At MeadWestvaco, it's about adding value, reducing prices
Susan Avery -- Purchasing, 11/4/2004 2:00:00 AM
This past spring, 80 of MeadWestvaco's strategic suppliers gathered in Richmond, Va., for a summit called "Getting Beyond Price." At the meeting, Sally A. Crooks, vice president, procurement, detailed her organization's role in the company's productivity, innovation, standardization and process improvement activities. She asked the suppliers to submit ideas for projects in these areas that would help increase value for MeadWestvaco. Now, procurement is working directly with plant locations to identify the value and risk of each idea.
Formed by the merger of Mead and Westvaco in January 2002, the $7.5 billion company is comprised of four major business segments: packaging, coated and specialty papers, consumer and office products, and specialty chemicals.
After the merger, Crooks helped bring together the procurement operations of the two companies. Reporting directly to her are directors of sourcing for MeadWestvaco's strategic purchases: energy, corporate services, raw materials, MRO and capital, as well as sourcing support. Chris Martus leads the MRO and capital sourcing team which consists of six purchasing professionals, including two capital buying managers, as well as four managers of MRO sourcing.
For phase one of the integration of MeadWestvaco's procurement operation, Crooks focused on leveraging the company's $4.3 billion annual spend, reducing the supplier base, becoming more efficient at the procurement process, and aligning practices with the goals and objectives of the four business segments.
At the time, the MRO procurement team, whose annual spend is $400 million, identified 54 categories of spending (items such as bearings and power transmission, general mill supplies, safety supplies, and the like) that the company's plants had been purchasing through thousands of suppliers. Today, two years later, Crooks and her team have consolidated that spending and negotiated long-term agreements with a smaller set of strategic suppliers for MRO and the other areas.
To illustrate her strategy and procurement's progress toward its goals, Crooks uses a graph she calls a Supplier Value Curve. The graph illustrates the progress of the organization in lowering the prices that it pays suppliers by consolidating spending of the two companies.
At the same time, procurement is forming closer relationships with its suppliers to work toward gains in the areas Crooks discussed at the strategic supplier summit: process improvement, standardization, productivity and innovation.
"It's not all about pricing," she says. "Our strategy going forward entails what we can do together to increase value, because if a supplier is successful, we will be successful. It's a mutual effort."
One supplier that has come forward with a project out of the supplier summit is Motion Industries, Birmingham, Ala. Working with his team at Motion, Randy Till, division sales manager, suggested MeadWestvaco and Motion join forces to analyze their business processes and identify ways to increase efficiency.
Key personnel from both companies participated in a cross functional team. The team identified 10 improvement projects, including common numbering and electronic transaction processing.
Prior to the merger, both Mead and Westvaco had been purchasing bearings, power transmission products and other MRO items from Motion, with each plant using different supplier numbers when placing orders.
"It was like we were a number of different buyers to Motion," says Santiago Velasco, manager, MRO sourcing, who, along with his other responsibilities, manages the bearings and power transmission buy for MeadWestvaco. "Now [we have] one method of communicating purchase orders via EDI (Electronic Data Interchange). It sounds simple, but it's really important to us."
Steven R. Ferguson, MeadWestvaco's manager, e-procurement, and his team were able to work with Motion Industries and make this change in 30 days. Now procurement is working with Till and the Motion Operational Excellence team on additional ways that they can increase value, including reducing inventory levels across the supply chain.
Crooks's team also created a matrix to prioritize the projects submitted by suppliers as a result of the summit. Says Martus, "The challenge for Motion Industries or any of our suppliers is that we are never going to know exactly where we are on the Supplier Value Curve because we always going to be pushing for new opportunities."
Supplier performance
Martus and the MRO team regularly visit MeadWestvaco sites and meet with employees on the plant floor to gauge supplier performance. But they've also developed an online survey tool to measure performance of strategic suppliers twice a year. In the past year alone, they've conducted more than 30 of these surveys.
Here's how it works: The team sends an email message to a representative at each plant that purchases goods and services through the supplier. The message directs recipients to a link to the customized survey, which is posted online. The representative then sends the survey to individuals who work directly with supplier personnel. "The MRO team does not set the sample size or name the participants," says Martus. "We encourage recipients to forward the surveys to everyone on the plant floor who interacts with the supplier." The survey asks for plant employee impressions of performance in such areas as ontime delivery, mill presence, responsiveness, technical support, quality, inventory management, onsite services and order accuracy.
Responses to the survey are subjective. "We ask employees to rate how well they think the supplier is doing," says Martus. "Although objectivity is valuable, we believe the most important measure of performance is end user satisfaction with the supplier."
The survey is set up in a manner that is similar to an internal MeadWestvaco employee performance survey. This familiarity helps make the tool relatively simple to use; it takes respondents just a couple of minutes to complete.
Assuming a common understanding of what it takes to earn the highest ranking, procurement asks respondents to use a scale of 1 to 4 to rate suppliers. They have the capability to weigh importance of each performance measure. "That's because individuals working in operations, for example, may see quality as being more important than ontime delivery which may be more important to maintenance," says Martus. The survey also includes a provision that allows respondents to rate whether performance, over time, is improving, staying the same or worsening
The tool also requires respondents who give a supplier a particularly low or high rating to provide comments that support it. Martus and his team share the data with both end users and suppliers. "This is information suppliers really crave," he says. In the past suppliers had to rely on anecdotes, now procurement provides a consistent way to compare agreements across the organization."
Martus and his team also are working to improve MeadWestvaco's compliance to its contracts with MRO suppliers. As with the supplier performance survey, the team wanted to develop a tool that generates results that procurement can use to graphically illustrate how well the company is doing in relation to contract compliance. "Contract compliance is important to us because we view it as being a great measure [of] how well procurement, our suppliers, and the locations are performing," he says.
The supplier performance tool shows the percentage of spend going to contract suppliers for a set category of items as coded for MeadWestvaco's SAP ERP system. This measure is determined by several factors, including the company's relationship with its suppliers, the agreement itself and the quality of coding. In the past year, procurement has worked to improve the coding system.
"We want to present a common format so that people have the context to understand the spend patterns at each site," he says. "With the information, we can better manage our contracts" and compare the spends at similar locations to each other. Data used to populate the tool is generated by the SAP system upon payment to suppliers.
The team sets goals for contract compliance based on the best performing plants at MeadWestvaco. "We think it's very important to work toward the level of the best performers," he says. "It's a valuable tool."
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