Ed Dunn, Vice President of Supply, Carrier Corp.

Work Lean and build supplier relationships

While Ed Dunn, vice president of supply at Carrier Corp. in Farmington, Conn., tracks economic indicators in many geographic regions, he and his team are especially watchful of those in the U.S., such as GDP and housing starts, because it's where a big part of the HVAC and refrigeration company's business is. And because the company's ability to react depends on its suppliers, they communicate frequently with such key partners as Emerson and Regal-Beloit.

"Suppliers look at sales at home improvement stores because there's a correlation between consumers going into Home Depot and fixing up their houses," says Dunn. "That translates into increased business"

Oil prices are also a concern because, for one, they drive costs for producing commodities the team purchases such as aluminum, steel and copper.

Dunn has an eye on steel and gets regular updates through Purchasing. "One would normally think that if the economy is going to slow, then prices are going to come down. But in the case of steel, the steel companies are taking capacity out because the U.S. dollar is low and imports are not coming in. This puts pressure on prices."

Then there's Chinese currency. In China, Dunn and his team are working with suppliers to drive productivity. "I think this will help keep material inflation in check. But the fluctuating currency is definitely putting pressure on prices there."

For Carrier in 2008, Dunn says it's important for the company to insulate itself from these happenings as much as possible by continuing to partner with suppliers and to drive Lean events. "Then, as housing recovers and the supply chain gets challenged again, we will be in that much better shape going forward."

—Susan Avery

John Miller, CPO, Nissan North America

Look for new options for supply

John Miller, CPO at Nissan North America, agrees with market analysts who say the automotive market in North America is shrinking due to the sluggish economy. To reduce costs, he and his team continually look for new suppliers.

Nissan has three plants in the U.S. and another two in Mexico, all of which serve the North American market. Miller says at the start of each three-year business cycle, a cross-functional team at Nissan meets to discuss sales forecasts and production plans. And purchasing is right in the middle of those meetings.

"The macroeconomic trends are closely reviewed by our sales and marketing teams and executive team," Miller says. "Then, I need to establish how those trends will impact our overall production and inventory. For example, maybe there's a need identified for more small cars in the next business cycle, or a new model is being launched or discontinued to meet a market trend. All of those things will impact our buying plans."

"Suppliers look at sales at home improvement stores because there’s a correlation between consumers going into Home Depot and fixing up their houses.” —Ed Dunn

“It seems there’s pressure on every raw material we buy. We in purchasing continue to find new suppliers and materials to reduce our cost structures.” —John Miller

“We have produced $250 million worth of cash in the bank because of inventory reduction this year.” —John boucher

"It seems there's pressure on every raw material we buy," he says. "We in purchasing continue to find new suppliers and materials to reduce our cost structures. For example in steel, we're looking at new options like mini-mills, foreign steel, and other options. Purchasing is interacting with engineering to bring in more competition."

—David Hannon

John Boucher, Senior Vice President and Chief Supply Chain and Procurement Officer, Celestica

Push for shorter leadtimes

The New Year will be a time of great opportunity for growth and a year for challenge for Celestica, according to John Boucher, senior vice president, chief supply chain and procurement officer for the Toronto-based electronics manufacturing services (EMS) provider.

"There will be more opportunities for us to grow our business, to get additional customers and to ramp our volumes to our existing footprint and capacity," he says.

One reason for the additional opportunities is the acquisition of Solectron by Flextronics in 2007. With the acquisition, there will be less competition for business. In addition, total EMS capacity in the industry will be reduced, which will result in better factory utilization and improved productivity.

To take advantage of the growth opportunities, Celestica will push for shorter leadtimes from suppliers. The principal strategy in that effort: Refine its "ring" strategy with suppliers and continue to buy more parts from a fewer number of suppliers, he says.

Celestica classifies suppliers into five rings. The first ring refers to suppliers that are located on one of Celestica's eight megasite campuses. Ring-two suppliers are suppliers that have leadtimes of seven days. Ring-three suppliers have leadtimes of less than 30 days. Suppliers in subsequent rings have longer leadtimes.

In 2008, Celestica is pushing to have 95% of its suppliers in rings one through three. It started 2007 with about 45% in those rings and ended the year with about 60%.

Having suppliers who deliver parts in short leadtimes impacts inventory levels, inventory turns and total cost, says Boucher.

For instance, in the first quarter of the year, Celestica's inventory turns were 6.6. By the end of the year they were "nine plus" says Boucher. In 2008 they will be in the double digits, he says.

More inventory turns means cost reduction. "We have produced $250 million worth of cash in the bank because of inventory reduction this year," says Boucher.

As Celestica pushes more suppliers to reduce leadtimes, it will reduce its number of suppliers.

Celestica has about 7,000 suppliers, but about 80% of its business is awarded to about 20% of the total.

—James Carbone

Bill Hardin, Senior Procurement Specialist of Finance-Business Services, Judicial Council of California

Watch energy and pulp costs

Many Office Products buyers are keeping a wary eye on rising energy costs for 2008, especially after the steady climb in costs in the second half of 2007. "The cost of fuel has had a ripple effect across the board in surcharges and increases in freight in general," says Bill Hardin, senior procurement specialist of finance-business services for the Judicial Council of the state of California.

But of even bigger concern specifically for office buyers is the cost of pulp, and consequently paper. Pulp prices are at the highest they've been in 12 years in some part due to cutbacks on capacity as producers keep supply intentionally low globally. Forecasts, at least in the short term, say that pulp will only continue to accelerate in the first quarter.

"Our biggest concern is the rising cost of pulp for paper," he says. "We got our prices locked in through February by negotiating an extension of our contract, but I'm concerned about what may happen at that point." Office paper prices jumped in December, with more price increases proposed for the first quarter. "We're already seeing the rising costs being passed through in other areas," Hardin says. "I would imagine that we will see some of our courts stocking more paper than they normally would, depending on what we can hold the [paper price] increase to."