Kimball's procurement moves from tactical to strategic
Office furniture maker overhauls processes to emphasize "creative cost savings" ideas.
By David Hannon -- Purchasing, 7/14/2007 2:00:00 AM
Bob Price, director of global sourcing, expected to uncover some savings opportunities when he invited a group of 50 key suppliers to walk one of his Kimball International plants during the company's first-ever supplier conference. But he didn't predict $1.2 million in savings from a one-day plant tour.
"The unexpected synergies came about because we had different suppliers watching each others' products in action and they could collaborate and feed off each other's ideas right there on the plant floor," he recalls of the walk-through that changed his perspective. "Unlike a typical event where you meet with suppliers one at a time, in this model you've got your whole supply chain represented in front of you, which brings a much more comprehensive view. We didn't plan that, but it was definitely a plus we recognized early on."
It's just one of the ideas that Price has implemented since joining the Office Furniture Group of Jasper, Ind.-based Kimball International two years ago with the goal of transforming the procurement organization from a tactical group to a centralized strategic organization.
Today the tactical procurement work is done at the business units and the strategic sourcing is handled by Price's Global Sourcing group, which sits within the Global Supply Chain Management organization and focuses on strategic sourcing for the office furniture business (Kimball also has an advanced sourcing group that focuses on removing cost in design as well as a demand planning and order fulfillment group under the Global Supply Chain Management organization).
In addition to Price, the Global Sourcing team consists of eight commodity managers organized by the manufacturing group and one strategic sourcing analyst that evaluate commodities for sourcing opportunities. The structure lets the commodity managers focus on supplier relationship management while Price and the analyst focus on detailed financial analysis and sourcing opportunities across commodity groups.
Supplier management
After a review of existing processes, Price decided to focus on implementing five programs that required minimal investment but produce short-term results while adding value to the company. When Price came to Kimball two years ago, there was very little supplier management strategy in place at the company, so two strategies in particular were aimed at improving the supply base. First, Price wanted to create a system wherein suppliers would be encouraged to share savings ideas and secondly, he wanted to implement a supplier value-analysis and idea management program to formalize and track savings ideas.
The overall theme of the approach is to keep creative cost-reduction ideas flowing and encourage suppliers to feel like they can come with more ideas. To get suppliers to provide more cost-reduction ideas, Kimball first ran a value-mapping exercise and placed suppliers into different categories. The overall number of suppliers was dramatically reduced from 2,000 to about 850 as part of this exercise.
From there, the most valuable suppliers were invited to the company's first supplier conference. A morning orientation meeting was followed by a tour of the plant which tracked the production flow with particular emphasis on areas where the suppliers' parts come into play. That's where supplier representatives started providing ideas and fed off each others' input.
Value analysis projects that come out of meetings—supplier conferences or one-on-one meetings—are classified based on whether the project will need internal support or external support. From there, the projects are plotted on a matrix comparing effort and value to help decide which should be pursued first.
"For example, if we're just swapping one material for another without changing the product specifications, we can do that internally within our group," Price says. "If we're going to change the way we put in a product or alter a design, we'll involve our engineers, which is more complicated. And if we're going to dramatically change our supply base—for example we recently began bringing in more veneer from Malaysia—that is going to affect the final products we make, so we have to consult with sales and marketing."
But keeping track of ideas was also key to Price's strategy. Price says, "too often suppliers provide suggestions or ideas and don't hear anything further," adding "nothing will keep a supplier from submitting another idea more." So the value-analysis and idea management program was modeled after a sales funnel where ideas are tracked from initiation all the way through implementation.
"Having a formal review process for monitoring and qualifying ideas and assigning tracking numbers helps us follow those ideas because they are like money to us," Price points out. Also, leveraging the sales funnel analogy allowed him to sell the idea to upper management in a way that conveyed value instead of simply cost cuts.
And it's working. In addition to the $1.2 million in savings Kimball created from its first supplier conference, the company has generated more than $1 million on top of that and this quarter plans on projects worth about $2 million in savings.
Global sourcing
Global sourcing was another major strategy that has transformed Kimball's procurement from a tactical to a strategic organization. Again, Price wanted to develop a systematic mathematical decision-making process to expand Kimball's global sourcing.
First, Price's team evaluates various regions of interest for supply potential based on nine criteria including political status, infrastructure, manufacturing capability, prior relationship, and currency issues. Next, broad commodity categories (example "wood products") are evaluated on their ability to be sourced overseas by comparing their complexity vs. their value.
Then the two are put against each other—regions that scored high and commodity categories that are able to be sourced offshore are matched. For example:
-
Commodity group to be sourced in a new region: Wood case goods
-
Regions that score well for this commodity group: Vietnam, Malaysia, Mexico, and China
-
Specific commodities to be sourced: Plywood and veneer
-
Best country for those commodities: Malaysia for veneer
When it gets to the point of finding specific suppliers in Asia, Kimball leverages its international procurement office (IPO) in China. The seven sourcing specialists there bring intelligence on specific Asian supply markets and match up Kimball's goals with the right suppliers in the region. Suppliers are pre-qualified by the IPO and then Price typically meets with the suppliers in person to make the final decision. Kimball's engineering organization is sometimes consulted if the materials could require design changes.
The result has been an increase in the amount of overseas buying from 7% to 15% in two years. And two more global sourcing projects are expected to bring the level up to 25% very soon. "This year alone we could bring in half of our wood materials from overseas, which is a dynamic change for us," Price says.
Internal training
Price also recognized that the key to a centralized strategic sourcing function is training, so he sought out training for his procurement staffers in three main areas: functional skills, technical skills and leadership.
Functional skills training involved things like improved knowledge of Microsoft Excel and PowerPoint. Leadership skills focused on developing detailed action plans for projects.
But it was the technical skills area—including contract management and negotiation skills—that got the most attention. Price worked with training specialists Next Level Purchasing in Moon Township, Pa., first to assess buyers' current competency and then build a customized curriculum for each procurement staffer that improves areas where the staffer has the least experience.
Customized buyer curriculums were made up of both online courses and instructor-led coursework at the university level in areas such as change management and global sourcing.
"I tried to map out a holistic approach for each person focusing on technical, functional and leadership skills," Price says.
The same philosophy of encouraging "creative cost reduction ideas" among suppliers also holds true for Kimball's procurement staff today—commodity managers are encouraged to provide ideas for cost-saving projects at every turn.
For example, after researching the value of sustainability and green procurement, Price asked his commodity manager in charge of packaging how the company could become more environmentally friendly in its packaging spend, but also reduce costs.
"He looked at me like I was crazy," Price says. "But two weeks later he came to me with a solution where we switched our packaging material to reduce cost and reduce the amount of landfill deposit every year. So it was really just a matter of asking him to think about it and making sure he knew his ideas were welcome."
Price points out that he made the majority of his changes without an increase to budget or headcount—which made it much easier for senior leadership to support his ideas. Putting in more formalized processes to guide best practices in supplier management and global sourcing aren't costly—time consuming and heavy on intellectual property, yes—but not in a financially expensive way.
Also see: Kimball Electronics: Consolidation is key
For more case studies, see Purchasing.com’s How they buy archive.
The 9 hidden costs of global sourcing
03/11/2009Eaton names Reed as supply chain VP
09/29/2008CSCMP hosts global sourcing conference
09/06/2006How to build the procurement Dream Team
02/14/2008Supply Chain Management Rx
09/18/2002
Now Playing: 