Tuesday, May 30, 2006

LCCS: Low Cost Country Surgery

Low cost country sourcing has been a hot button topic in spend management and particularly strategic sourcing for the last several years. Here in the United States, consumers sit at the end of long supply chains with goods that travel more miles before they are sold than many people will travel in a lifetime, unless they need elective surgery that is.

In the May 29 issue of Time (the Dixie Chicks issue), Unmesh Kher writes about the latest trend in outsourcing, elective surgery. A procedure to repair a herniated disk that costs $90,000 in Louisiana costs $10,000 at the Bumrungrad Hospital in Shanghai.

If you're talking to your surgeon friend at the country club, he definitely has some reasons to be scared.

  1. The uninsured love this product. At 10% on the dollar against tens of thousands of dollars, this can be the difference between personal bankruptcy.
  2. Insurance companies like this product. At these rates, they can sell more policies to more people. For people in traditional policies they can "manage costs" by convincing patients to venture overseas.
  3. Traditional companies are interested. They can give their employees a free vacation to Bangkok or Mumbai AND lower insurance premiums.
  4. General Electric is getting into this business, partnering to open a luxury hospital complex in Delhi.

Now, I'll bet your Doctor friend will have some objections that sound suspiciously like those raised by incumbent suppliers in an Ariba Inc. reverse auction:

  1. What about quality? -- International hospitals are already pursuing accreditation and certification, and they're recruiting U.S. trained doctors, and what about your error and accidental death rates?
  2. You're really going to buy this on price? -- In the insurance system we have now pricing is opaque and complex. The one thing we do know, it's high. International providers are giving transparent pricing information, but they're also offering upgraded services like luxury accommodations and extended stays.
  3. What if something goes wrong? -- Doctors will actually argue that you should do your surgery in the US because if something goes wrong, it's easier to sue them. This is probably their best argument, but how long before a U.S. medical center "partners" with an international medical center to make this one go away.
  4. You are going to put suppliers out of business. Hospitals are high-cost institutions and are consolidating. Now they'll face global competition on their highest margin product, elective surgery.

So baby boomers, if your back aches, or your knees aren't what they used to be, it could be your big chance to see the world.

Friday, May 26, 2006

Hot Procurement Update

Last week I used my Junior High math skills to estimate the impact of increased margin's on HP's (NYSE HPQ) recent 51% earnings increase and speculated on the role that procurement may have played.

Yesterday, Larry Welch confirmed it on Purchasing.com:
"I can say with confidence that much of that improvement has come from cost-cutting, with procurement across the board at HP making a substantial contribution to the results."
This article goes on to describe the steps that HP is taking to transition their leading Spend Management practices from high-ROI initiative to an enterprise-wide embedded business practice by focusing on technology and human capital in concert in 4 critical areas: leverage, compliance, culture and policy.

Thursday, May 25, 2006

Bits, Bytes and Guanxi

You order a laptop from a website (or maybe Ariba Buyer), and that order engages one of the fastest, competitive and dynamic supply chains in the world. The laptop you order is high-tech, the company that you order it from is high-tech, so the supply chain must be too, right?

Not necessarily.

The laptop supply chain combines the lean technological integration made possible by ERP and e-procurement with intimate neighborly relationships among suppliers to deliver your laptop door-to-door in less than a week.

In a study sponsored by Arizona State's W.P. Carey School's Center for Advanced Procurement and The Personal Computing Industry Center at UC Irvine and San Francisco State's Institute for Next-Generation internet, this interesting combination of technology and guanxi is highlighted. (Link:"Take note: Laptop Supply Chain is Not What You'd Expect")

At the top of the supply-chain, the world is highly automated. Forecasts and procurement information is highly integrated between OEMs and their first Tier of suppliers, primarily based south of Shanghai.

