Diebold's new cash machine
By doubling the size of the procurement staff and focusing on supply chain improvements, the company is cashing in with smart purchasing.
By Maria Varmazis -- Purchasing, 3/15/2007 2:00:00 AM
Purchasing has taken on a new luster at North Canton, Ohio-based Diebold Inc., thanks to the strong support of CEO Thomas Swidarski.
Appointed in December 2005, Swidarski surveyed all operations at the cash-dispensing machine manufacturer and decided to make procurement efficiencies a top priority. Among his steps:
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Appointing George Mayes Jr. the new vice president of supply chain
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Doubling the purchasing staff
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Boosting the department's budget for software and training.
Says Mike Rager, vice president of indirect procurement, "Tom understood that procurement was one of the primary levers in driving additional value for the corporation." With that kind of leverage and direction at the top, he says, it's been easier for the department to make changes to improve the purchasing function.
In the past 12 months alone, Rager and Linda Parcher, vice president of direct procurement, have been able to roll out more strategic practices than before, as well as implement sourcing and commodity management applications.
Rager and Parcher share responsibility for purchasing, including its growth, procedures and how it responds to business. The company also divides its more than $1 billion total spend between direct and indirect.
On the direct spend side, Parcher says she restructured teams to dedicate more staff and focus to category management, sourcing, and supply chain improvements—including quality improvements, leadtime reductions, and vendor-managed inventory implementation. This focus proved especially important when sourcing on a global scale, says Parcher (right).
"We introduced a new line (of automated teller machines) called Opteva in 2002, which provided an opportunity to make sure our supply chain is in alignment with our manufacturing footprint," she says. "We're conducting many global vs. local sourcing analyses with the finance team utilizing a total cost of ownership model." Opteva is produced in four different regions, and Diebold evaluates and compares them on such criteria as pricing, delivery and technology.
Direct commodity management teams all over the world—including in China, India, and Hungary—manage the categories in Diebold's supply chain and "look at some of the categories from a global perspective, as well as identify what the needs of those global regions are that we need to consider," says Parcher. In many cases, this global view may provide cost savings by means of lower-cost country sources.
Working with suppliers
Both Parcher and Rager's teams maintain close ties with their suppliers, meeting with them regularly to make sure Diebold and the suppliers are aligned in terms of objectives and technical vision. Depending on the size of spend with certain direct suppliers, commodity managers hold business reviews at both Diebold and supplier facilities annually, semi-annually or quarterly. "At these meetings we talk about where each company is going in the next three to five years, the strategy at the very highest level of the organization, supplier performance, and suppliers present new technologies that we can consider adopting," she says.
It's the best venue they've found to share information, and a lot of good ideas come out of those meetings, she says. "When suppliers understand our cost-reduction objectives or supply-chain initiatives, they bring a lot of good suggestions to us and we create action plans from that meeting and implement improvements."
When it comes to indirect spend at Diebold, Rager says he's continuously pushing cost reductions by working on long-term commodity strategies with several strategic partners. "We partnered with a consortium for some of our indirect spend in the Ohio region to help support cost reductions there in some of our MRO space," he says. Diebold also entered in long-term partnerships with Dell for IT peripheral support as well as Ariba for sourcing and e-auction tools. Of the company's more than 12,000 suppliers, Rager says 14 of those are strategic indirect partners, so he works with them very closely.
"We have monthly on-site reviews with the strategic suppliers and we call it supplier-nominated benefit," says Rager (right). "It's a partnering of Diebold, stakeholders, procurement and supply chain people, along with the key people in the strategic-partner companies, and we develop and implement strategies that can drive value in our companies."
New talent, stronger teams
Parcher also points to cross-functional global teams as a key part of her direct procurement strategy. Supplier collaboration is a must to work with Diebold—it's clearly defined in the company's RFQs, says Parcher. But these cross-functional teams aren't just between procurement and suppliers. Design and quality engineers are also part of the picture. With a cross-functional team mixing design engineers with suppliers and procurement, Parcher says that: "We were able to improve our design, move production to a lower-cost country and basically it's been a product improvement as well as a cost reduction for us." What the company is looking for from suppliers is partnerships that will help take the design to another level based on the suppliers' experience and knowledge.
With the large increase of procurement staff at Diebold within the past year, Parcher says that the company focused on bringing in new talent that would improve cross-functional team efficacy. New-hires have strong specializations not only in supply chain management, but in the design engineering, aerospace, chemical, and automotive fields.
"It has brought tremendous knowledge from a process standpoint in understanding the design and manufacturing processes," she says. The new-hires have a different perspective on how much a product should cost and on the whole new-product introduction process. Additionally, Parcher and Rager both say there's a growing emphasis on expanding international procurement teams, which gives the company a huge competitive edge in regional negotiations and collaborations.
Looking ahead, Rager believes there's work to be on what he calls spend behavior: "Where people think they have to have inventory for risk mitigation, or on the indirect side, where people believe they need two boxes of staplers just in case. So as we move forward, the mindset of how we interpret our functions and how the enterprise brings things to market will change as well."
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