3rd Annual MRO All Stars
Purchasing's winning team These MRO buyers add value through innovation and by partnering with sources that do more than deliver a product
By Susan Avery -- Purchasing, 8/17/2004 2:00:00 AM
Selecting MRO buyers for PURCHASING's All-Star team (profiled on pages 36-47) gets tougher every year.
In response to the magazine's annual editorial call, PURCHASING received from readers numerous nominations of MRO buyers worthy of a spot on this year's team. From the nominations solicited in the magazine as well as on www.purchasing.com/mro, the editors selected nine purchasing professionals with responsibility for the maintenance, repair and operations (MRO) buy for the 2004 team. As leaders in strategic MRO buying, these new All Stars meet PURCHASING's criteria for selection to the team; each purchaser demonstrates excellence at use of innovative programs to rein in MRO spending and/or managing relationships with suppliers.
The MRO buyers on the team work for companies in a variety of industries: automotive, electronics, building and construction and transportation, to name a few. Each purchasing operation has its own definition of MRO; some hold true to a traditional nuts and bolts description of the buy while others add such indirect materials as office supplies and computers. Whether the purchase is called MRO or indirect, the size of the buy varies by company: Some MRO purchasers have annual budgets of as high as $200 million, others spend far less.
In many cases, challenges faced by the purchasing pros on this year's team are not unique. Like the majority of MRO buyers, the All Stars work for companies where maintenance purchasing often is fragmented; plants are located throughout North America and are accustomed to placing orders with local suppliers. As the team members develop sourcing strategy, they are tasked with consolidating the buy, satisfying requirements at the plants, managing costs and encouraging compliance to national agreements. They look to suppliers for assistance in meeting these challenges—often with good results.
The buyers' achievements are many: At Sonoco Products, initiatives implemented by David Kipp have helped raise awareness of the importance of the MRO buy among business leaders at the big packaging solutions company. As quality requirements for products used in manned space flight are extremely critical, Laura Bankey at the United Space Alliance holds suppliers to a high level of accountability. Working as a senior buyer-chemicals desk, United Airlines, Bud Darland helped design and implement a HAZMAT Chemicals Direct Ship program that saved more than $382,000. And, at Motorola, Tina Swartz developed a strategy for the company's industrial supplies purchase that helped cut costs. Until she approached the buy, it had been considered leveraged.
These buyers and the other members of PURCHASING's All-Star MRO Buy Team for 2004 stand in good company. Teams in 2003 and 2002 boast of MRO buyers hailing from world-class purchasing operations at such companies as Xerox, Waste Management, Kraft Foods, the United States Postal Service, United Technologies, The Miller Brewing Co., Sony Electronics, Dana Corp. and Lockheed Martin among others. Looking ahead, next year's team will be announced in PURCHASING's August 11, 2005 issue. Readers will find details on the nomination process in the March 3, 2005 issue and on www.purchasing.com/mro next spring.
David D. Kipp
Senior sourcing specialist
Sonoco Products Co., Hartsville, S.C.
Annual MRO buy: $40 million
Purchasing responsibility: Bearings & power transmission, general mill supplies, electrical, industrial automation & controls, PVF, fasteners, etc.
As senior sourcing specialist, David D. Kipp is responsible for developing and executing MRO supply strategy for Sonoco Products Co. North American operations. With annual revenues of $2.8 billion, the global packaging solutions company has 295 manufacturing and sales locations in 32 countries. Kipp's goal is "to make sure the proverbial 'thundering herd' moves in the same direction and all plants have opportunity to leverage corporate agreements where appropriate."
As such, Kipp put together an MRO sourcing team made up of one representative of maintenance or engineering at each of Sonoco's nine major divisions; he chairs the team's weekly meetings. "Collaboration is the cornerstone of the strategic sourcing process and absolutely essential to developing comprehensive strategies," he says.
To date, the MRO sourcing team has executed supply strategies for seven categories of MRO spend. It has divided the spend into 24 categories that include bearings and power transmission; general mill supplies; electrical; OEM parts; pipes, valves and fittings and fasteners. Commitment to the seven strategies is 95%.
