Have you noticed a surge of interest in measuring ROI on travel and meeting (T&M) spend?  I’ll get right to the point.  Trying to measure the return on travel or meeting spend is not worth the effort.

It’s like taking a long walk in the desert with a crappy map.  You wouldn’t do it by choice.

I get why suppliers, lobbyists and trade associations want to link spending with a positive economic return, especially in these harsh financial times.  I get why buyers would like some way to measure the ROI of their travel budgets.  And I like numbers  and metrics and quantifying stuff more than most people…so why don’t I like this quest to measure travel ROI?

It’s Impractical

With a couple of exceptions, I don’t see any practical way to produce reliable and meaningful measures of return on T&M spend. Yes, that’s a pretty short-sighted reason, especially from a guy who admires innovation.  But I’m stumped.  What are the measurable inputs (travel costs for sure; maybe productivity costs..what about opportunity costs?) and outputs?

As soon as you start thinking about measurable outputs of a trip or meeting, you see the problem – there aren’t any good ones.  By good, I mean robust enough to apply to most trips or meetings, and sturdy enough to be measured repeatably and accurately.  Not to mention the problem of defining the payback period…should it be a month, a quarter or a year?

There aren’t many good answers to these tough questions, especially at the level of measuring a trip or a meeting’s ROI.  An exception is a macro-economic study, such as the one done by Oxford Economics. (And after trading e-mails with the author about that study’s methods, I remain skeptical of its findings).

What can be measured, or at least estimated,  is the degree to which a trip’s goal was met.  Did you improve the relationship?  Did you sign the deal?  Did you pass the exam at the end of the training session?

Measuring the outcomes of a trip or meeting, rather than outputs, makes some sense…up to the limits of the next point:

There’s a “Good Enough” Solution

It’s called management.  It requires subjective decision-making using the facts at hand. Is this meeting worth the $75,000 cost?  Is that trip worth $1,200?  What if we do a Webex or a Halo meeting instead?  That’s how T&M budgets get authorized, and that’s how T&M spend gets evaluated.

It’s a remarkably efficient method – no paperwork, no number-crunching.  Precise? No.  Effective? Usually yes, or you eventually get new management of the T&M budgets.

What’s the Best Practice?

Think about some other big spend categories and the extent to which anybody is measuring their ROI.

Take telecom.  Telecom is like travel, in that both typically involve communicating with another person for any of a bazillion reasons.

Can you imagine having to calculate the ROI of your last phone call?  Too granular, you say?  How about measuring the ROI of your annual BlackBerry/iPhone subscription plan?  How is travel so different?

Or take something less interpersonal, but even more prevalent – the desktop computer category.  Does any buyer or manager try to calculate the ROI of purchasing a computer for a new employee?  Not that I know of.

Instead, a manager makes a judgment call that the employee (or traveler) should or should not have a computer (go on a trip), given the expected cost of a computer (trip). Once that decision is made, then the procurement process takes over to ensure that the company gets the best value it can.

Which brings us to the topic of savings and how you’re measuring that all-too-critical metric.  For my recent thoughts on that, see this post.

(This post is also on Gillespie’s Guide to Travel Procurement).

• Metals
• Plastics, Rubber & Raw Materials
• Transportation
• Electronics, Electrical & IT Hardware
• Paper & Packaging
• Services & Capital Goods, Construction & Engineering

In addition, there is a feature article on Cutting Costs and Increasing Value in the Discovery to Pay Cycle as well as a deep dive into macro-economic data.

In other words…it has A LOT of great data, insights and analysis from a very experienced, savvy team. If you’d like to subscribe to the email list so you’re notified each quarter when the new issues goes up, you can sign up here.

Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.

What do you think? How would you make this happen? Is it a lost cause?

Ariba has jumped into the fray several times and has even set up, with the help of some public sector experts, a toolkit for public sector professionals to get started.

The value that has been realized by the private sector from the institution of advanced sourcing, contracting, procurement and payment techniques has been staggering. Many in the private sector look at this and think “if only we could do this for the government and, even more, the taxpayer”. Despite the very real challenges, the potential value from broad implementation of Spend Management in the public sector is enormous. Cost savings is just one of the benefits:

• Improved compliance with existing processes and regulations
• Reduced cycle times associated with contracting and acquisition
• Better products and services to agencies and stakeholders
• Lower Total Cost of Ownership for government purchases, both goods and services
• More transparency into spend, supplier performance, invoicing and all other parts of the Source-to-Pay cycle

However, the hurdles are very real, from lack of incentives, to special interests, to outdated technology.

