Purchasing teams up with suppliers for savings ideas
By Susan Avery -- Purchasing, 2/5/2004 2:00:00 AM
Last month, PURCHASING magazine's MRO/Distribution News page looked at ways purchasing operations can affect their companies' bottom lines by measuring and documenting value-added savings. This month's MRO/Distribution News story shows how one manufacturer supplier created a formal program for its distributors to use with customers that calculates such savings. Next month: PURCHASING examines buyers' views of their relationships with MRO suppliers.
Swagelok Co., a designer and manufacturer of fluid system components based in Solon, Ohio, has developed a formal program that helps its distributors work with purchasing operations to quantify and measure savings resulting from use of value-added services.
Through Swagelok's Value Impact Partnership (VIP) program, the manufacturer supports more than 200 independent, local sales centers as they provide customers worldwide with such services as product installation and safety training, energy emissions surveys, vendor managed inventory (VMI), product evaluation and e-business tools. The distributors then meet with their customers to identify and document savings resulting from use of these and other services.
One customer, the purchasing operation at a paper mill, realized $80,000 in savings through the program. Services provided by the Swagelok distributor include training, VMI and an audit of the mill's compressed air systems.
The distributor worked to identify 140 leaks in eight major plant systems and documented savings from repairing 93 of those associated with fluid system fittings. It also documented savings resulting from lower energy costs due to leak detention and repair, reduced inventory and interest costs resulting from VMI services and realized process savings through training and substitution of tube systems for traditional pipe systems.
Energy surveys
No stranger to documenting value added savings, Swagelok distributors have been conducting energy emissions surveys for their customers for about 40 years. Doing so is part of the company's tradition and its approach to serving customers, says Arthur F. Anton, president and CEO. The Value Impact Partnership program is a "formalized way for our sales and service centers to remind customers of the value inherent in our products and services and to do that not in a grandiose way but in a manner that's comfortable and shows that we value our relationships."
Early on, sales of Swagelok's highly technical fluid system components (valves, fittings, hoses, tubes, filters) were directed primarily to engineers. Over the years, purchasing operations became more involved in the buy. But Swagelok and its distributors found that some buyers were interested mainly in the prices of the products. "We were struggling to be able to show that total cost of the product is more than just the cost of the product," says Anton. "So, we took a long hard look at ways to present that in a more proactive way."
The company's approach to measuring value-added savings took a more formal turn as management worked with consultant Tim Underhill. "With Tim, we trained our sales and service organization on how to present a program to the end customer," says Anton.
Collaborative effort
As Underhill, who works with both purchasing and marketing and sales operations, sees it, "quantifying and measuring costs should be a collaborative effort between purchasing, its end use customers and suppliers. Together, they can determine whether the supplier is offering a true value-added opportunity."
It's that collaborative effort that the manufacturer stresses in its work with customers. Today, Swagelok distributors meet with both purchasing and engineering managers to discuss savings resulting from use of the company's value-added services. About 20 different services are included in the VIP program; distributors have flexibility to create others that best meet customer needs.
While Swagelok is not alone in offering customers value-added services, "the ability to show actual dollar savings through documentation is what differentiates us from everyone else," says John Cox, business development manager, Swagelok.
Templates
"Our approach provides a natural language for distribution and purchasing because we are identifying the pain of higher costs and working to provide a service that resolves that pain consistently," says Tom Gubanc, director, e-business and knowledge management, Swagelok. "The distributors are working with the customers, suggesting e-business tools, VMI programs and other services. Once they provide the service, it's easy to capture the value. After the service is deployed, then we can document that."
Swagelok developed for its distributors templates that calculate the value of savings resulting from use of the services. "While reasonable people may sometimes disagree on the dollar figures, they usually can agree on methodology," says Anton. "If we're looking at VMI, it's probably the time value of money that we measure. If it's kitting, then we measure labor value. If it's product substitution, it's usually product value. The dollar value is less important than the fact that we're sitting with the customer and having a conversation, and that we're doing this year after year."
Typically the distributor sales person will ask the customer for the actual figures he or she uses, say carrying costs, and use these numbers in the calculation, explains Hans Goemans, vice president, distributor support, Swagelok. "It's important that the customer sees that we are using real numbers in the calculation."
Here is another example of documented value-added savings realized by Swagelok and its distributors for customers:One semiconductor company reported expensive ($500/gal) perfluoropolyether coolants were leaking from wafer-etching equipment. Rather than incur expensive process shutdowns, the company opted to replace the leaked fluid with up to 1-2 gal per day, at a projected cost of up to $500,000 annually. Asked to assess the situation, Swagelok determined that valves sealed with o-rings were the cause of the leakage as the o-ring elastomer leached plasticizers into the cooling fluid, which acted as a solvent. The supplier then developed and recommended a ball valve with spring-loaded silicone seals that eliminated the fluid-containment problem. It also developed a custom four-valve assembly that functioned as a drop-in solution to replace the failing valves.
Buyers: Keep it simple when tracking savings
01/14/2004
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