MRO buyers reach for success
Working with suppliers, MRO buyers cut costs, streamline processes, improve customer satisfaction and win a spot on Purchasing
by Susan Avery -- Purchasing, 9/5/2002 2:00:00 AM
It's unanimous. MRO buyers nominated for spots on PURCHASING Magazine's All Star team agree that many of their achievements would not be possible without the help of a few good MRO suppliers.
Earlier this year, PURCHASING asked readers to nominate purchasing professionals who demonstrate excellence in the buying of MRO goods and services. Editors picked leaders of MRO buying operations based on success at managing relationships with suppliers as well as use of innovative programs to rein in spending on maintenance, repair and operations (MRO) goods and services.
MRO buyers chosen for the team work in a host of industries: processing, manufacturing (consumer electronics, aerospace, automotive) and IT services. Each has his or her own definition of MRO (the size of the buy varies among companies) and works closely with internal customers in a number of different functions. Purchasing strategy, however, does not stray too far from universal goals of optimizing the MRO supplier base, reducing purchasing costs and improving customer satisfaction.
Achievements measured against these goals are what earns each MRO buyer a place on PURCHASING's All Star team. Working closely with Bruckner Supply, Susan Spence and her team at United Technologies launched a formal cost-reduction program which allows for the integrator's onsite rep to present cost-savings ideas which are rolled up through the corporation.
At Sony Electronics, MRO suppliers are participating in quarterly review sessions that provide suggestions for improvement and to communicate cost-savings opportunities.
And at Dana Corp., David Thatcher and his team have consolidated the company's cutting tool purchase to one supplier that works to coordinate activities at all plants.
Susan Spence, commodity manager-MRO
United Technologies Corp., Farmington, Conn.
Work experience: 15 years at Pratt & Whitney, a UTC division: eight years in supply management, two years in Leadership Development Rotational Program, five years in continuous improvement management. One year as UTC commodity manager.
Current responsibilities: Manage corporate integrated supply contract, lead cross divisional savings initiative called UT500 to drive achievement of $35 million of savings in MRO commodity over the next two years primarily through process, policy and sourcing strategies.
Reporting to: Bob Jackson, director, UTC factory commodities.
Size of plant or company: UTC has $28 billion in revenues, and has more than 75 manufacturing sites in North America alone. Divisions include Pratt & Whitney, Hamilton Sundstrand, Carrier, Otis Elevator, UTC Fuel Cells, Sikorsky Aircraft, UT Research and multiple joint ventures.
Products manufactured: UTC provides high technology products and support services to the building systems and aerospace industries, including jet engines, electronic controls, elevators, air conditioners, fuel cells and helicopters.
Purchasing's internal customers for MRO items: Facilities and machine maintenance technicians, operational/product line managers.
Unique challenges to purchasing MRO items for this plant/company: Driving and implementing a common strategy to more than 75 sites that use many different systems to procure and manage MRO items.
Purchasing's definition of MRO items: Perishable tooling, hand and power tools, facilities and maintenance supplies (including pipe, valves and fittings), electrical supplies, HVAC equipment, safety products, packaging supplies.
Size of plant/company's annual MRO buy: $250 million.
Strategy for purchasing MRO items: The mission of the MRO integrated supply program is to provide for outsourcing the management of this low-dollar, high-volume commodity, which traditionally involves thousands of suppliers. The strategy to implement the mission includes the customer moving from multiple suppliers to a single supplier, to using the integrator's inventory management system, allowing the supplier to manage both the crib and own the inventory, eventually moving to a model in which the supplier owns the budget for MRO and is responsible for reducing it to provide savings.
Recent achievements in MRO purchasing: The MRO team is on track towards meeting its cost savings goal of $35 million (June 2001 through December 2003). Specifically, the team:
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Launched a formal cost reduction program with its integrator which allows for the integrator's onsite rep to present a cost-saving idea (price, delivery, process saving, inventory reduction, energy savings) on a standard, electronic document which is dispositioned (approved and implemented or rejected), tracked in a database by site, division and rolled up to the corporation in whole. These are ideas shared across the corporation to enable standardization and adoption of best practices. In 2001, more than $5 million of cost-savings ideas were approved through this system (on a spend of $109 million).
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Aided in development of integrator's Web-based crib management system (e-Crib) which functions both as a front-end ordering system, inventory management system and has features for both individual consumption tracking, financial controls ('checkbook' features), and allows for shop-out to online catalogs. The first two implementations netted an average of 17% savings.