Use of Sonoco's strategic sourcing process for MRO has elevated the exposure of maintenance, repair and operations goods and services to business leaders who traditionally were more concerned with costs of key raw materials, says Kipp. The strategic sourcing process allows supply management to gain support of the divisions prior to executing a strategy. This support is critical to successful implementation.
Sonoco requires year-over-year cost reductions from key MRO suppliers. The supply management organization ties the cost reductions to contract incentives. Specifically, if MRO suppliers meet cost reduction goals, they can add time to their contracts and avoid a competitive bidding situation. These productivity goals are in addition to any price reductions achieved during negotiations. "Typically we ask key MRO suppliers to achieve productivity of 3% of sales year over year," says Kipp. "We believe this arrangement offers incentive to the supplier while allowing us to continue to remove cost and avoid going to market every couple of years."
In the past two years, the MRO sourcing team has achieved average productivity of 9.5% on categories it has tackled. In other words, the initiatives have resulted in more than $1.5 million in annual cost savings.
Sonoco works with MRO manufacturers to identify new platforms for productivity. Recently, the supply management organization partnered with its preferred supplier for mill supplies and one of its key manufacturers to put in place a program to reduce energy consumption in plants through use of a higher priced but more efficient technology.
Gail L. Garrens
Sourcing manager-MRO
Valmont Industries Inc., Valley, Nebr.
Annual MRO buy: Approximately $20 million
Purchasing responsibility: MRO, indirect, "anything and everything not part of the finished product"
"Although purchasing is a corporate function, we work with all sites and divisions, which are decentralized," says Gail L. Garrens, sourcing manager-MRO, Valmont Industries Inc., a leading global pole and tower manufacturer with 42 locations on five continents. "Our challenge is to remind everyone that we are one organization and to service all team members. Our goal is not to control but to bring uniformity to purchasing processes and practices."
In her role, Garrens works to help the company's divisions achieve yearly objectives by providing the best MRO value; incorporating the total cost of procurement, while still maintaining individual goals and objectives. She reports to Wally Pasko, vice president of purchasing and logistics.
Garrens and her team have launched an integrated supply program at five domestic locations and continue to do so at a pace of at least two sites per year. The multisite program allows the team to incorporate the balance of the company's smaller locations in procurement programs customized for their locations.
She is also champion of three Critical Success Factor (CSF) teams that develop and manage suppliers, e-commerce projects and other supply initiatives.
As a result of her team's efforts, the purchasing organization has helped reduce costs by 10% to 12% at the sites, while promoting such value-added services as decreasing POs and personnel, adding consolidated billing features and electronic funds transfer (EFT) capabilities, reducing the accounting department's processing time. "Our programs help manage inventory, reduce spot buys, and increase productivity while streamlining processes and implementing best practices," she says.
Through the programs Valmont's integrated supplier helps track and monitor spending, produce reports on consigned versus nonconsigned inventory, eliminate obsolescence, improve inventory turns, and provide training, tool repair, safety programs, in-house support and quality products. It also continues to pursue productivity improvements, product standardizations and substitutions to provide ongoing cost savings.
Laura Bankey
Procurement specialist
United Space Alliance, LLC, Houston, Texas
Annual MRO buy: Proprietary
Purchasing responsibility: Chemicals to computers to food for astronauts
Headquartered in Houston, Texas, United Space Alliance (USA) is one of the world's leading space operations companies. Established in 1996 as a Limited Liability Company (LLC), USA is equally owned by The Boeing Company and Lockheed Martin Corp. As NASA's prime contractor for the Space Shuttle, USA is responsible for several functions spanning a broad range of engineering and management disciplines including: mission design and planning, software development and integration, astronaut and flight controller training, payload integration, flight operations, logistics, vehicle processing, launch and recovery and flight crew and equipment.
For USA, MRO includes everything from chemicals to computers to food for astronauts.
Unique challenges to purchasing include critical quality requirements for use in Manned Space Flight such as obtaining Manufacturer's Certificates of Conformance and lot traceability for common off-the-shelf items; minimum buy requirements for hard-to-find items, obsolescence and limited time for new product sourcing (part substitution is unacceptable).
