DURING ITS DRAMATIC 19-MONTH stint in Chapter 11, the third-largest US carrier focused adeptly on costs, especially the folks in purchasing. "To put a bit of scale to it," says Shawn Anderson, Delta Air Lines VP-supply chain management, "we renegotiated over 2,000 contracts600 separate sourcing initiatives."

Delta's challenge was dual: Drive down costs, and preserve the supply chain at the same time. Overall, it wrung $1 billion in savings from restructuring deals with vendors, suppliers and lessors. Anderson declines to say just what percentage of that number his shop contributed, but it was not insignificant.

The company's dilemma in cutting costs while not breaking ties to trusted suppliers is illustrated in an instance involving a longstanding service provider. "They had a genuine interest in not giving up anything of value," says Anderson, who holds a doctorate in mechanical engineering from Stanford University. From his perspective, Delta wanted to "talk about the future."

The parties failed to strike a deal. Six months passed. The carrier continued to talk to the service provider, making it clear that it "was ready to leave them" if need be, he says. The two-pronged approach of preparing to pack it in while continuing to negotiate paid off. The relationship held firm. Delta got concessions and the service provider saw "some new opportunities."

This case-in-point blows a hole in a latent misconception some still harbor about Chapter 11. "People think you just get to tear up your contract and write down anything you want," says Anderson. "But it's still a value-for-value exchange between two companies that have self-interests."


Cost, of course, was the key concern during bankruptcybeating it down, keeping it down, yet all the while not compromising safety. Now that Delta has emerged, the vector is value. "You have this interesting loop through [profit and loss]," says Anderson. Save a nickel on a dollar in an arena that doesn't impact ops and all's well. But try to cull that same nickel from a contract whose consequence is lost bags or delayed flights "and all at once you're hitting the revenue."

There's more to it than mere ops. There's service. Pressured by international carriers who have invested heavily in their premium product, Delta is responding: New inflight entertainment gear, new cutlery, better seats. There's a trade-off between price and product, and Anderson's group tries to "make sure [to] strike that balance." If it errs, he insists it's on the side of customer value.


There's considerable value to be had from $10 billion-plus. That's the size of the worldwide supply chain Anderson and his team of 105 people manage. Lots of things have changed at the carrier since Chapter 11 and one of them is the size of the supply chain group. It used to be larger. To make up with insight what it lacks in size, supply chain taps into the resources of the Institute of Supply Management and the Procurement Strategy Council. "We're aggressive about staying in touch with our industry and our profession," says Anderson. Authorship of those insights isn't the point, effectiveness is. "We're not trying to be a city on a hill and pretending that we know all about supply chain."

Delta does know an awful lot about command and control however. "There's genuine value in having a centralized team of sourcing professionals," he asserts. All sourcing, all $10 billion-plus of it, flows through the supply chain team. The only things it doesn't touch are aircraft acquisition and real estate.

Supply chain plays a major role in Technical Operations. While some carriers leave aircraft parts purchasing wholly to maintenance, at Delta a specialized team within supply chain does it. TechOps accounts for $1 billion a year in procurement, says Anderson. "The whole bundle of things they write the checks for" flows through his procurement organization.

He sees aircraft and engine parts purchasing as a real opportunity for procurement to help drive revenue to the company. The carrier's MRO business is growing, especially engine maintenance. And as it grows, "they obviously need more materials," he saysmore materials and more innovative ways of using the materials at hand. An example, one that melds nicely with Delta's reliance on SkyTeam partnerships and increased international flying: AeroMexico pulls maintenance on DL MD-88 airframes in Guadalajara while DL does the same for AeroMexico CFM56-7s in Atlanta. "This is a situation where we both have a core capability," he says. "They're complementary."

Supply chain saw another international opportunity in Brazil to deep-clean the carrier's prime international haulers. "We're going to run every 767 through [Sao Paulo and Rio de Janeiro]," says Anderson. "And they're going to do a deep clean no more than once every 30 days." Don't pooh-pooh this species of "soft" purchasing. Cleaning is a critical part of passenger perception. "You take all the seat cushions out. You open up all the overheads. Every surface is polished and cleaned. The carpet is shampooed," he says.

Why Sao Paulo's GRU and Rio's GIG? Why not Atlanta, or someplace in Europe? First, the price was right. Second, the quality was first-rate. Then there was ground time; 767s remain on the tarmac for a significant length of time in Brazil. Not so in Europe, where the bulk of the 767-300 fleet forays. "Just from a network standpoint, it was a great place to do the clean without taking any revenue time out of the aircraft," Anderson says.

The supply chain team is going to have to work hard to ferret out opportunities such as these because the carrier's prime outlay, fuel, accounts for between one-half and two-thirds of its procurement. "We're pushing $5 billion for fuel this year," he says. When he joined the company in 2000, the figure was a fifth that. Hedges help and the treasury department handles that. As the airline gets healthier, it plans to hedge more.


Despite Delta's penchant for centralized procurement, supply chain's troops work collaboratively with the rest of the company. They have to. Under the carrier's scheme of things, individual divisions oversee supplier performance. Take TechOps, which has a large performance management organization. "They have engineers," says Anderson. "They have black belts that work with my sourcing professionals." In this instance there's "a fully centralized supply chain out there in the division."

But to add a bit more heft to supplier performance management, supply chain is implementing a corporate supplier management program, one that will be run by Anderson's people. Redundant? Not so, he insists. Overall, Delta deals with some 6,600 vendors. "That's too many to run through a corporate program," he says, "so we will be managing the higher-impact suppliers." At the same time supply chain will help DL's divisions by enhancing "practice and processmaking sure [it] continues to get better."

Okay, but 105 people is still a very lean team. In this setup it can afford to be, can afford to focus on price and lending a steady hand to performance management, because a separate entity handles accounts payable. "We deal with the invoices when there's a problem," he says. "But we don't deal with invoices on a day-to-day basis."

What supply chain does deal with unsparingly is ethics. "My first responsibility as the leader of this organization is to make sure that I establish an ethical context," says Anderson. "There's just so much money flowing through." He says it is imperative the policy be clear and that there is a specific process for everybody within supply chain. "We talk about it a lot. We explicitly sign off on it every year and everybody who works for me recommits to it every year." This is the unambiguous acknowledgement on the part of Delta that potential ethical breaches are one of the primary hazards of the purchasing profession and that pushes the airline to consistently "watch out for [potential conflicts of interest]."

If the ethical challenge in purchasing is a constant, the immediate challenge facing Anderson's shop has shifted over the past year. "It's different than it was in bankruptcy," he says. "During bankruptcy, you mostly just sat down and talked about rate. We're more focused now on supplier performance, on working with our suppliers to create value."

Rate will never be rendered moot, not when there are savings to be made. It's just that the blinders of bankruptcy are gone now. The narrow, straight-ahead focus of fighting for life itself is history. Freed from that, Delta's supply chain professionals can focus on the race ahead.