Role of suppliers in helping with these achievements: Integrator Bruckner's organizational structure supports UTC by having a program manager in place for each division, as well as 70+ personnel (site managers, crib managers, material handlers, buyers) in the field at UTC's various sites. They also have a UTC program director who is co-located with the UTC GP (general purchasing) commodity team. Bruckner's IT support has been the backbone of the success of the integrated supply program, offering systems such as kanban, e-Crib and bar coding. The supplier also mans customer service programs.
Dick Stone, MRO/OEM strategic supply manager
The Miller Brewing Co., Milwaukee, Wisc.
Work experience: Three years OEM customer service representative, 17 years brewery purchasing (buyer through purchasing manager), past eight years corporate purchasing management.
Current responsibilities: Manages all aspects related to procurement of indirect materials and services. He also manages Miller's e-procurement effort.
Reporting to: Bob Hope, manager, capital equipment, OEM/MRO, packaging material procurement and Jerry Schiedt, vice president, purchasing.
Size of plant or company: Miller is the second largest domestic brewer with 2001 volume of 42.4 million barrels, revenue of $4.8 billion and underlying operating company income of $500 million.
Products manufactured: Beer, a non-alcoholic alternative and the recent addition of several flavored malt beverages.
Purchasing's internal customers for MRO items: Eight breweries, 14 field sales/marketing offices and the company's corporate campus.
Unique challenges to purchasing MRO items for this plant/company: Diversity of requirements among internal customers, challenges of reducing cost and growing MBE (minority business enterprise) participation.
Purchasing's definition of MRO items: All items (including 235,000 SKUs in the stockrooms) and services used in preventative maintenance, repair and support of ongoing operation of the company's breweries and corporate campus. Materials and services for all infrastructure support along with building and grounds maintenance.
Size of plant/company's annual MRO buy: $250 million.
Strategy for purchasing MRO items: Work collaboratively with key supplier partners to enhance the company's relationship with the goal of evolving them to true strategic alliances. Supplement this strategy with additional national/ regional agreements negotiated through eRFPs and reverse auctions as commodity strategy dictates. Use e-marketplaces to gain leverage where the company does not have sufficient independent purchase volume. Work with new parent company (sale pending to South African Breweries) to determine synergistic opportunities.
Goals of MRO purchasing strategy: Deliver optimal customer service while continually reducing costs and improving execution through the adoption of new technology and change management.
Recent achievements in MRO purchasing:
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Designed and implemented Miller's eProcurement process for indirect (including promotional items) materials and services. This includes the introduction of online catalog shopping (both internal catalog and round-trip to selected supplier catalogs) and automated routing and approval of purchase requests. PO creation and transmission were also further automated to focus buyer involvement on strategic, not tactical requirements. More than 1200 end users were trained, and roll-out to all breweries was accomplished in less than seven months. As expected, change management was a significant effort.
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Initiated reverse auction bidding, saving more than 18% on three events.
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Implemented onsite supplier support programs for critical suppliers/ commodities resulting in substantial improvement of internal customer satisfaction.
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Increased cost savings 82% over prior year.
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Both first- and second-tier MBE participation grew substantially.
Role of suppliers in helping with these achievements: 'Miller's strategic suppliers contribute greatly to our success by servicing (not selling to) our organization,' says Stone. 'They provide onsite support, propose product and process innovation, infuse additional MBE second-tier participation and pushback, at our request, when appropriate to make us change for the better.'
Mark W. Collver, commodity manager
Celanese Acetate, Charlotte, N.C.
Work experience: 14 years with Celanese (seven in production, six in sales, one in purchasing).
Current responsibilities: Strategic purchasing for MRO (bearings, mechanical seals, packaging, metals, laboratory supply, rotating equipment, environmental services).
Reporting to: Jim York, purchasing manager.
Size of plant or company: $681 million sales in 2001.
Products manufactured: Cellulose acetate synthetic fibers.
Purchasing's internal customers for MRO: Five production sites, one corporate center.
Unique challenges for purchasing MRO for this company: Standardizing MRO across international boundaries where procurement system tools are not common is 'a significant challenge.'
Purchasing's definition of MRO items: Indirect materials (not including energy) and services (not including transportation).
Size of plant/company's annual MRO buy: $102 million.
