Suppliers have interest in improving the business
By Susan Avery -- Purchasing, 3/1/2007 7:00:00 AM
At Hallmark Cards, the purchasing team takes a strategic approach to the MRO buy.
In so doing, team members frequently communicate with MRO suppliers to learn of their capabilities, says Darren D. Wright, a former MRO category manager with the company.
When meeting with suppliers, whether in person or on the phone, "procurement now shares its objectives," he says. "It used to be a shell game, where purchasing would go back and forth, mainly on price. Now, the team lets suppliers know what it needs, especially regarding cost savings targets." With information from suppliers such as capability to manage inventory, they can determine which suppliers may best meet their goals. Management determines goals based on results of spend analysis activities.
Hallmark restructured its procurement operation about six years ago, centralizing purchasing globally at its headquarters in Kansas City, Mo. Its strategy for MRO is to capture the volume, secure a better price and reduce the supply base. This makes everything that much more efficient.
In consolidating the supply base, Hallmark is not unlike most other companies. Procurement looks to suppliers to provide more—additional products and services. But they don't simply give more business to fewer suppliers. New business has to be earned.
Take safety as an example. Hallmark had been purchasing safety supplies through two suppliers that had been performing well for the company.
Generally, when a contract comes up and there are no issues, most purchasing professionals would amend the agreement and extend it for another three or four years. But, for safety this time, the purchasing team asked another incumbent supplier if it was interested in the additional business and conducted a bidding event. For a market basket that consisted of such items as safety shoes and goggles, the supplier came in as the low-cost provider. Procurement knew of its capabilities and that implementation would not be a problem.
Procurement also looked to an incumbent supplier for help with inventory management. If an item doesn't need to be on the shelf in the parts rooms and procurement can get same-day or next-day delivery, they want to put the item on the supplier's shelf. While this may sound easy, the complexity behind it is huge because there are thousands of items in the parts rooms.
Hallmark is working with the supplier to reduce inventory in its parts rooms, evaluating items that make sense for it to carry on its shelf. These consist of spare parts, fasteners, hand tools, belts, etc.
The company plans to implement the new inventory management system this year. Hallmark has four plants in Kansas and its largest distribution center is in neighboring Missouri. That's five parts rooms in the Midwest alone. There's also another distribution center in Connecticut.
A conservative estimate puts savings resulting from the program at around $1 million. But that's just inventory. There are also carrying costs, and what Hallmark calls "occupancy" costs. If the company shrinks down the size of the room physically in space it can take the dollars out of the budget, and use the room for another, more productive purpose. Distributor fees for inventory management programs typically are negotiable.
Hallmark considers the supplier a true partner, defining the term as "a supplier with a vested interest in improving its client's business."
Now Playing: 