Purchasing's strategy is to mentor key suppliers, providing them with training and guidance to develop strategic alliances. USA has implemented several strategic sourcing agreements with many of these suppliers, streamlining the procurement process.
"In training and mentoring our key suppliers, we have developed these partnerships into value-added suppliers, maintaining 'perfect order fulfillment,'" says Bankey. "Documentation and traceability are critical in our program. These suppliers are held to a high level of accountability and are measured by their ability to provide first-time quality as well as ontime delivery."
In analyzing hazardous materials and their handling, benefits include significant reduction in cost of acquisition, maintenance and disposal. Other benefits include reduced hazardous waste and lessening environmental impact, improvement of the hazardous material handling system and better support of Shuttle workflow.
Bud Darland
Senior buyer-chemicals desk
United Airlines, Indianapolis, Ind.
Annual MRO buy: Proprietary
Purchasing responsibility: Aircraft and nonaircraft chemicals (nonbulk)
Bud Darland manages chemicals procurement for United Airlines and Ted Airlines. His responsibilities entail buying, sourcing, provisioning, negotiating, training, supervising supplier reps, trouble shooting, managing a customer service hotline and project management. He defines chemical MRO as aircraft and nonaircraft chemical materials (nonbulk) required for the repair and operations of equipment, facilities and fleet of more than 500 aircraft.
Due to government and company regulations on shipping and storing hazardous materials, each purchase is unique. Darland's biggest challenge is to minimize quantities purchased/ stored to reduce waste on shelf life regulated items, while at the same time maximizing needs to ensure enough material is present for repairs to quickly return aircraft to service.
His buying strategy for chemical MRO is two-fold, based upon the nature of the materials. The most important aspect of the strategy is safety. Purchasing and materials management is focused on safety at each step of the procurement process. Secondary is to supply maintenance with materials in a timely manner to reduce out-of-service time per aircraft.
As a directive of the United Airlines Dangerous Goods Strike Team to reduce the airline's vulnerability to excessive handling of hazardous materials, the Chemicals Desk designed and implemented a HAZMAT Chemicals Direct Ship program that helped save more than $382,000 in 2003. Under this program, hundreds of HAZMAT shipments were rerouted to the end user (domestic airport line maintenance stations) by supplier direct ship rather than using central distribution.
In addition, the Chemicals Desk has developed "HAZMAT Training for Purchasing Personnel," which is taught at locations in San Francisco, Indianapolis and Chicago. For buyers assigned to more remote locations, the Chemicals Desk has created a CD-ROM and an online version of the training. The Chemicals Desk also publishes a "Chemicals Desk Newsletter."
The majority of chemical MRO is under vendor management contracts. In addition to required duties of keeping central distribution in stock while maintaining minimal days' supply on-hand, "our major suppliers are tasked with assisting in all safety aspects of proper document certification, timely rotation of stock, adherence to shelf life guidelines and internal labeling requirements," says Darland.
Bradley J. Snyder
Corporate purchasing manager
BorgWarner Inc., Chicago, Ill.
Annual MRO buy: $40 million
Purchasing responsibility: Bearings, cutting tools, electrical, machine parts, material handling, mechanical & lubrication, mill supplies
Bradley J. Snyder holds a relatively new post, one that was created to take advantage of corporate wide leverage opportunities. As corporate purchasing manager, Snyder is responsible for MRO, plant services, travel, transportation, human resources and other areas of spending. BorgWarner manufactures highly engineered components and systems for vehicle powertrain applications worldwide.
Commodities that fall under MRO at BorgWarner are: bearings; cutting tools; hydraulics and pneumatics; janitorial supplies; lighting; pipes, valves and fittings and safety supplies.
Until recently, the purchase was decentralized; each location purchased MRO items on its own, with little communication across regional or divisional lines. Recently, management established a corporate cross-divisional team to investigate leverage opportunities.
The MRO team consists of one representative from each division, with one key commodity contact at each U.S. location. Its first project: office supplies. Next the team developed purchasing strategy for safety supplies, janitorial supplies and electrical supplies.
