Rockwell Collins takes off
Strategic sourcing becomes a way of life after the aviation electronics business spins off from Rockwell International.
by Susan Avery -- Purchasing, 2/20/2003 2:00:00 AM
Strategic sourcing is nothing new to Rockwell Collins.
Before being spun off from Rockwell International in July 2001, the aviation electronics manufacturer was using a supply chain steering team (SCST) to direct sourcing and other activities of a number of commodity teams.
To ensure continuity in this strategy once the spin-off was complete, management named Roger L. Weiss, a 15-year Rockwell International veteran, to the post of senior director of enterprise sourcing at the new company.
"When I joined Rockwell Collins from Rockwell International, we made a real attempt to take strategic sourcing and supply chain management and integrate the two, institutionalizing strategic sourcing processes and practices throughout the supply chain management process," says Weiss, who has a background in procurement and experience at implementing strategic sourcing practices while a commodity director at Rockwell International corporate headquarters.
Since then, Weiss and the enterprise sourcing team at Rockwell Collins have focused on these key areas: strategic sourcing, which is driven by commodity teams; supply chain practices and processes; Lean Supply, through which the sourcing organization deploys resources to work externally with suppliers; an enterprise small business program (supplier diversity) and achieving sourcing synergies through mergers and acquisitions. (The enterprise sourcing organization identified such synergies at one of Rockwell Collins' recent acquisitions, Kaiser Electronics, before the purchase was completed.)
Derived from a Lean Electronics corporate initiative which drives inefficiency from internal processes (based on the Toyota Product System and other principles), Lean Supply focuses on reducing leadtimes, reducing assets, and improving flexibility and customer responsiveness by eliminating waste. It helps to simplify processes and improve productivity.
As a result of efforts of the enterprise sourcing team over the past 18 months, Rockwell Collins has reduced purchasing costs up to 20% of some commodities, consolidated the supplier base and improved leadtimes 30%.
For one commodity in particular—wire and cable—use of a commodity team helped reduce the number of suppliers 75%, leadtimes 50% and purchase price 30%; increase spending with small businesses; implement programs to eliminate duplicates; and combine similar part numbers and extended payment terms. The travel spend has seen similar success: Reducing the supplier base to one travel agency that could achieve specific service levels and implementing online booking tools helped cut costs 25%.
Still, perhaps more important to Rockwell Collins is the benefit the company derives from having best practices in supply chain management shared among those in the organization.
Procurement organization
With headquarters in Cedar Rapids, Iowa, Rockwell Collins is a $2.5 billion global company that provides aviation electronics for the world's aircraft manufacturers and more than 400 airline customers, as well as many of the world's military forces. Weiss, who reports to David D. Young, vice president, material and supply, is responsible for a team that sources more than $700 million of both direct materials and indirect goods and services. In addition to enterprise sourcing, Young is responsible for application engineering, site procurement, subcontracts, logistics and material services. The company's biggest buys include semiconductors, metal fab/machining, printed circuit boards, displays and travel.
Each of 11 Rockwell Collins' manufacturing sites has a procurement organization responsible for such tasks as placing and receiving orders, expediting, quality, and managing supplier relationships at the local level. Procurement is accountable for negotiating contracts for parts specific to the plant. Also at the plant level are groups responsible for supplier quality and application engineering support. Again, these organizations are accountable for items specific to the plant.
Another of the procurement organization's responsibilities at the local level is to be on (or support) the enterprise-wide commodity teams and support the company's enterprise sourcing initiative. "That's how the organization is tied together," says Weiss. "Sourcing decisions for the company are made through cross functional enterprise wide commodity teams."
Decisions to name a team to manage a commodity are made by the supply chain steering team (SCST). The SCST is essentially a cross-functional governing body that oversees such supply chain processes as engineering, manufacturing, procurement and finance. Sponsored by the vice president of material and supply, the team's function is to direct supply chain management processes as well as drive the commodity team process.
Commodity teams are in place for such buys as semiconductors, printed circuit boards, passives, resistors, and capacitors. Rockwell Collins is in the process of putting together teams for the indirect goods and services and subcontract purchases. "The number of teams in play is fluid by plan," says Weiss. "We put together a team when we believe the commodity is critical to Rockwell Collins and we need to have a focus on it. We'll terminate teams if we believe the value isn't there."
Typically, commodities are selected based on size of spend or criticality of technology to the company. "We're basically a big job shop," says Weiss. "We build a lot of different things, but not a lot of any one thing." For example, Rockwell Collins has a fab processes commodity team for which there is no spend. This team monitors such processes for mechanical components as finishing (i.e., painting).