As you proceed down the supply chain to the component level, those relationships become more and more relationship based. Forecasts are shared by voice, phone and fax. Special requests that are articulated directly by human beings, not computers. Fierce business competitors will collaborate to help each other overcome short-term shortages and disruptions - a network of highly personal, albeit low-tech network of companies and coworkers working together to fulfill more and more complex demands -- what the Chinese call guanxi.

To be successful in this environment a company has to know not only how to share the data, but when to say "Gan Bei" -- the right balance of technological efficiency and global savoir faire. This is what we strive to deliver at Ariba, Inc. and is probably part of the reason that you saw HP and Dell speaking in Vegas last week.

Wednesday, May 24, 2006

Franklin Raines, Another Fallen Role Model

Before embarking on a career in reverse auctions, which begat a career in Global Supply Management, which begat a career in Spend Management with Ariba Inc, I was a Policy Analyst for the United States Office of Management and Budget.

My first day in June of 1996 was Brooking's Scholar Alice Rivlin's last day as Budget Director. Her ultimate successor was an executive who had served OMB earlier in his career and went on to a successful career as an investment banker at Lazard. He came from a modest family background, was an athletic, soft-spoken family man who presided over OMB precisely at the time budget deficits that had been a fact of life since I was in diapers were transitioning to surplus.

At the time I had the opportunity to directly support the Deputy Associate Director, and sit in on meetings with Director Raines, and was always impressed by his even handed manner and insightful questions. Serving the White House in any capacity is an honor, but I also considered it an honor to have served with Director Raines until he left to become the CEO of Fannie Mae at in 1998.

Now he Franklin Raines is practically on the same list as Lay, Kozlowski as a member of the CEO rogues gallery. During his time at Fannie Mae, Mr. Raines took more than $90 million in compensation, that included over $50 million based on the company's ability to hit earnings targets.

Now Fannie Mae will pay a $400 million fine for accounting irregularities that are expected to erase more than $10.6 billion in reported earnings during Raines' 1999-2004 tenure. Earnings that were created through earnings manipulation strategies driven by Raines and former CFO Timothy Howard.

Now the soft-spoken Raines doesn't speak, his attorney does, and there's one less role model I can draw on in my career.

Friday, May 19, 2006

Category Benchmarking: How do you know the true price of diapers?

A tried and true tenet of Spend Management and one that Ariba Inc. focuses on developing is category expertise. True understanding of the goods and services that you buy, the market drivers that influence buyer and supplier behavior, your organization's business objectives and commercial requirements, and it's spend are essential to effectively managing those requirements. So as we enter the weekend, I'm going to provide some category expertise on one of the most strategic categories that young families manage for 3-5 years, diapers.

Diapers are an intensely competitive category dominated by 2 brand name suppliers - Pampers (Proctor & Gamble), and Huggies (Kimberly Clark Corp), with Luv's and numerous private label options on the market. Those with young children know that diaper's are a significant line item from the moment of birth, through to the moment the last one hits the diaper pail. Significantly, manufacturer's have "normalized" their pricing so that the smaller and more often your child "fills" a diaper, the less you will pay for that diaper. As your child grows, you get fewer, larger diapers for the same investment.

As with most consumer goods, you will find a seemingly excessive array of diaper specifications. Beyond size, you will find boys and girls, absorbency, and styles more or less similar to underwear. Following the general size rule above, expect that the more like underwear they are the more they cost.

But how much should you, the home spend manager pay for diapers? And how do you know what you're really paying?

First, you don't have to pay list price. The mailers full of diaper coupons will start arriving at your home before junior is born. I suspect they will continue to arrive until your young one begins to shave.

Discounts don't end with coupons though. You will be compensated for storing inventory with lower per/diaper prices. The more you buy, the less you pay.

If you buy Huggies at certain supermarkets using that supermarkets loyalty card, you'll receive a contibution to your child's college education. (Geek calculation: NPV of the transaction)

If you use a certain credit card, a portion of your purchase will be refunded to you in frequent flyer miles, cash or the reward of your choice. My poison is the Fidelity 529 rewards credit card which returns a fat 2% cash into a 529 college savings account. This is my preferred payment mechanism for everything.

