Supplier management fuels growth for Cessna
Cessna Aircraft Co.'s supply initiatives won the company Purchasing's Medal of Excellence in 2003. Here is a look at where those initiatives are taking the company five years later.
By Susan Avery -- Purchasing, 12/11/2008 2:00:00 AM
Since receiving Purchasing's Medal of Professional Excellence in 2003, the supply management operation at Cessna Aircraft Co., a Textron Inc. company, has had a single focus: To be the aerospace supply base "customer of choice."
And with good reason.
Operating in a global economy, Cessna has grown 20% each year since 2003, nearly doubling in size to $5.1 billion in annual sales in 2007. Today, it has a $16 billion order backlog. This is due in part to sales to customers in other regions of the world. A softer U.S. dollar helps drive exports of some manufactured goods.
But sales at other aerospace companies are up too, putting a strain on suppliers and global supply of raw materials they use to produce components for their customers.
 Beverlin: “Cessna’s approach to the supply base is collaborative, and it is working.” |
So when a supplier inundated with orders faces the decision of which customer's parts to make, Don Beverlin, vice president of supply management at Wichita, Kans.-based Cessna, wants the supplier to choose Cessna—every time. And he wants the supplier to come to the decision based on its experience working with his team of supply management professionals.
"Cessna's approach to the supply base is collaborative, and it is working," he says.
Supply management's contribution
Collaboration is a word purchasing professionals hear a lot these days. But Cessna was collaborating with suppliers long before it was fashionable. When Beverlin assumed his current role at the company late in 2003, his predecessor, Michael Katzorke, and his team (which included Beverlin), had laid much of the groundwork for initiatives the supply operation uses today. These include processes for managing the supply base and improving its performance.
R. David Nelson, who, as leader of supply management teams at Deere & Co. and Honda of America Manufacturing, has received Purchasing's Medal of Excellence twice, has worked with the team at Cessna. He says its success is due to the strong organization and supply management initiatives the company has in place.
"Mike Katzorke really set the supply operation on a good firm approach and the team continues to build on that," Nelson says. "They have ideas on how they might expand upon that, working together with other Textron business units. I suspect in time more good things will come of it."
Among the good things that have already come of it:
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Quality of parts from suppliers is about 500 ppm (parts per million), despite recent strains on supply base capacity. Five years ago, it was 1,900 ppm.
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The supply base numbers just 740. In 2003, it was 1,100.
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On-time to purchase order percentage is 97.96%.
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Material availability is 99.97%. It used to be about 91%.
Beverlin says that the company today has fewer purchased part shortages than it has ever had before. Cessna spends approximately $2.2 billion annually on direct materials.
All these results are directly connected to Cessna's financial success. As orders for the company's products rise, management has moved more work to suppliers, in keeping with its Lean strategy. This means that purchased parts is becoming a bigger percentage of cost of goods sold. The figure was in the 40–50% range five years ago. Today, it is in the 50–60% range. "If supply management cannot affect that 60% in a positive way, the company is going to have a hard time moving the needle from a financial perspective," Beverlin says.
Cessna is moving the needle in the right direction. For 2007, the company's return on invested capital was more than 60% and net operating profit was more than 17%. Annual sales that year were $5.1 billion. "That's obviously outstanding world-class financial performance, and supply management specifically plays a big role in making that happen," he explains.
Metrics help tell the story. In the past five years improvements include a more consolidated
supply base, better quality, quicker delivery and fewer shortages.
How Cessna manages suppliers
When supply management received the Medal of Excellence, it had in place a top-notch supplier relationship management (SRM) process. The team has since built and added to it a supplier value-improvement process and a supplier-development process. These tools help manage performance, improve capability and build relationships with suppliers.
Adding the tools, Beverlin says, was a natural evolution from the team's efforts at VA/VE (value analysis/value engineering) and a roll-out at Cessna of parent company Textron's Six Sigma toolbox. VA/VE manages supplier innovation. Six Sigma is a quality tool that also spurs innovation, while helping reduce variation and eliminate waste.