According to Snyder, the teams face three challenges: The first involves collecting appropriate spend details to present a Request for Quotation (RFQ) to the market. The second concerns moving from a decentralized to centralized buying model and agreeing that decisions based on total cost are the best option for BorgWarner. The third centers on the decentralized structure that still exists at the company. Snyder's new post is a step towards meeting this last challenge.
"In the past, we've always selected suppliers that can mesh with a current plant's structure and system," says Snyder. "In the future, we'll likely need a unified MRO system to capture manufacturer part number information. The unified systems will allow for expansion of the commodity reviews and better MRO pricing from manufacturers regardless of distributor."
In addition to cost reduction, the company is realizing service improvements, account managers assigned to work on continuous improvement ideas, e-procurement tools, more focus on MRO and employees that work on behalf of BorgWarner now, not necessarily their own location. Suppliers manage multisite implementation, organize training sessions and assist in reporting noncompliance.
Tina Swartz
Global commodity manager-indirect procurement
Motorola Inc., Schaumburg, Ill.
Annual MRO buy: $200 million
Purchasing responsibility: Supplies (industrial, office, lab, safety) and Environmental, Health and Safety
Faced with the challenge of encouraging purchasing's internal customers to comply with centrally negotiated contracts, Tina Swartz developed a strategy for reducing the cost of purchasing industrial supplies that until that time had been considered leveraged: She formed and led a cross-sector/cross-functional team to execute the strategy. An RFP (Request for Proposal) process included a reverse auction using a market basket of frequently purchased items, conducted via Motorola's Internet Negotiation Tool (MINT). The team's objective: to select a "Super Supplier" for industrial supplies.
In addition to industrial supplies, Swartz is responsible for sourcing office, lab and safety supplies and Motorola's environmental, health and safety buy, about $200 million in spending annually. She reports to Cathy Arvanitis, global sourcing manager-indirect procurement.
As Swartz explains, a Super Supplier offers a range of products in a commodity family at extremely competitive cost, hosted in an online marketplace integrated with Ariba. The supplier also has capability to source spot buys as needed at a low cost markup when an alternative or private label is not a solution for the Motorola end user. The Super Supplier manages multiple supplier relationships, while maintaining a one-on-one relationship with Motorola.
The vision of the Super Supplier project: Aggregate and leverage buys to a single supplier, using the supplier's marketplace to conduct all transactions, which enables buyers to shift from focusing on tactical, low-dollar buys to value-added activities.
Benefits to Motorola resulting from implementing the strategy include:
Double-digit savings for 2004 based on cost reductions, standardization, private label and stockroom solutions.
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An e-procurement hosted solution for catalog and noncatalog buys (prenegotiated terms) resulting in "hands-free" purchasing reducing transactional and tactical buys.
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A 76% reduction in supply base in first month of implementation.
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A competitive program to increase diversity spend and mentor diversity suppliers.
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Standard processes and products throughout Motorola.
For its part, the Super Supplier meets with individuals and groups within Motorola to identify needs and implement solutions that achieve savings and process efficiencies (that is, a digitized tool crib). Among other activities, the Super Supplier challenges current costs through aggressive negotiation and creative solutions such as recommending private label products.
Kim Tu
Sourcing specialist
Intel Corp., Chandler, Ariz.
Annual MRO buy: $15 million
Purchasing responsibility: Support to corporate services
At Intel, purchasing works closely with its internal customer, corporate services operations to manage the MRO buy. Corporate services operations has responsibility for maintaining the company's manufacturing facilities.
Sourcing Specialist Kim Tu, partners with Kristie Burnham, Lee Minor and Joe Maetas of corporate services operations.
Purchasing's strategy for MRO, "One Channel/One Process/One Commodity" calls for all buys go through an integrator. Everyone across all sites follows the same processes for ordering material. This enables Tu and the corporate services team to gather purchasing and operational data to make informed decisions. The data enables the organization to standardize parts to reduce the number of SKUs (stock keeping units) and leverage volumes for better pricing.