If you take advantage of Amazon's rolling offers, you will experience competitive pricing on a per unit basis, you will get free shipping, saving you the "experience of the grocery store, and if you're willing to take on additional inventory ($99 worth to be exact), they'll rebate you an additional $30, reducing your overall cost by about 1/3.

If you are a diaper buyer, you'll buy a lot of them. But you may not have realized how complex this, and many consumer goods transactions, really are.

Wednesday, May 17, 2006

HP = Hot Procurement

HP (NYSE HPQ) announced quarterly earnings were up 51% yesterday. Why? After all, year over year revenue was only up 5.5%.

How about margin increases in nearly every business group.

Personal Systems Group (computers and stuff), profit as a percentage of revenue increases from 2.3% to 3.6%, good for an additional $90 million in profit.

Imaging and Printer Group, profit as a percentage of revenue increases from 12.7% to 15.5%, good for a cool $180 million in a segment that earned $1.0 billion for the company.

Enterprise Storage and Servers, profit as a percentage of revenue increases from 4.3% to 7.5%, another $137 million.

Out of a $500 million increase in profitability, that's $407 million that wouldn't be there if margins were the same as last year.

Where does increased margin come from? One place it comes from is selling lots of printer cartridges, but another place it comes from for this Ariba, Inc. customer is Spend Management. (See Jason Busch's recap of HP VP Larry Welch's keynote at AribaLive on Spend Matters.)

Mark Hurd gets a lot of pub for being a sales data jockey, he even discussed plans to hire hundreds of salespeople in the next several months. You can make the case that he's able to pay for it because of world class spend management.

Carrot Top, Carrot Nose

Last night, I'm washing the dishes after a delightful day of spend managing and a superb dinner from gsully when our red-headed daughter starts crying spontaneously.

"What's wrong?" I asked, and I noticed that she was pointing to and picking at her nose.

"I ?????? ?????? ????? ????? nose. It hurts." she said in that 3 year old way of saying every word clearly except for the 2 or 3 that you need to understand what they're saying.

"Did you pick your nose and give yourself a bloody nose?" I asked.

"No. I ?????? ?????? ????? ????? nose. It REALLY hurts."

After a couple of rounds of this and not understanding what was bothering her and causing this drama, I went over to our sofa, she sat on my lap and I immediately saw the problem.

"I GOT A CARROT STUCK IN MY NOSE. It hurts." is what she was saying. She had a piece of a baby carrot stuck in her nose.

My mind was frantic. What do we do. I went to get gsully for help. The carrot was too far up to grab. Having heard horror stories about what can happen when you push something from your nose into your brain, we were a little irrationally frightened. At the same time, it was hard not to bust out laughing.

We called my Mother-in-law, who passed us along to my sister-in-law, who is a doctor. Before my sister in law could stop laughing and give us some advice, the carrot "dislodged" and crisis was averted.

"Why did you do that?" We had to ask.

"I didn't know it would get stuck up there." she said. "I still want to eat one."

Tuesday, May 16, 2006

It's Time For Spend Management

In the year plus that this really unfocused show has run, I've never made it a secret that I'm a Spend Management Strategy Consultant for Ariba. I've just chosen not to blog about it, except when I wanted to toot my own horn or to highlight something Ariba was doing that was worthwhile.

Well, as some company recently said: it's time for spend management. Why write about spend management? Why not.

First, I've never quite been able to adequately explain to my friends and family outside of "the community of practitioners" what I do. If I talk about this stuff from time to time they might get it a little bit.

Second, there are blogs closely associated with several other companies out there, why not one by someone from Ariba, Inc? (I guess I should disclaim here that I am offering personal opinions, not company opinions.)

Third, there's been a wonky (or do I mean to say nuanced) semantic debate going on between Tim Minahan, Jason Busch, Dave Stephans , and David Bush on Global Supply Management vs. Spend Management terminology.

