

Upon delving into the inner workings of search engines, it becomes further evident that scouring the Internet without them would simply be chaotic. Just as search engines have several uses for individuals looking to retrieve specific data or information, they also have important uses for businesses and organizations that have an online presence. Today’s businesses are increasingly participating in e-business and e-commerce, especially the companies who exist solely online, relying heavily on the effectiveness of their websites in reaching consumers. This means that the design and appearance of websites to search engines is crucial for all businesses to understand so that they can optimize the appearance of their content in users’ search results. In addition, many business websites also contain their own search engines so that users can search for information specifically within that business’ site.

A large percent of web traffic is derived from search engine results. The field of search engine optimization (SEO) has developed into a multibillion-dollar industry. Outside of the ranking algorithms, there are several actions business owners can take to improve the content of their sites so that search functions can be optimized. SEO can help enhance and increase views to your websites by simply selecting appropriate key words. Obviously, SEO is useless if you don’t know what you’re trying to optimize. The majority of search engine users click only results that appear within the first page of results, this is another reason why companies tend to jump on the SEO bandwagon to figure out how to get their webpage onto that first page of search results.

Search engines allow businesses to reach users that initially do not know about the products and services they are offering via the internet and/or otherwise. There would be no way for consumers to discover information about such businesses without some kind of mechanism to lead them there. Within business websites, search engines serve the same purpose, but on a smaller scale. Without the search function, many websites would lose value to users who could not automatically navigate their way through the wealth of information present.

So what does it all mean?  It means that having a solid, well planned  and SEO optimized website is a critical aspect of doing businesses today.  Further, it means that a well-found website can become one of your lowest marketing costs and lowest cost per lead generation.  But, SEO in itself, although a growing industry, is ripe with fraud and companies that overcharge and under deliver.  Unfortunately we see many corporate procurement departments as well as small business owners dish out cash to SEO firms with little return. 

Until we can dive further into this topic, here are some basic tips:  Never blindly sign an agreement with an SEO company or consultant that can guarantee you first place results.  Never sign long term SEO agreements unless you have the right to terminate without penalty.  And never sign an agreement for SEO services when you don’t 100% understand what it is telling you. If it sounds too good to be true, it likely is.

In the future, Bill Dorn and I will provide a multi-part series discussing ways to generate more views to your web sites with or without the use of SEO.  Whether you choose to tackle SEO on your own, or choose to hire a consultant is up to you, but I hope I can shed some light on the terms and mysteries of SEO.

Recently, I was graciously invited to participate in a podcast with Next Level Purchasing's President and CPO, Charles Dominick. The podcast (available here) weighs in at about a half hour, and quickly covers a lot of ground, ranging from some tips to conducting a successful RFP to some things you should try to avoid during the process or during the writing of the RFP document.

In the podcast, we talk about one of my favorite sourcing topics "What Not to Do", and covered some information found in Chapter 9 of the book "Managing Indirect Spend, Enhancing Profitability Through Strategic Sourcing".

  • If you don't have a 30 minutes to listen to the podcast, don't worry, Mr. Dominick was kind enough to break down the content into 7 RFP Planning Tips.  
  • If you need some guidance on further procurement best practices, and want to learn at your own pace, I encourage you to check out Next Level Purchasing's growing catalog of Procurement Training Courses.  

If you need assistance in evaluating your company's RFP or sourcing processes, Source One may be able to help with our Procurement Best Practices Review Services.
Sony reports worst loss ever Sony reported its worst loss in company history this week.

The Japan-based technology giant said its net  loss for its last financial year was actually worse than it had initially expected, as the company doubled its projected net loss to 520 billion yen, roughly equivalent to $6.4 billion. Company officials said an additional tax expense hurt profitability in its 2011 fiscal year. Its earnings were already weak, though, as the company struggled to hit cost reduction goals as the yen strengthened against the greenback.

The New York Times reports Sony did not officially announce it would lay off workers, but speculation has been building for weeks over potential job cuts at the electronics giant. Reports surfaced late last week indicating Sony could eliminate as many as 10,000 positions in a business cost reduction campaign.

