Finding a New Savings Delta

The airline industry is a fun industry to watch, but a horrible one to be in. That is unless, of course, you're Southwest Airlines, and you've figured out ways to lock in both fixed and variable downside cost and risk through advanced Spend Management approaches. But Southwest is only one sourcing and procurement success story in the commercial aviation business. In the UK, British Airways has achieved great savings and cost avoidance numbers as well. Closer to home, Delta Airlines' Spend Management efforts, under the leadership of Aaron Dent, among others, have contributed greatly to the company's bottom line. Perhaps this is one reason that US Airways is interested in joining forces with the Atlanta-based airline.

According to Supply and Demand Chain Executive, in 2002, "Delta Air Lines ... came up with a strategy that focused on culture, people, processes, tools and knowledge to cut its $9 billion in annual spend. A cornerstone in this strategy was developing and institutionalizing a strategic sourcing process which would serve as the basis for sourcing all goods and services ... A key element to Delta's success was elevating supply chain management as a discipline, primarily through the creation of a sourcing council led by several C-level and other top executives."

By the end of the 2004, Delta had saved more than $500 million in total from these efforts. And that was during a period of decreasing traffic and rising fuel costs. Certainly a piece of the credit should go to technology -- Delta was an avid proponent and user of B2eMarkets, now Verticalnet -- but I believe much of the success is owed to the people and process component of the effort that focused on institutionalizing Spend Management thinking and adoption within the company. The same is true of BA (who is an Ariba shop).

Clearly, US Airlines could benefit from this way of thinking. Rather than simply cutting routes, service, and reducing G&A overhead to achieve the billions in desired cost synergies it claims the deal will generate, US Airlines should look to Delta's Spend Management success as a model example of how to stay afloat -- in Delta's case for as long as possible, until top line challenges and fuel cost troubles sealed the air giant's fate -- in a tough market regardless of whether it is able to close this particular deal.

Jason Busch

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