Surprise! Despite having grown up at FreeMarkets and having some GSM in my heart, I'm going with Spend Management (Did I mention that I work for Ariba?), and here's why:

Spend Management is a fundamentally larger discipline that includes Global Supply Management. The phrase Global Supply Management takes me directly to direct materials for manufactured products. For this group of professionals, GSM is an exciting, even sexy term, particularly at a time when risk (which often goes hand-in-hand with cost) is high and rising. Who wouldn't want to be involved in a profession that demanded category expertise, an understanding of macro economic trends and a working knowledge of world business cultures.

The problem is, even in a manufacturing company supply management doesn't resonate outside of that product related spend. People don't feel like it applies to them. The human resources department trying to contain benefits costs doesn't view that as managing supply. The marketing department purchasing logoed premiums doesn't think that way. Many services companies have a difficult time thinking about the items that they buy as a component of their service costs and don't think of spend as supply management. It just doesn't resonate as well as it would for a manufacturing company.

Every company, on the other hand, understands that they spend money, and that by spending less or getting a higher return out of money spent they can drive profitability. The term spend is intuitively applicable to everything a company purchases from pizza to parts to prescription drug benefits.

For each type of spend there may be differing types of strategies that breed success -- from automate and disengage to highly integrated strategic supplier relationships. Some people will make good money practicing GSM as a career, but many more will be participating in some form of Spend Management.

I'll conclude with a question...if blogs existed when fast food was exploding would McDonald's argue with Burger King about the merits of calling what had previously been called a hamburger a Big Mac or a Whopper?

Sunday, May 14, 2006

This is the 11th Mother's Day of 2006.

To my mother, my grand mother, GSully and her mother, and all of the great mothers that I know -- Happy Mother's Day!

Today is the second Sunday in May, a.k.a Mother's Day. At least it's Mother's Day in the United States, China, Australia, Canada, Cuba and about 30 other countries. Almost every country and culture has a day to celebrate motherhood, but interestingly they come throughout the year.

If you wanted to celebrate every Mother's Day throughout the year, you would begin the second Sunday in February, when Norway observes Mother's Day. This is a little bit close to Valentine's Day, which seems a little bit Oedipal.

March is probably the second busiest Mother's Day month. Beginning March 3 in Georgia, the country not the state (Hi Jason, Amy and Sophie Orlando), March 8 in Bosnia and 7 other Eastern European countries, March 21, the 1st day of Spring in Bahrain, Egypt and several other Middle Eastern countries, and often the 4th Sunday in Lent in Ireland and the UK.

May is the grand-mommy of Mother's Day months. The 1st Sunday in May, May 8, May 10, the 2nd Sunday of May, May 26, May 27, May 30 and the last Sunday of May are all celebrated as Mother's Day in different parts of the world.

The collective knowledge of Wikipedia lists 23 separate Mother's Day celebrations. The only month's without one are September, July, January and June (except for certain years in France (Fete de meres) when the last Sunday of May coincides with Pentecost day, Mother's Day is shifted to the 1st Sunday in June).

That's a lot of brunch. Why do we go to brunch on Mother's Day?

Friday, May 05, 2006

Sully's Stuff: One Year Anniversary

Yesterday marked the 1 year anniversary of the first post to Sully's Stuff.

Since the site was launched last may (and we began keeping track in August, the blog has recorded 26,693 visits. The lion's share of these visits came during the height of Super Bowl fever in January and March, when Sully's Stuff became one of the search engine's top results for the Mr. Devious song Puhl-a-ma-lu, a.k.a the Troy Polamalu muppet song.

On February 1st, our coverage of the Seahawk's Super Bowl pep rally in Pittsburgh was featured in the Post-Gazette's Morning File by Peter Leo.

Before January, the blogs biggest highlights were stroke related posts related to my marathon training and fundraising campaign to support Gaylord Hospital. Posts discussing the return of Tedy Bruschi to the New England Patriots and Dick Clark's performance on New Year's Rockin' Eve were particularly popular.