At this point (and regardless of your political affiliation), we in US are endangering are grandchildren’s futures and need to take action.

Kris Colby is a Director in Ariba’s Spend Management Services group. Kris specializes in strategic sourcing and risk reduction for multinational organizations.

What is a particularly good sign is the increase of the employment index to 53.3, which is the highest level since April of 2006. Manufacturers are starting to bring back employees and fire up capacity, which might start to quell fears of a “jobless recovery”.

Now, not to rain on everyone’s parade, but the other reports coming out this week are actually slightly more important. ISM releases the NMI on Wednesday, and I am anxious to see if the Services sector shows more signs of life (it has been lagging the manufacturer sector in this recovery). The big number is Friday when the government releases the unemployment rates for January. If the rate holds steady near 10%, the luster from the ISM indices will quickly disappear.

Pat Furey is a Senior Category Manager in Ariba’s Global Sourcing Organization. Pat leads the team of global category managers covering direct materials and indirect goods and services.

It’s a buyers market regardless of your organization’s media budget or venue. The “lower prices” of the Super Bowl ads may still be prohibitively expensive for many fortune 500 organizations; however, we can still learn from this example. The Super Bowl is simply an extreme illustration of what all buyers should be investigating. If media spend is not currently being scrutinized, buyers may be missing out on tremendous purchasing opportunities.

So what can be done, how can I find a deal? Go bargain shopping. A great tool available to advertisers is ad exchanges. Publishers try to sell advertising space through their sales forces at high prices. Most cannot sell their entire inventory, so they send the leftover, or “remnant,” space to an ad network or to an ad exchange. This is a great place to find some tremendous discounts. Buying through an exchange allows advertisers to test new and different markets at lower cost and reduced risk. Remnant space has always been available, but the current economic conditions have increased the quality and options available.

So start investigating your advertising spend and work closely with your agencies. New venues may become affordable, old venues may become more affordable and the timing may be opportune to explore new media outlets. Don’t allow media buying to remain the third rail of corporate spend. Procurement and marketing should be working closely to gain exposure, build the brand equity, and maximize value.

Nick Cherrone is a Category Manager for business services in Ariba’s Global Services Organization. Nick has several years of sourcing experience with General Electric and as a logistics officer for the US Army. Nick is recognized by the Institute for Supply Management as a Certified Purchasing Manager (C.P.M).

Supply risk specialists speak often about the three distinct kinds of supply risk (Brand, Commodity, and Disruption). While this episode at Toyota may not have hit a trifecta, they are certainly dealing with an awful daily double. The only thing that might be more expensive than the disruptions in their supply chain could be the hit to their brand.

If you think that only your biggest suppliers need to be involved in a formal supply risk management program (e.g. automated alerts and scorecards populated by both objective and subjective data inputs from various sources as one component) and the rest can be covered with just some historical financial information/ratios, on-time delivery ratios, and maybe an annual business review, think about the fact that CTS is almost certainly not even in the top 500 of Toyota’s list of largest suppliers.

The important point for you is NOT what happened at Toyota. Toyota will obviously and thankfully weather this storm and, down the road, repair their image.

What matters is this: If an event like this…

• Can be linked to a small(ish) supplier
• And cause so much damage
• At the world’s most respected auto manufacturer

Then all of us have reason to be very afraid. Tomorrow morning, we also need to ask some very tough questions of ourselves and our supply chain and procurement leadership.

1. Are we really running a thorough enough risk management process (including Finding risk, Fixing them, and Follow-through on Monitor/Management)? Most organizations only do parts of this 3-step process well or have the proverbial “binder on the shelf” risk assessment that was out of date three minutes after it arrived from the printer.
2. Are we executing this process with enough of your supply base? Most organizations execute on just a small slice of strategic suppliers. Most organizations employ some basic supplier stratification measures based on size, but this episode underscores the importance of deploying a more holistic and systematic approach to tiering and managing suppliers that includes risk.
3. Do their people have the right capabilities to manage risk across your supply chain? Most organizations do not have both the skills and bandwidth required to conduct risk management at any broad level of activity.
4. Do they access to the right information (i.e. audit trail)? If (when) something is to go wrong, you’ll have the information you need readily available about the expectations you set with suppliers, how you monitored their compliance, and how you graded them along the way.