The data will be leveraged to enable the third pillar of the strategy, "One Commodity" when it will be used to standardize and leverage, where appropriate, the materials used at the Americas sites. Intel plans to expand the strategy to its international sites.
"This vision is the foundation for us to understand our spend, aggregate our volume, standardize our parts and truly understand total cost of ownership for our equipment," says Tu.
Previously, the MRO buy was not managed; there was no systematic way to collect spend data or monitor supplier performance with metrics. "Working together not only resolved these challenges, but enabled us to take advantage of other technologies to improve operational efficiencies, for example, using personal digital assistants for rounds/readings by technicians," says Tu who expects that the ordering process will also eventually be conducted using PDAs.
The integrator is instrumental in supporting the purchasing process to realize the "One Channel/One Process/One Commodity Strategy," says Tu. "We are in constant communication. We exchange best practices across all sites and work together to overcome challenges."
Eugene F. Brieck
Director of purchasing
Ash Grove Cement Co., Overland Park, Kans.
Annual MRO buy: $20 million
Purchasing responsibility: Belts, bearings, hydraulics, fasteners
"Our objective is to introduce our maintenance managers and plant management to the benefits we can contribute to their manufacturing operations by consolidating purchasing, and to implement programs in reasonable time to accommodate all involved in the transition," says Eugene F. Brieck, director of purchasing, Ash Grove Cement Co., manufacturer of 7.5 million tons of cement annually. "Our goal is to eventually have a majority of affected product under agreement with both the manufacturer and our selected channel of distribution." Repair parts for the company's huge investment in process equipment—including belts, bearings, hydraulics and industrial supplies—all are considered MRO products.
First Brieck and his team survey the plants' maintenance personnel to learn which brand has the widest appeal. Then they work to select a supplier from among the top players.
"We introduce benefits by this consolidation of purchases to the plants and we do, in fact, return all benefits to the plant level for credit to their general ledger," says Brieck.
Benefits to the plants result from standardizing brands for better machine reliability (reduced downtime), stronger support from both a technical and availability perspective, and in a smaller sense a better value due to the leveraged buy (not necessarily) a better price. "Our unit price often goes up at most plants because they may have been buying these products on price rather than on seeking out the better quality and dependability more expensive brands tend to deliver," says Brieck.
The manufacturer's role is to support the preferred distributors with the right inventory and keeping their products in leading form with up to date technology and local technical support. The distributor's role is to keep the right inventory while keeping costs low.
David Johnson
Purchasing manager
Tenneco Automotive, Monroe, Mich.
Annual MRO buy: Proprietary
Purchasing responsibility: Industrial supplies, power transmission, janitorial supplies, fasteners
Joining Tenneco Automotive in 1996 in the original product-engineering department, David Johnson is now a purchasing manager in the global supply chain indirect materials and services (IM&S) group. He's responsible for managing industrial supplies, power transmission and fasteners. In addition, he maintains fork truck leases and has responsibility for packaging requirements.
A $3.8 billion global manufacturing company based in Lake Forest, Ill., Tenneco Automotive is one of the world's largest designers, manufacturers and distributors of automotive ride control and emission control products and systems for the automotive original equipment market and the repair or replacement market.
Due to the company's diverse product offerings, MRO requirements may vary by division. Johnson says that suppliers must be capable of providing products for shock and strut facilities, exhaust facilities and rubber/elastomer facilities. "With our current approach and dedication to select full source suppliers, we have been able to offset many challenges."
Johnson says that the overall objective of IM&S is "to provide maximum customer satisfaction and the optimum value to the organization." Some benefits include technical and emergency services, enhanced productivity, inventory reduction, reduced supplier count and minimized administrative efforts.
Tenneco Automotive uses a consolidation process to leverage and reduce the cost of acquisition through leveraged buying. This tool has enabled the company to pool its MRO spend and negotiate as "one company with one mission."
IM&S looks for commitment from suppliers to help reduce Tenneco Automotive's costs of doing business. Local account representatives must be in the manufacturing sites searching for potential cost reductions and efficiency improvements. Suppliers must also maintain high quality product lines, high order fill rates and on-the-spot emergency and technical service.
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