We've welcomed several visitors from Australia looking for information about their beautiful, but elusive and mysterious news reader Sandra Sully, loads of fans of the new Nickelodeon Series The Wonder Pets, and people looking for tips on their planning their Disneyland vacation. Seth Godin sends us a lot of visitors (via my trackback) who want to know if we're turning into boiled frogs.

Links and search are the lifeblod of traffic, and while it seems inappropriate to thank google, I will thank these folks, none of whom I've met in person:

Pittsburgh Bloggers for being the first place to go when you start a blog in Pittsburgh
Rob at Unspace, the first person to link to Sully's Stuff
Peter Leo and the Morning File for featuring the site in the PG
Cindy at My Brilliant Mistakes who owe's me a beer for finding the Puhlamalu song for her
Tim Marmon of Loosely Coupled
Brendan Loy of the Irsh Trojans Blog, and

Finally, I'll close with a few comments I've received that have tickled me:

From Carol F: "This blog has decided about five things for us and our upcoming vacation (in three days) to Disneyland with three kids 5, 4, and 2. Thank you for being funny and direct!!!!"

From Jennifer: "I found this on a search for A Steelers fight song. You're my new hero."

From GSully; "I don't get it."

All in all, not bad for a little writing experiment. I'll call it a success. So here's to getting to year 2 -- maybe this blog will be about something yet.

Thursday, May 04, 2006

Kids Give The Most Stylish Haircuts (to each other)...

Yesterday around noon, I received the strangest voicemail from GSully.

"We have kind of an emergency. No one's hurt, no one's health is in danger, but call me when you get this."

Of course, that left a lot of possibilities, including car wreck. Luckily what actually happened was much more hillarious.

After a brief argument between our 2 yeard old daughters, my neighbor and G went upstairs to find blonde hairs all over the floor, and when the garbage can was opened, they found the ringlets of red hair that you see here. Our 4 year old neighbor, who considers girls his "mortal enemy," gave himself, his 2 year old sister and our 3 year old daughter "haircuts."

The theme of kids giving haircuts has recently been in a lot of our kids reading -- in Junie B. Jones and the Russell series. I can still remember doing my own and having to go to Frank and Flossie's barbershop immediately after. If only I had the flowbie, I'm sure I would have done a much better job.

Fortunately, as a barber, our neighbor did a better job than you would expect. After a short visit to a professionally licensed hair-stylist, our daughter, the willing and enthusiastic participant, is now the owner of a short, but stylish haircut that resembles one of our neighbors. Maybe he has found his calling at a young age.

Monday, May 01, 2006

Regent Square For Sale By Owner, $215,000


For an on-line tour visit: http://www.1427MaconAvenue.shutterfly.com

Frick Park Paradise! Professionally renovated in 2004, this 4 bedroom, 1.5 bath Regent Square home features an open floor plan and 1st floor powder room. The private-hideaway 3rd floor master bedroom features vaulted ceilings and tree-top views of Frick Park.

Less-than 10 minutes from downtown Pittsburgh on the 1400 block of Macon Avenue, this home is 4 doors away from trail-access to the newly renovated 9-Mile Run section of Frick Park.

Building information:
1427 Macon Avenue,
Pittsburgh, PA , 15218 (map)

Bedrooms: 4
Bathrooms: 1.5
Built: 1927
Type: Brick
Roofing: Shingle
Heating: Gas, forced air
Water and Sewer: Public (WPJWA)
Taxes: $3,682 (est.)
Burough: Swissvale
School District: Woodland Hills
Parking: Off-street, rear


Open floor plan
Hardwood flooring
Recessed lighting
Gas range (GE 1999)
Dishwasher (GE 2004)
Microwave (GE 2004)
Refrigerator (Roper 1999)
Garbage disposal
4 Window air-conditioning units

To schedule a showing call 412.417.0180 or e-mail 1427maconavenue@gmail.com.