Strategy for purchasing MRO items: 'We are moving in a direction such that only jobs that add value to the company will be performed,' says Collver. 'Various alternate methods and resources will be used to eliminate non-value added work from our plate. This applies to all purchasing functions. Company divisional boundaries will be eliminated as a common procurement system is put into place at all sites.'
Goals of MRO purchasing strategy: Achieve financial objectives by more automation of transactions and possible outsourcing of non-value added purchasing functions.
Recent achievements in MRO purchasing:
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Robust transactional systems and good relations are helping Celanese achieve very favorable payment terms with partner suppliers.
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Significant savings are a result of moving coal ash disposal from a company landfill to a cement company. With the same cement company, the purchasing operation has found a low-cost supply of bulk lime.
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Aggregating the purchase of pumps across multiple plants resulted in 15% additional discount and better payment terms.
Role of suppliers in helping with these achievements: 'Suppliers often have the best ideas for generating savings,' says Collver. 'Most of these ideas apply to the use of materials or services. As we automate and outsource more, we will have to find a way to keep these ideas flowing. For transactions, suppliers will need to have systems that support Celanese e-commerce efforts.'
Ruth Reynolds, manager of strategic procurement for Engineering Manufacturing and Customer Service of America (emcs-a), a division of Sony, Sony Technology Center-Pittsburgh (STC-P) & Sony Technology Center-San Diego (STC-SD)
Sony Electronics Inc., Pittsburgh and San Diego
Work experience: Eleven years as manager of strategic programs-systems, USAirways; two years as purchasing resource leader, American Video Glass and two years as resource leader/manager of strategic procurement.
Current responsibilities: Develop MRO strategic plan for STC-P for six business units with a spend of more than $100 million. Establish strategic contracts for purchase of indirect goods and services and coordinate Sony Master of Arts Web-based e-procurement system for EMCS-A .
Reporting to: Chuck Gregory, president, STC-P and Walter Sindenwald, director of general affairs, EMCS-A .
Size of plant or company: EMCS-A has 10,600 employees. This includes STC-P, STC-SD, STE (Tijuana), SML (Mexicali), San Antonio, Dotham (Ala.) and SNL (Nuevo Laredo).
Products manufactured: Televisions, Vaio laptops and semiconductors, recording media, components for television, coated thermal transfer ribbon and industrial adhesives.
Purchasing's internal customers for MRO: Engineers, IT, accounting, facilities.
Unique challenges to purchasing for this plant/company: Centralizing in a decentralized environment; standardizing procedures among multiple business units; implementing an e-procurement process; combining and leveraging purchasing for multiple plants/Sony entities; ensuring no impact to production/operations as a result of lack of timely delivery of materials or services and extremely high internal customer service expectations.
Purchasing's definition of MRO items: Any items/services not used directly in the products manufactured.
Size of plant/company annual MRO buy: $300 million (STC-P and STC-SD).
Goals of MRO purchasing strategy:
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To provide an easy, user-friendly e-procurement system to ensure ease of ordering goods and services.
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To decrease time in procurement process from order to delivery.
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To satisfy the VOC (voice of the customer) and communicate effectively.
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To pull usage, benchmark and negotiate collectively with EMCS-A and SME (Sony Music Entertainment) targeting common items.
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To increase by 50% the number of orders against contracts reducing the need for buyer intervention.
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To establish contracts for MRO items in central storeroom.
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To interface the central storeroom inventory management system with the e-procurement system.
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Streamline stock replenishment of MRO items through auto PO process for the central storeroom.
Recent achievements in MRO purchasing: Reynolds's achievements are many. In the area of cost reduction, they include:
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Provided 10:1 return on investment on department operating expense for the first 18 months of operation.
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Achieved hard-dollar savings of 11-50%, depending on commodity.
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Reduced MRO-related freight cost 3-5%.
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Conducted price benchmarking with other Sony facilities to set targets for MRO cost reduction.
David Thatcher, division MRO purchasing manager
Torque Management Group of the Dana Corp., Toledo, Ohio
Work experience: With Dana for 31 years, Thatcher has held positions in engineering, engineering sales, operations and, purchasing.
Current responsibilities: Responsible for facilitating division MRO buys and implementing corporate e-commerce initiative through Ariba.
Reporting to: Nick Falcone, Torque Management Group Division purchasing manager.
Size of plant or company: 2500 employees at 12 facilities, nine of which are manufacturing or assembly plants.