The supply chain steering team sets direction (goals and responsibilities) for the commodity teams. Each team includes representatives of procurement (from the site for which the spend is most applicable), application engineering and engineering. Each team has a leader (a voluntary position) and a mentor, usually an individual from the supply chain steering team, senior manager or leader within the organization.
The commodity teams meet monthly. "During the discussions, we encourage the teams to focus on strategic activities and stay away from day-to-day tactical duties," says Weiss. Strategic activities that the teams focus on during the monthly meetings include use of preferred supplier lists and preferred parts lists, quality levels, delivery levels, supplier performance and supplier relationships. Then, twice a year, the teams have opportunity to present progress on activities in these areas to senior management.
"At the end of the day, Rockwell Collins is looking for a very strong strategic supply base," says Weiss, of the purpose of the commodity teams. "We look to the commodity teams to link the industry and suppliers to internal design and manufacturing." Team involvement in the engineering processes varies by commodity: The mechanical team may be involved at the specification stage, while the ASICs (application specific integrated circuit) team may be involved in design review or development.
"When we address a particular commodity, we pull together a sourcing team," says Weiss. "Typically that team is the commodity team or a subset of a commodity team. So, decisions made by the sourcing team flow back into the commodity team's strategy." He adds that much of the strategic direction determined by a commodity team for a commodity is based upon the sourcing process and its outcome.
This process consists of six disciplined steps. The first involves the team's selection of the commodity grouping to be sourced; the second identifies the spend (What is Rockwell Collins purchasing? From which suppliers? How is the commodity currently being purchased?). The third step creates the sourcing strategy (What should Rockwell Collins be buying? How should the company be purchasing it? How should suppliers be selected?). The fourth calls for the building of a supplier portfolio which includes developing the RFP (request for proposal) and identifying total cost of ownership (TCO) opportunities. Steps five and six center on negotiation and implementation of the agreement and aggressive commodity management (ensuring that implementation occurs and that suppliers are working on continuous improvement), respectively.
Supplier involvement
Rockwell Collins supply chain management includes a Supplier Alliance Advisory Council which Weiss calls Rockwell Collins' board of directors for supply chain management. The council, which meets three times a year, is made up of 18 of the company's key suppliers. These include a cross section of its supply base: a distributor, semiconductor manufacturers, mechanical suppliers, an indirect materials supplier and a manufacturer representative, etc.
The two-day meetings "ensure that we are on track with our supply chain management processes with respect to the industry and what is going on externally to Rockwell Collins," says Weiss.
Leading these meetings is Phil Krotz, senior commodity manager, mechanical and processes (overseeing such commodities as connectors, wire and cable) and the organization's chairperson for supply chain management processes. A 15-year Rockwell veteran, he is one of four commodity managers. The others manage indirect goods and services, passives/electromechanical and semiconductor/assemblies.
On the first half-day of the meeting, suppliers get together to discuss topics identified by the supply chain steering team. "Sometimes we give the suppliers homework," Krotz says. "A few months ago we were working to develop a supplier score card and we asked the suppliers to bring in examples of best practices. That is, score cards they'd had experience with in the past."
Throughout the second day, suppliers meet with the supply chain steering team and leaders of the commodity teams. "We go through what we discussed on the previous day and give the suppliers updates on what we are doing within Rockwell Collins to better align them to our goals," says Krotz. "The suppliers give us feedback and then we have a working lunch." The afternoon schedule is devoted to break-out sessions on specific topics such as reverse auctions and the payables process.
In measuring supplier performance, plant procurement has specific goals for such metrics as delivery times quality and inventory levels. The commodity teams set strategic goals and help to select suppliers to meet these objectives so that procurement's goals can be met. Suppliers have access to their scores via secure Web-based software.
Suppliers that have a mutual relationship with Rockwell Collins and meet expected levels of excellence in technology, quality, delivery, manufacturing processes, responsiveness, cost of ownership, financial stability and environmental responsibility earn status as a preferred supplier.
Rockwell Collins recognizes supplier performance at the company's annual key supplier conference. Recipient of company's highest honor, the President Award, is Midwest Metal Products Co., Cedar Rapids, Iowa. Midwest received the recognition for, among other things, having participated in a number of Lean Supply Program events which have strengthened its relationship with Rockwell Collins. Other awards presented at the conference were to a Small Disadvantaged Business Supplier of the Year and a Woman-Owned Small Business Supplier of the Year.
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