Sony chief financial officer Masaru Kato said the company was still mulling how it would proceed. He added the firm expects to return to profitability in its current fiscal year, which began in March.

"We will force through reforms, and there will be no sacred cows," he said. "The company management takes these numbers very seriously."

Toyota announces new manufacturing framework, part of cost reduction campaignToyota officials said recently the company plans to shift its manufacturing in a cost reduction initiative.

The Japan-based automaker was significantly impacted by the natural disasters that struck the island nation in March 2011. Toyota officials were forced to overhaul supply chain management and strategic sourcing in the wake of the 9.0-magnitude earthquake and tsunami that devastated Japan, causing billions of dollars in damage to infrastructure and private firms.

Officials from the car giant said they plan to implement a new manufacturing framework that would make vehicle models more appealing and cut costs by more than 30 percent. Reuters reports the change in production techniques is indicative of the management style of Toyota chief executive Akio Toyoda. He said the carmaker produced unexciting cars in the past, but he asserted its new approach aims to produce new, innovative models.

"The feeling at the time was, 'If we build it, they will come,'" he said Monday. "Instead of developing what customers would want next, we were making cars that would rake in sales."

Under its new manufacturing framework, Toyota New Global Architecture (TNGA), Toyota plans to simultaneously develop multiple models. The shift in approach will help the carmaker increase the number of shared components among its vehicle models, a move that will increase efficiency. What's more, the decision will also help the automaker shift resources to other departments, according to Toyoda.

The automaker also added it would reduce the number of officials tasked with signing off on new car concepts. In the past, according to Toyota chief designer Tokuo Fukuichi, between 80 and 100 managers often had to approve the design of a new car.

"Toyota's problem was that it had too many filters," he said. "When you have that many people weighing in, you end up developing cars by eliminating the negatives, not by creating something positive, by taking risks."

Toyota faces increasing competition from domestic and foreign carmakers, but analysts said the new manufacturing framework could help fuel future sales and earnings growth. Global auto sales have risen at a torrid clip over the past year, and Toyota is striving to reclaim the market share it lost as it grappled with the effects of 2011's natural disasters.

Toyota noted it would begin TNGA with three front-wheel-drive vehicle platforms, according to the news provider.

Drop in soybean production sends palm oil prices up Palm oil prices hit their highest levels in more than a year, as soybean inventories across the globe continued to decline.

Bloomberg reports that palm oil, used in food and fuel production, is becoming increasingly expensive. Firms throughout the globe are overhauling strategic sourcing as they contend with a drop in production, but rising prices could soon begin hitting shoppers, experts say.

CIMB Group Holdings analyst Ivy Ng told Bloomberg palm oil is "rising mainly on anticipation of bullish stock data and also on the back of the increase of soybean prices … people will buy in anticipation of that news as well as the lower soybean crop."

Stockpiles of palm oil in Malaysia fell 2.4 percent in March, according to estimates from analysts. Soybean production in Argentina and Brazil, two of the world's largest growers, is lagging behind prior estimates, further putting upward pressure on prices, experts said.

On the Chicago Board of Trade on Friday afternoon, soybean futures for May delivery climbed 1 percent to trade at roughly $14.50 per bushel. Prices have not touched such levels since last September, according to data from the trading hub.

I came upon this great article from Forbes that talked about communication skills and thought it would be beneficial to share with our readers.  Without getting into great depth I’d like to review the ten tips on how to be an effective communicator that were highlighted in this piece.  This is a long one, but I believe you will find these principles useful in all aspects of your personal life and professional career. First, I would like to share this insightful note, I believe it is an excellent summation of what makes a great communicator:

The number one thing great communicators have in common is they possess a heightened sense of situational and contextual awareness. The best communicators are great listeners and astute in their observations. Great communicators are skilled a reading a person/group by sensing the moods, dynamics, attitudes, values and concerns of those being communicated with. Not only do they read they environment well, but they possess the uncanny ability to adapt their messaging to said environment without missing a beat. The message is not about the messenger; it has nothing to do with messenger; it is however 100% about meeting the needs and the expectations of those you’re communicating with.
The following ten principles may act as a guideline for improving how you communicate in your personal and professional lives.  Afterall, being able to effectively communicate is a vital aspect for success.