Depending on the answers you hear to these questions, you will probably want to take a closer look at that Supply Risk Management that’s been on your “nice-to-have” list for such a long time.

There’s no telling the final costs associated with a major supply risk event. The only thing you do know for certain is that an ounce of prevention weighs a lot less than a pound of cure.

Mark Oser is a director in the Ariba Global Services organization. He specializes in helping large organizations develop and execute complex sourcing, risk and procurement initiatives.

However, it’s important to remember that “the New Normal” doesn’t translate directly to “permanent low GDP growth” as has been put forth by some investment advisors.

Instead, the New Normal is characterized by several trends that will, over time, become “SOP” for most large organizations:

1. Increased need for agility to respond more quickly to rapid change whether that’s in commodity markets, geopolitical supply risk, regulatory environments, or good old-fashioned competition.

2. Fewer permanent resources and increased reliance on your community of business partners. Let’s face it, many of the people laid off during the Recession aren’t coming back or at least not in the same capacity. But there’s even more to do. That means increased productivity and relying more heavily on your business partners and suppliers to do things that in the past might have been done internally

3. Reluctance to make large upfront investments with long payback times. Good luck with talking your CFO into any “$25M now and ROI in 48 months” business cases. ROI, especially in technology investments, needs to be measurable in weeks and months, not quarters and years.

Surely, these are all challenges, but none mean “low growth forever”. Companies that can learn how to respond and scale quickly will have plenty of opportunities to deliver value to both customers and shareholders.

So, don’t let the New Normal get you down. Growth will return like it always does. Instead, look at this new environment as an opportunity for your organization to get in front of the curve provided you’ve got the speed, agility, capabilities and community to grab it.

Kris Colby is a Director in Ariba’s Spend Management Services group. Kris specializes in strategic sourcing and risk reduction for multinational organizations.

I’m thrilled to announce that the first call is this Friday featuring the Hackett Group’s Chris Sawchuck. Chris will cover Hackett’s research on the “key issues” companies will face in 2010 and then open the floor for an interactive discussion.

The only catch…the call is for Group members only. So you must be a member of the Strategic Sourcing & Procurement group on LinkedIn to get the dial in number (you can request to join here). The details - including international dial in numbers and time - here.

Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.

I apologize for any disruption, inconvenience or loss of content. We have draft versions of many recent posts that I’ll repost to the site over the next few hours. Thanks for your patience.

-Justin

Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.

The American Chemistry Council (ACC) recently updated its U.S. economic forecasts for 2010 and beyond, and they have left themselves a large margin for error. Alternative scenarios range from 0.2 percent contraction to 6 percent growth in U.S. chemicals production, with an average projection around 3 percent growth. The largest wildcard in the broader global equation is Chinese demand, which was very strong for most chemicals in 2009. Government stimulus initiatives are credited with China’s surge in production and chemicals imports from underutilized nations throughout the year. This put some upward pressure on global prices despite sluggish demand in most heavy production center regions (such as the U.S.), as they were able to export much of their output. Many analysts are skeptical that this pace will continue into 2010 when the Chinese stimulus package begins to subside, but no one seems to be making any bold predictions.

The one thing that appears to be certain is that the economic rebound will be gradual, even in the best-case scenario. Overall, capacity utilization across the U.S. chemicals sector was estimated to be about 70 percent in 2009, and this key metric is projected to remain under 80 percent until at least 2013. As such, modest U.S. growth and persistently low capacity utilization are most likely to remain the dominant domestic conditions at least through 2010, even if Asian demand does pick up further. This condition will tend to give buyers an edge in chemicals supply negotiations for the foreseeable future, but each chemical type has its own unique, interdependent supply/demand constraints. It is important for buyers to understand and monitor factors which affect supply and pricing of their specific chemicals, particularly with so much uncertainty lurking in these markets.

Bob Zieger is a Senior Category Manager for Plastics and Raw Materials in Ariba’s Global Sourcing Organization. Bob holds a MBA from Katz Graduate School of Business at the University of Pittsburgh and spent 11 years in the plastics industry in engineering and sourcing management roles. He is also a Certified Purchasing Manager (C.P.M.) as recognized by the Institute for Supply Management.