Fueling stability: Ariba helping companies cope with life at $100 per barrel
With crude oil prices soaring to $100 per barrel, many companies—especially those affected by transportation—are worried about the impact such prices may have on their business in both the short and long term. To help them cope, spend-management solutions supplier Ariba recently issued guidance on how global organizations can offset rising fuel prices and continue to compete in a lean economy.
“Rising fuel costs are a fact of doing business—not just today, but always,” says Pat Furey, senior category manager for Ariba. “Organizations must accept the dynamic nature of fuel as a long-term reality and seek opportunities for savings elsewhere to minimize the impact that fuel costs have on the bottom line. [Our guidance comprises a] best-practice approach that oil-dependent organizations can take to stabilize their business and remain competitive amid drastic price fluctuations.”
To help organizations offset the rising cost of fuel, Ariba offers these recommendations:
1. Accept the reality. Fuel is a commodity that is in a constant state of flux, and there is little you can do to set or control pricing.
2. Look for savings elsewhere. While you may not be able to combat rising gas prices directly, you can offset the unpredictable dynamic by driving cost reductions in non-affected categories of spend such as temporary labor, IT and legal services, and print marketing.
3. Don’t give up on competitive sourcing. Just because you can’t competitively bid fuel, don’t abandon your strategic sourcing efforts. You may find opportunities for savings in the nonfuel components of your contracts. For instance, if you’re buying a service that includes a fuel surcharge, break the charge out separately, tie it to an index that allows for fluctuation, and then bid the rest of the cost of the service.
4. Actively manage your spend. You may be able to reduce commodity costs between 5 percent and 15 percent by, among other things, increasing the frequency of sourcing events, leveraging tools that provide clear visibility into enterprisewide spending, and streamlining the accounts payable process to reduce invoicing overcharges. These savings will help offset rising energy-related costs.
5. Collaborate with suppliers. Work with your service providers to gain a better understanding of how rising fuel prices are impacting their cost structures. Acting in good faith to share the burden of price increases can open opportunities to restructure contracts in an equitable manner and maintain long-term, mutually beneficial relationships.
6. Know your contracts. Careful review of contract terms may unlock potential savings opportunities that can positively impact your bottom line. If a service requires travel, consider implementing a buyer-dictated fuel-surcharge program that standardizes the price of fuel and requires suppliers to focus on the cost of their core services.
7. Watch the markets. Constantly monitor key indices and market developments so that you can proactively manage the impact of any changes on your contracts and reevaluate them as appropriate.
8. Forget the silver bullet. There is no quick-fix solution for managing rising commodity prices. Effectively combating their negative impact requires a sustained commitment to strategic sourcing on an enterprisewide, global basis.
“There certainly isn’t a magic potion for dealing with volatile commodity markets,” says Furey. “But by implementing sound sourcing strategies and sticking to them, companies can mitigate their risk and lessen potentially negative effects on their businesses.”