"We use these processes strategically to manage supplier performance and further develop supplier capability and capacity, and to build really strong relationships that add value and are mutually beneficial," he says.
 Edmisten: “The value of acquisition process helps identify opportunities for improvement.” |
Last year, the team launched its total value-of-acquisition process. Brent Edmisten, director of strategic sourcing, says the goal of the process is to get more forward-looking metrics in its analysis of supply-base performance. "The process helps identify opportunities for improvement in the supply base. It looks at value beyond the price of the part the supplier is providing."
Much of the team's effort has been on managing performance of its tier one suppliers. But it's not enough, Beverlin says. To be successful, the team needs to manage tier two, three and, in some cases, tier four suppliers. For this, they leverage Cessna's involvement in the Supplier Excellence Alliance, a non-profit organization based in Irvine, Calif. SEA's mission is to make the aerospace and defense supply chain in the U.S. more competitive by creating a single Lean enterprise system.
And supply management at Cessna has recently launched a raw material aggregation program. Through the program, the team comes to understand raw material requirements of the aircraft company's suppliers' suppliers. Those needs include titanium, aluminum plate and sheet, extrusion materials and bar stock. The program leverages these materials with a larger buy from a distributor helping to reduce cost. It also manages the aggregation and the allotments or allocations at the mills for the supply base to assure availability.
"As we roll this out, the program will encompass the majority of our raw materials requirements," says Beverlin. Other possible candidates for the program include some standard hardware components.
Through a process called centers of excellence, the fabricated components commodity team applies Lean principles to a specific manufacturing cell at a supplier facility to improve cost, quality and deliver metrics in one part family. The team has improved leadtimes by more than 75% and cost by 15% to 20%, and was recognized with a Textron Eighth Annual Chairman's Award For Innovation for its efforts.
Continuous improvement
Beverlin leads the Textron procurement council, a group of his peers at other Textron businesses, Bell Helicopter, Jacobsen, Kautex, Lycoming, Greenlee, E-Z-GO, Fluid & Power and Textron Systems. As Textron continues to transform and improve its performance, the company takes a decentralized approach to procurement.
 Ryan Doerksen, director of strategic sourcing for indirect materials and services, manages the spend for other Textron business units. |
Where it makes sense, one of the businesses may lead a specific area of procurement, i.e., as Cessna is doing with its indirect sourcing activities. Now, Ryan Doerksen, director of strategic sourcing for indirect materials and services, and his team is managing the spend for the aircraft manufacturer as well as Bell locations in Ft. Worth and Amarillo, Texas and E-Z-Go. The team also is rolling out the effort with Bell in Mirabel, Quebec, and the company's Greenlee sites.
"Ultimately, as we roll all the business units into that activity, Ryan will lead strategic sourcing of indirect materials and services for all of Textron," says Beverlin.
He likes to challenge his team with the notion of continuous improvement. The team uses a four-phase strategic sourcing process (rationalize, align, improve, integrate), but each year challenges the status quo with a business assessment process or BAP. "It's text book, but the process is the foundation of what we do," he says.
 Theresa Kirkendoll, director of supplier integration, leads the team’s efforts to improve supplier performance. |
Beverlin takes his own words to heart. As the team rolled out its VA/VE process and added to it the Textron Six Sigma toolbox, they learned some suppliers were confused by the different initiatives for managing relationships. To remedy that, he established a new position of director of supplier integration and hired Theresa Kirkendoll for the role. Working with the commodity teams, she leads efforts at supplier improvement and supplier integration.
Looking ahead, the team is developing a cost management system. Beverlin expects it to help with understanding not only the airplane's costs, but also costs of parts that go into making it—major structures and systems to the component level. To offset inflation's impact, the team uses value stream analysis. It identifies process inefficiencies. Removing them helps drive out costs.
And Cessna is installing SAP ERP software. He expects the procurement module "to go live" on January 1.
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