Products manufactured: Systems to transmit and manage torque (power) for the transportation industry.
Purchasing's internal customers for MRO items: Plant operations-manufacturing, assembly and related maintenance functions.
Unique challenges to purchasing MRO items for this company/plant: To facilitate and foster a team approach to supplier selection and related buys in a company culture that for years embraced a decentralized approach.
Purchasing's definition of MRO items: All items required to run a plant, except energy, communications and health and banking services.
Size of plant/company annual MRO buy: $45 million.
Strategy for purchasing MRO items:
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Reduce the overall number of suppliers.
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Have common suppliers for key commodity families whenever possible.
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Use the Ariba e-commerce system to place all orders.
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Reduce overall costs of MRO items as a percentage of sales.
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Follow a standard procedure for placing orders that facilitates spend analysis.
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Document and record all hard savings.
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Respect the input of the operational units.
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Choose suppliers willing to get involved in continuous improvement activities.
Recent achievements in MRO purchasing: 'We have recently partnered with a special cutting tool manufacturer for drilling,' says Thatcher. 'As a result of following our selection process, we now use a single supplier. This supplier will receive all orders electronically, will manage inventory where requested, will reduce the cost of our product, and through the use of technology and process refinement, will reduce tool cost per hole produced by a significant percentage. The supplier will work to coordinate activities at all plants and will ensure that as improvements are implemented at one plant they will be quickly implemented at all plants.' Overall savings are expected to exceed $500,000 over the life of the contract.
Role of suppliers in helping with these achievements: 'In our approach the supplier is a partner with our plant engineering and maintenance staffs as well as purchasing. Achievements are not possible without supplier involvement.'
Charlotte Pennella, purchasing manager
Siemens Business Services, Inc., Rye Brook, N.Y.
Work experience: 14 years in purchasing (MRO, inventory, services, leasing).
Current responsibilities: Managing the MRO buy.
Reporting to: Peter Roed, chief financial officer.
Products: IT services for Fortune 500 companies.
Purchasing's internal customers for MRO: All 4500 employees.
Unique challenges for purchasing MRO items for this company: Purchasing's internal customers are mostly 'road warriors.' There is lots of 'maverick buying.'
Strategy for purchasing MRO items: 'We are working to create a buying environment that is controlled, yet not constrained,' says Pennella. 'We would like to give the user the opportunity to purchase the needed items via the Web. For those items that fall under a preferred supplier, they must use the designated Web site. We plan on achieving this through use of procurement cards.'
Recent achievements in MRO purchasing: 'We have implemented a procurement card program,' says Pennella. 'We have worked with two suppliers to create customized Web sites (at no extra cost) through which the user can order stationary/labels or promotional items/forms by either using their cost center or their procurement cards. We have also implemented the purchasing module of a new financial software system.'
Role of suppliers in helping with these achievements: 'We worked closely with each supplier on content and functionality of the Web sites. Suppliers did all the technical work while we supplied all the data for the site, including pictures.'
Patricia Jackson, purchasing representative
Lockheed Martin Aeronautics Company, Fort Worth, Texas
Work experience: MRO buyer for more than 20 years.
Current responsibilities: Indirect materials and services materials management.
Reporting to: Roy Woolsey, procurement manager.
Size of plant or company: Current number of employees is 25,127.
Products manufactured by plant or company: Military aircraft.
Purchasing's internal customers for MRO items: Facilities and production line.
Unique challenges to purchasing MRO items for this plant/company: Size, scope of needs, security, JIT environment, specialty product needs, government contract requirements.
Purchasing's definition of MRO items: Indirect materials for facilities and production operating supplies.
Size of plant/company's annual MRO buy: $8.5 million.
Strategy for purchasing MRO items: Select best suppliers offering top quality and low cost and integrate them into the company's enterprisewide processes.
Recent achievements in MRO purchasing: The Aeronautics Business Unit of Lockheed Martin has active programs in place to maximize progress already made: aggregation at the business unit and corporate-level, standardization efforts in safety and abrasives, barrier-removal efforts for work through identified contract issues, aligning suppliers into the Lock-heed Martin Quality Program, efforts to include suppliers/manufacturer support for technical support and various forms of technology especially barcoding and e-procurement.
Role of suppliers in helping with these achievements: Lockheed Martin procurement/material management and suppliers work jointly to achieve goals and continuous improvement.
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