1.       Speak not with a forked tongue: Interactions with others that do not involve a certain level of trust may not have the same results as those that do.  This philosophy takes into account the element of decision making in various aspects where others are involved.

2.       Get personal: Developing relationships with business cohorts is important to how effectively you communicate with them.  This can be taken into account when dealing with co-workers, suppliers, or customers.  Understanding what is valuable to those you are working will guide you to make better decisions on their behalf or when relating to them.

3.       Get specific: “Simple and concise is always better than complicated and confusing.”  This is an excellent comment, whether communicating verbally or in writing it is important to know how to deliver the message clearly and not waste people’s time with non-essential details. While there are times that thoroughness is required you should be able to interpret the difference and focus on the primary goal of the communication.

4.       Focus on the leave-behinds not the take-aways: Number four tells us that even in situations where you intend to collect information be sure that you are still focusing on conveying the right message.  A particular type of event that comes to mind in my daily tasks is initial interviews with suppliers and customers.  While we participate in these events to gather information from the other party we also want to ensure that both parties leave the conversation with a clear concept of what the end goal was at that instance as well as what is next to come. Additionally, an effective communicator will have made certain that both parties clearly defined their wants, needs, and desires.

5.       Have an open mind: Simply put, do not enter into communications guarded or with too many pre-conceived notions. The most effective communications are those that entail an open dialog and the desire to share ideas, not thwart them.

6.       Shut-up and listen: Ahhh, this is my favorite.  We often get so caught up in making sure that we are delivering our intended message that we get lost in it.  This principle relates to getting personal with your audience.  By listening first, we determine the direction the conversation should take.  This will allow you to communicate your message in a way that will more likely get through to the audience.

7.       Replace ego with empathy: “Empathetic communicators display a level of authenticity and transparency that is not present with those who choose to communicate behind the carefully crafted facade propped-up by a very fragile ego.”  In other words, there is a fine line between confidence and arrogance so tread lightly.

8.       Read between the lines: This principle is similar to Shut-up and listen, communicating effectively does not include over-running a conversation with your own thoughts, ideas, and aspirations.  Remain astute and alert to all aspects of the situation, including body language if you are live and in person.  The most effective communicator can absorb subtle hints of inspiration simply by having a heightened awareness.

9.       When you speak, know what you’re talking about: This one seems quite obvious to me, no one is going to take you seriously if you do not have subject matter expertise at some level.  This is more important at the start of a new business relationship than ever. As noted previously people will not accept you if they do not trust you, one way to inspire trust is by effectively conveying your knowledge and not “BS”ing your way through a conversation.

10.   Speak to groups as individuals: Number ten speaks to communicating with a group as effectively as you would with an individual.  Tailoring your message to the audience as best you can in any situation involves knowing something about the audience and what they are expecting from you.

11.   Bonus – Be prepared to change the message if needed: Adaptability is a trait that is very valuable in a professional setting.  This principle also goes back to having a heightened awareness during an active communication so that you can take a sharp right turn if needed to ensure that the message is still effective. All in all, if you follow every other principle listed it could all be a waste if you cannot interpret how to drive the message in the right direction consistently throughout the communication.

By following these principles you are well on your way to becoming a very effective communicator.
Source One Knows how to cut supply costs: "An innovator in the procurement process." ... That's the title of today's Philly Business Journal article about Source One Management Services, LLC a leading procurement service provider and the owner of the Strategic Sourceror.
Source One, founded in 1992, is one of the oldest (and now becoming one of the most recognized) consulting firms in the supply chain and procurement industry.  Source One is unique, in that it focuses entirely on procurement and strategic sourcing, it isn't a general purpose consulting firm that is just trying to capitalize on a hot market. 

Source One's other well known brands include StrategicSourceror.com, a procurement blog and news site, the book: Managing Indirect Spend; Enhancing Profitability through Strategic Sourcing, and WhyAbe.com, the world's only completely free eSourcing platform.

Read the Philadelphia Business Journal Article
Learn more about Strategic Sourcing with Source One