LIFE IS RIFE WITH EXAMPLES OF short-term projects turning into long-term templates, initiatives that started out tackling a specific issue and wound up governing the way things would work in general. Southwest Airlines Purchasing VP Ray Sears has seen it happen.

The carrier set out not long ago to cut the cost of servicing aircraft at its airport locations. It was spending in the neighborhood of $50 million a year to do things like clean airplanes, verify tickets, provide wheelchair services and employ skycaps.

"We hadn't looked as comprehensively as we could have to find ways to consolidate spend," says Sears. To do that, WN needed a team, a cross-functional group drawn from aircraft maintenance, facilities, operations, legal and finance. A two-phase initiative known as the Station Services Sourcing Project resulted. After Phase I, the airline had cut costs by $2 million per year by shrinking the supply base by 70%, and that was just at 45 of its 64 locations. Sears expects to wring additional savings during Phase II, which gets underway this year.

Though interesting, the effort probably isn't a game-changer. Unless, of course, you take the lessons learned and run with them. That's what Southwest did. A cross-functional approach is proving a pattern for the way it handles purchasing. "We put in place a whole governance model that wasn't there before," says Sears. "So now we have a committee of folks in place" who address an array of purchasing issues. The charge of this specific group is to "keep costs down, facilities and aircraft looking good and measure supplier performance in a way that's meaningful [to the airline]."

There is much performance to measure. The scope of Sears' shop is vast and the growth of Purchasing's purview rapid. "We influence about $1 billion [in spend] per year," he says. That's about 60%-65% of what he terms the carrier's "addressable spend."

It hasn't always been that way. About five years ago, he concedes that Purchasing exercised "very little influence in the company . . . We were really [just] trying to build the department." The building blocks at first consisted of taking things "that no one had ownership of" under wing, onerous orphans perhaps in search of a bit of parental control.

He first pursued printing, a humble enough thing that everybody needs but nobody claims. Then came another common commodity, something even more universal: Electricity. According to Sears, Purchasing said, "Let's start [here] and show people that we have capabilities . . . that we can get results."

But broadening one's sphere of influence in an organization is a delicate proposition. While Southwest's team-oriented, people-first philosophy is meant to breed collaboration, any employee anywhere can be sensitive to intimations of encroachment. Expanding influence isn't necessarily the same thing as building an empire, but it sure can be interpreted that way.

To make Purchasing work for WN, its purview had to grow "at the right pace," says Sears, something that's "very tricky to accomplish." Despite its capabilities, if the department had "put out a mandate back in 2002 that everybody use us, [it] would just fail."

Fiats don't go over too well at a company so consummately committed to collaboration. He knew that from the get-go because he was acculturated to the way folks did things down in Dallas. "I've been with Southwest Airlines for virtually my whole career," he says. He joined the carrier in 1988 as a finance specialist and worked his way up in that department before becoming director-revenue accounting. After that it was on to Purchasing as the department's senior director.


Fuel is excluded from Purchasing's purview at this low-cost carrier. Some airlines put it under the umbrella, but at WN there's a separate department with its own VP. Sears says fuel has "pretty much been a separate group" from the onset. The team that has been developed has a heavy operational focus. Then, of course, there's Southwest's near-legendary hedging program run out of Finance.

Fuel, insists Sears, is its own business. It doesn't belong in Purchasing. "It's hard to drive jet fuel prices on a per-unit, or per-gallon basis," he says. Purchasing is going to focus its efforts in areas where it possesses expertise and can make a difference.

Maintenance is one of those areas. A full quarter of the Purchasing workforce, 25 people, work to acquire parts. "If you look at the total supplier spend, maintenance by far is the largest portion at Southwest Airlines," says Sears, although he declines to provide any numbers.

While Maintenance is in, Marketing is out, at least as far as the acquisition of media airtime and advertising are concerned. Where Purchasing does work with Marketing is in sourcing WN's high-profile (and profitable) Spirit magazine. "We worked very closely with the Marketing and Executive offices to put it out for bid," he says. Pace Communications is the new publisher, and placing it with the North Carolina-based company resulted in "a much better deal" he says.

Building from the premise that there are lots of good deals to be had, the company's Purchasing policy, "The Freedom to Buy and Supply: Procurement at Southwest Airlines Co.," states: "All projects with supplier spend of $500,000 or greater and all spend categories or supplier relationships with annual spend of $500,000 or greater must be evaluated utilizing the Company's strategic sourcing process, unless granted exemption by the Chief Executive Officer, President, Executive Vice President-Strategy, Procurement & Technology, or the Vice President-Purchasing. If a contract currently exists, this process will begin in conjunction with the approaching expiration date of the contract."


The policy appears to have worked. Sears says Purchasing has saved Southwest some $30 million each year over the past three years. The target for 2008 is similarly aggressive.

No mere flow-chart change-up, Purchasing created two new groups to help it grapple with nettlesome issues. Performance Management helps broaden the department's influence and go after greater results, while Strategic Sourcing is dedicated to "working on only the toughest, most valuable procurement projects," he says.

Of supreme value to any airline are high-yield business travelers. Southwest recently changed its boarding policy so folks don't have to stand around in line holding onto their precious places in queue. At the same time, in November 2007, it rolled out an initiative called Business Select. So far, company figures show "thousands of people per day" pay $10--$20 above full walkup for the privilege of boarding first. As an added bonus, they get a free drink and extra Rapid Rewards points.

But in an era where fellow LCCs JetBlue and Virgin America are redefining inflight product expectations, it's going to take more than just bringing additional business travelers onboard to excel in the game. That's why Southwest is looking at airborne Internet access. This is an area in which Purchasing is playing a key role. "We're being viewed as more strategic," says Sears. "We're being asked to participate in projects that may not have involved [Purchasing] in the past."

In the case of his shop, that distant past was a time when Purchasing was a minimal player at best. But past was also prelude, a lead-in to the kind of participation in the commonwealth of a company that is making a difference.