KENNAMETAL: New view of information
With a more robust data management system, the metalcutting giant can now respond quicker to changing costs
By Tom Stundza -- Purchasing, 3/17/2005 7:00:00 AM
Data analysis has been fueling strategic sourcing revisions—and streamlining tactical purchasing programs—at Kennametal for several years now. Entering 2005, the Latrobe, Pa.-based metalcutting tool producer's purchasing organization has upgraded to a third—and more precise—data-gathering version of spend-analysis software. That's because the previous versions "didn't provide detailed enough information on commodities at specific cost centers," says James Cebula, director of global procurement and travel.
"Spend analysis is a great tool that has helped us understand strategically where our cost-saving opportunities exist," says Cebula. But the more Kennametal used such tools over the past five years, the more information its 92-member purchasing organization wanted. Finally, it became obvious that the company was going to have to design some—or all—of its own data-gathering software to be able to drill down to access key information.
"We migrated to an internally developed replacement system late in 2004, and should have all strategic contracts tied to it by the end of April," Cebula says. And then, he says, the buyers will begin the process of looking at forecasted cost trends in the 2004-2007 timeframe with an eye toward 10% in cost reductions. "We may not be able to do it on every contract, but we will analyze all spending and look for opportunities for reduced-spending trends."
Every year, Kennametal purchasing managers spend three months aligning purchasing strategies with business team strategies. "Purchasing's goals have to fit with each business units' goal," says Cebula. So, to ensure that the goals and objectives of purchasing are supported from the top down and from the bottom up, "we review purchasing strategies and goals with individual business team leaders and then with the total management team."
Kennametal was founded in 1938 by metallurgist Philip M. McKenna. Today, it's a market leader in metalcutting tools in North America and the second-biggest worldwide. The company provides customers a broad range of technologically advanced tools, tooling systems and engineering services through its Metalworking Solutions and Services Group and Advanced Materials Solutions Group. The other groups, J&L Industrial Supply and Full Service Supply, distribute tooling and industrial supplies through catalog, electronic commerce and direct sales. These four global business units had $2 billion in revenues in 2004.
The firm last year purchased $730 million worth of services and such goods as tungsten carbide powders, high-speed steels, ceramics, industrial diamonds and other materials resistant to heat, abrasion, pressure and wear. By the end of 2004, 71% of all strategic contracts for Kennametal's four global business units were under the new spend-management umbrella. Spend analysis allowed reorganizations within purchasing that generated $18 million worth of cost reductions. The goal for 2005 is another $12 million in cost reductions.
Two prime goals of Kennametal's purchasing organization group have been to "buy as one company and to reduce total cost," says Cebula. "But we also want to end up with the best supplier or suppliers who would be able to satisfy the exacting needs of all the affected manufacturing plants."
How spend-analysis began
Back in 2000, U.S. manufacturing was in recession and companies such as Kennametal saw sales sliding and costs rising. The initial spend-analysis vision was to aggregate all data company wide, so that the separate business units would be able to act as one company when purchasing in various markets. This also would create a single mechanism to help enforce purchasing agreements and to ensure that business units only bought from Kennametal's primary contracted sources.
In 2001, the database analysts of New York-based supply chain consulting company Tigris Corp. were able to identify and consolidate Kennametal's data. The Tigris software solution created a purchasing warehouse in Microsoft Access with analytical and categorization tools. "We created reports from static information; we were able to drill down to the summary spend, but there were no line-item details."
So, the next solution came about in 2002 with the first Internet-accessible OLAP (online applications program). That was a tool that Kennametal's purchasing professionals could expand with a Databeacon Analyst "spend cube"—a Web-based spend-analysis tool. The spend cube allowed purchasing to view the data from a range of dimensions—item categories, suppliers, office locations and amounts spent. Kennametal began refreshing the spend data every three months, since it contains historical information, and since the organization had learned that strategic negotiations with suppliers were most effective when it could draw on the most current spend-analysis information. Cebula says the spend cube helped all of Kennametal's purchasing and supply management organizations work to the same standards and use the same language.
Software providers have changed due to corporate mergers: Verticalnet early in 2004 acquired the privately held Tigris and then, last summer, acquired B2eMarkets Inc., another provider of strategic sourcing software solutions. At about that time, Kennametal's purchasing staff decided they wanted more spending data.
The buyers wanted quicker response to requests for data. In fact, they had a wish list of items drilled down all the way to vendors, locations, dates and categories of spend that they couldn't get from the Tigris/VerticalNet tool. "We couldn't get cost center information and we couldn't get line item descriptions, says Cebula. He points out that multiple cost centers exist inside some colocated business units, but the data was available only on a per-location basis. "We needed details by cost centers but the system available couldn't break the data out," he says. "Also, time is money, in purchasing—and without cost center data, data-collection response time slowed down."
Switch to Cognos
After nine quarters with Tigris/Vertical Net and other the other software components, Kennametal in 2004 migrated to an internally developed replacement system, based on the Cognos data management system inside the Kennametal firewall. "Cognos is a more robust data system," says Cebula. "Basically, we adapted existing architectures to a first-party system and went from using outside sources to managing our own data."
Kennametal executives needed a solution that would help maintain high internal customer service levels while providing the ability to analyze buying trends. The Cognos solution allows Kennametal to gain timely, comprehensive insight into buying behavior and internal user performance trends across the enterprise.
The organization also has set up a second spend cube that is interpreting spend analyst with forecasted cost data from Global Insights. "We've mapped price and wage forecasts to sourcing groups—that is, we take what we spend and see how that relates to what we spend, then plan cost-reduction programs out for three years," says Cebula. "This may change some tactical sourcing procedures. This year we are setting up the anchor points for the three-year forecasts."
The more challenging the global buy—across regions, time zones, languages—the more a global, center-led purchasing company such as Kennametal has to stretch strategies. "You have to keep the purchasing people on the ground—those at the plants involved in tactical purchasing—on the same strategic wavelength as corporate policy makers," Cebula says. "And that requires such knowledge as spend data."
Common sense to purchasing isn't always common sense to management teams—so corporate purchasing has to be careful that management doesn't make decisions on big spends without the purchasing organization's involvement. "You have keep purchasing in front of source selection process," Cebula says, "but you have the data to make effective purchasing work."
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