DEAN DUVALL IS A NUMBERS GUY who wants to keep open multiple lines of communication. He likes to come to the negotiating table and say, "Here's what we see happening in the marketplace." The managing director of Supply Chain Management for Alaska Airlines and Horizon Air is a true believer in informed perspective, outlook predicated on fine-grain documentation. If knowledge is indeed power, then the two-dozen souls who work in the Alaska/Horizon procurement shop are armed to the teeth.
DuVall brings an intensely IT perspective to purchasing. For 20 years he worked in the Alaska/Horizon information technology department. His last job before assuming leadership of Supply Chain Management was as director of operations. When he made the change to purchasing, he took a ton of templates with him. "We have a number of metrics [by which] we measure our success," he says. "We're making sure we're focused on measuring, making that a bigger part of what we're doing."
Alaska/Horizon measures how long it takes to place an order once a requisition is in hand, the percentage of time the order is fulfilled on or before the requested delivery date, how often invoices actually match what the purchasing order calls for, how efficiently payments wend their way through accounts payable, the bulkiness of backlogs, those sort of things. It's elemental blocking and tackling, documented with annotated Xs and Os. And it pays off.
This metrics-intensive approach to procurement garnered the company some $15 million in annual savings in 2007, and DuVall is shooting to exceed that number this year.
Understand that in the service-intensive Pacific Northwest carriers' scheme of things, just 50% of total spend for goods and services flows through Supply Chain Management. Aircraft are excluded and, although it helps in the strategic sourcing of the stuff, so is fuel per se. Aircraft parts, uniforms, computers and assorted goods and services flow across his team's desktops. That 50% figure should increase as Supply Chain Management expands its use of PeopleSoft for electronic requisitions and spreads the word throughout the airlines as to how the system works.
How the system works is collaboratively. "It's a team approach," DuVall says. This is reflective of the corporate culture at Alaska/Horizon. Collaboration involving business units and his people is paramount, but he's careful not to confuse collaboration with consensus. "In the past, consensus was an overriding tenet here," he says. "I don't think it's as important anymore to have consensus. [But] it's critically important to have buy-in and support by the different business units that are going to be impacted. Without that buy-in, the implementation and ongoing execution will suffer."
BIFURCATED PROCUREMENT PROCESS
Alaska/Horizon's Supply Chain Management effort is split into two groups. Some folks focus on day-to-day items. The other group goes after bigger game. They are "strategic projects" operatives. One of the first things DuVall did when assuming leadership of the procurement process was to bifurcate the effort.
"Although we're sharpening our focus on the day-to-day business, the real money is on the sourcing side," he says. The lion's share of the $15 million his shop saved the company last year--80% of it--flowed from strategic sourcing initiatives. "We are currently forecasting $14 million in savings through sourcing initiatives in 2008," he notes.
HEALTH CARE, POWERPLANTS AND HOTEL BEDS
There's a fine line between keeping employees happy with their health care and keeping costs in check. It gives HR managers migraines. For years, Alaska/Horizon had worked with a "very, very good" health care provider, according to DuVall. But when the contract came up for renewal, he decided to look around for alternatives. Working closely with Human Resources, "We . . . really made sure we did the right amount of due-diligence, really made sure that the business units had the opportunity to do the evaluations they needed." In the end, the carrier changed suppliers. He labels the exercise "a very successful project" in terms of both cost savings and cutover. In 2007 Alaska/Horizon saved $5 million in health care alone, a full 5%.
As this article got set to go to press, Strategic Projects was close to wrapping up an agreement that would outsource a segment of Alaska Airlines' CFM56-7 maintenance. DuVall says the deal entails projected savings of some $70 million over the next seven years in engine maintenancea 25% reduction in costs.
"It's a substantial savings," he accedes. "We're taking advantage of a shift in the marketplace. We'll be a little bit of a leader in how this work is done." Although he declines to elaborate on just what kind of shift he sees, he says due diligence was the key to getting the deal this far. It's important to delve into "the engineering background [of the new vendor]" and understand the dynamics of the perceived market shift so as "to take advantage of it from a timing standpoint."
Next on DuVall's targeting map are hotel rooms. This is one of the most oft-overlooked avenues of savings on any carrier's books. In 2008 alone, he says, Alaska/Horizon estimates it will spend $17 million on hotel stays. To cut these costs, Strategic Projects will crunch the numbers, dissect the pieces and all but color-code them. Remember, it's about metrics.
"We buy a lot of hotel rooms [each year]," he says. "We're looking at how we plan for certain hotels around our crew. How we audit, making sure we did in fact use those hotel rooms. Essentially it's an audit and compliance program. We've done that in the past here, but it's been a manual process."
Armed with better IT, the aim is to anticipate how many rooms the carriers will need in a given city. That can be tough to do these days, especially in light of schedule changes and disruptions. "As the course of business changes," he says, "you may not always use all the hotels you'd planned." In other instances, you may need more.
CAN'T BUY ME LOVE
Data, especially updated and meticulously defined data, are the nutrient from which good decisions flow. But you still need TLC. DuVall is one of those relatively rare numbers people who is adept at interpersonal and corporate communication.
"You need to know what's important, both for you and your customer," he says. "One of the things we've done in the past year is reassess our own internal need, what's important to us. Then we went out and validated that with the customer. We said, 'Okay, this is what we think. What do you think?' We want good alignment there in making sure what matters."
What matters most to vendors is consistency and predictability. "They like to know where we stand as far as what products we will be ordering," he says. "They like to have the lead time that's been negotiated. They like to feel, as do we, that there's a sense of mutual partnership, and some stability. They need to know where they stand at all times." If they're on good terms, they want to know that. If they're not on good terms, they should know that too.
In an industry suffused with surprises and shifting allegiances, people appreciate a modicum of predictability, topped off with a hefty portion of humanity. That approach applies to both internal and external customers, to a carrier's business units as well as its vendors.
And it's critical that those business units and suppliers are hearing the same message from the airline. "As we look to support our business units, it's important that the business unit and the supply chain organization are both saying the same thing," DuVall says. And that happens when they share the same metrics. Dissonance can be deadly in this industry. That's why it's imperative that purchasing and interdependent departments speak with one voice. Otherwise, "it can be confusing for suppliers and disruptive for our supply chain," he says, "because they can be hearing two different messages about priorities."
In DuVall's world, good communication starts with good data. It needs to be shared, all the better to fashion a solution. And that solution should be collaborative, though not necessarily consensual.
Up in Seattle, the process has paid off. "There's a recognition of [the importance of] following process, making sure you understand the market and are consistent in how you communicate to potential suppliers," he says. "Evaluate them in a fair, up-front and consistent way." And that kind of evaluation simply can't happen absent data that are deep and delving.