Timken leverages spending after Torrington acquisition
Susan Avery -- Purchasing, 4/1/2004 2:00:00 AM
Charles (Chuck) M. Byrnes, Jr. assumed responsibility for the purchasing function at The Timken Company on February 18, 2003, the date its acquisition of The Torrington Company was complete. In his role as vice president of purchasing, Byrnes and his team worked with Timken's engineering, logistics, order fulfillment, manufacturing and sales personnel in the past year to bring together the buying operations of the two bearings companies and to leverage an annual spend of approximately $1.6 billion. Timken, a $3.8 billion bearings, alloy and steel manufacturer is based in Canton, Ohio.
Prior to the acquisition, the purchasing operations at the two companies were both structured so that some buyers managed the direct buy and others were responsible for sourcing indirect goods and services. Now, Timken's purchasing organization is structured around the company's business segments: automotive, industrial, steel. Byrnes is responsible for purchasing for the automotive and industrial businesses as well as supplier quality, supplier development, global sourcing and supply chain advancement. He reports to Donna J. Demerling, senior vice president of supply chain transformation.
As a result of its acquisition of Torrington, Timken plans to realize $80 million in savings by 2005, about a third of which is expected to be contributed by the new purchasing operation.
Spend analysis
Byrnes and his purchasing team at Timken evaluated the two companies' spending activities—particularly of indirect goods and services. For Timken, indirect spending comprises mainly traditional industrial MRO (maintenance, repair, operations) items, for example, bearings and power transmission products, fasteners, safety supplies, as well as transportation and temporary labor.
They identified 13 distinct spending categories. For each category, Byrnes created purchasing teams with the objective of leveraging the spend with a smaller supply base. The teams selected suppliers willing to improve quality and service levels while maintaining competitive pricing. In turn, these suppliers will earn a larger share of the bearings manufacturer's business.
At the time of the acquisition, Timken's purchasing operation managed a core base of roughly 2,000 suppliers of both direct and indirect goods and services. Torrington had more than 1,500 suppliers. "We quickly said that we can't continue to work with that many suppliers," says Byrnes. Surprisingly, there wasn't much overlap. The two companies had fewer than 10% of suppliers in common between them.
The purchasing operation set a goal to reduce its core base from 3,500 to 1,500 suppliers by 2005. As such, an average core supplier that had been receiving about $400,000 in annual business from one of the two companies would now receive closer to $1 million. "We are offering additional volume to suppliers of direct and indirect materials that provide us with the best quality, service and price packages," he says. "That's really the foundation of our strategy."
Byrnes and his team communicated this new strategy to the company's core base of suppliers through onsite meetings at corporate headquarters in Canton, online tools, and meetings at the company's locations in Europe. Timken's top executives attended the meetings with suppliers. At the meetings, suppliers interested in continuing relationships with Timken were asked to send proposals expressing their intents to the purchasing operation.
Purchasing's process for selecting suppliers focuses on their proposals to work with Timken on continuous improvement projects as well as their past performance with the company. As part of the effort to leverage spending with a consolidated supplier base, the teams, which include manufacturing representatives, also look for suppliers with capability to provide the company with a multitude of products and services. (At the same time that Timken is working to leverage spending with fewer suppliers, the purchasing operation is searching for suppliers with new technologies that the company may not have worked with in the past.)
Once the team makes its selection, Byrnes presents its findings along with cost savings resulting from the decision to an executive Timken sourcing board, which includes leaders from manufacturing and engineering from the company's businesses. The board's makeup helps assure support for the new agreements at the plant level.
Power transmission
For the new company's power transmission and bearings (PTB) purchase, a $10 million annual spend, Timken and Torrington had about 467 suppliers between them prior to the acquisition. Some plants were purchasing power transmission products from as many as 75 suppliers. "As a bearings company, we were also surprised to learn that in some cases we were buying bearings from suppliers that weren't authorized Timken distributors," says Byrnes. The objective for the spend category: Reduce the supplier base by 90%.
Byrnes set up conference calls with each of the company's plants to discuss the plan and to communicate the benefits of working with a consolidated supplier base. Each plant had input into the process. Aiming toward its target of 40 suppliers, the PTB team eventually winnowed down the base to three suppliers. Timken began implementing the new agreements at the end of 2003.
"This is a huge opportunity for us to eliminate waste," says Byrnes. "We will experience improved service levels because each of these companies has locations near our facilities. At the same time, suppliers will be more willing to sign up for aggressive continuous improvement projects now that they know if they put man-hours into helping us move product into plants more efficiently, they will see the benefit of receiving more business on their end."
To encourage compliance with the new supply agreements, Timken keeps tabs on the company's spending on a monthly basis. "We told plant management that we understand that they have to keep their plants running," says Byrnes. "But they also understand the need to comply with the new agreements."
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