Sony Buyers Council helps consolidate MRO purchases
By Susan Avery -- Purchasing, 3/7/2002 2:00:00 AM
Purchasing MRO goods and services for a company whose operations are mainly decentralized—while realizing benefits of consolidation—is a challenge many buyers face every day. For Ruth Reynolds, purchasing resource leader for Site MRO Purchasing, Sony Electronics Inc., at the Sony Technology Center-Pittsburgh (STC-P) it's a challenge she's meeting head on.
Reynolds manages the MRO buy at STC-P through use of commodity purchasing strategy and e-procurement tools including the Sony Master of Arts Procurement System (SMAPS).
"I think more and more companies are able to get centralized benefits in a decentralized environment," she says. "It's hard. But I think we have the right plan."
Site MRO Purchasing's plan, in fact, has helped to reduce costs of buying maintenance, repair and operations goods and services by about 11% annually—and to streamline processes so that both the buying operation and its internal customers can spend less time on nonvalue added tasks.
An integrated manufacturing facility, STC-P produces Sony's WEGA direct-view televisions and rear-projection televisions. The site includes a plant that makes glass (American Video Glass) used in production of color television picture tubes and Sony Chemicals Corp. of America, which produces coated thermal transfer ribbon used in the bar coding industry.
The Site MRO Purchasing operation was formed about a year ago. Reporting to Site President Chuck Gregory, Reynolds is responsible for consolidating purchases of indirect materials for six business groups at the facility, which employs more than 3,000 people. To that end, she works with buyers at other business groups to not only leverage the MRO buy, but also to develop common standards and service requirements. More than 20,000 line items make up the company's annual MRO buy.
"Having a group like ours helps communicate availability of contracts and preferred suppliers to internal customers," says Reynolds. "This will be further enhanced when we start using SMAPS . It can be challenging to communicate with the several thousand people who work at the site. With the e-procurement tool, we will have capability to send notices on commodity strategy and availability of commodity catalogs."
STC-P's MRO buy encompasses all purchases needed to support operations (including capital equipment and services) except direct materials or bills of materials that go into the goods the company produces. Previously, Reynolds worked in purchasing management positions at USAirways, Pittsburgh. (She was recognized at the NAPM International Purchasing Conference in Orlando in 2001 as Leadership Person of the Year.)
Site MRO Purchasing sets strategy for the buy (this includes developing the e-procurement tool and managing a purchasing card program with the company's accounting department). Business unit buyers, who help to develop the annual requirements and priorities, are responsible for tactical aspects of purchasing and implementing the MRO programs. The groups work together through various internal Buyers Councils, which meet regularly. The Councils also include MRO buyers who work at other Sony companies within the Engineering, Manufacturing, and Customer Service-America ( EMCS-A ) division as well as other Sony manufacturing plants in North America.
Using a commodity management strategy, Site MRO Purchasing has agreements to expand to 10-12 primary suppliers locally and to establish and use national contracts in conjunction with other Sony facilities. The suppliers are responsible for providing groups of like commodities—safety supplies, electrical products, power transmission products, chemicals, industrial supplies, etc.—used in the plant's parts cages and operations. Commodities were selected on the basis of their significance to the organization in terms of criticality to the operation and total spends.
"The first phase is to put a strategic contract in place for the aggregated buy," says Reynolds. Currently, about 50% of MRO goods and services purchased for the site are under this strategy, which is increasing as she and her group work with other Sony facilities.
"The second phase is to provide our internal customers with an e-procurement tool that will enable them to place orders for goods and services with preferred suppliers," she says. "It's a two-pronged approach that's enabling us to add as much value as we can." Internal customers working in operations include such groups as production, engineering, facilities management and IT.
Robust requirements
For the supplier qualification process, Site MRO Purchasing establishes "typical site supplier requirements and any additional requirements that may be unique to the purchase," which Reynolds and her group define "with the internal customer to be as specific as possible." The manufacturing plants operate 24 hours a day, seven days a week, 365 days a year, so requirements are fairly robust and the amount of customer service needed is fairly significant. As such, suppliers may need to be available on weekends by opening their facilities or having personnel stay in touch through cell phones or pagers. (Some primary suppliers maintain onsite presence as well.)
"Then, we establish service-level agreements in our contracts," says Reynolds. "Usually these can be easily measured: order-fill ratio, response time, on-time delivery, invoice discrepancies, etc. Then, we also measure suppliers on their capability to reduce costs and add value."
Although STC-P Site MRO Purchasing takes a total cost of ownership approach to the buy, Sony measures costs in terms of hard dollar savings, not process efficiencies. That is, Reynolds and her group measure cost reductions compared to current costs. They measure purchase price plus transportation or freight charges, energy usage, warranty, plus value-added services (Is the supplier willing to provide consignment? Does the supplier have discount programs for electronic ordering? Has the supplier helped find alternative products or ways to reduce use of a product?).
"Going forward, if we have a multiyear contract, which is our strategy for most primary commodity suppliers, we list items that we plan to work on over a period of time and we track savings and value-added services by quarter," says Reynolds. She asks suppliers for cost breakdown analyses to better understand their direct labor, material, transportation, fuel, overhead and profit costs. Then, she and her group compare suppliers to make sure costs are not out of line. They also perform price-benchmarking activities with other Sony businesses through the Buyers Council.
Site MRO Purchasing also has some of its primary suppliers working with second-tier suppliers on some commodities within commodity groupings. "Sometimes we can combine our purchases with the primary supplier and actually lower our costs with the second-tier supplier," says Reynolds.
Communication is always key to the success of these programs, she says. "In general, people are being asked to do a lot of things differently. It's all happening at the same time. Through it all, buyers need to make sure they still understand the needs of the internal customer and that their strategies and goals are in line with the organization's."
Sony has a process called mid-range planning that forecasts out over several years. Through the process, the MRO purchasing team learns of plans of the business units and other departments. "I've been a part of this for the past couple years here," says Reynolds. "I think it helps purchasing keep in touch with the challenges of our internal customer groups. We have to keep in mind that we can't just go and buy something or go off on a program that isn't meaningful to them. It's important to stay focused and develop a strategic plan that's in line with what the organization needs to accomplish."
SMAPS
Sony's global e-procurement strategy for indirect materials is called SMAPS. "We, along with other Sony plants around the world, are implementing the same system," says Reynolds. "Another part of our strategy is to use the tool to track what we buy down to the line-item level."
At the same time, STC-P Site MRO Purchasing is implementing the UNSPCS commodity classification system. "This will be our standard," says Reynolds, "so we can get more detailed information which will help us better aggregate our buys for additional savings."
Site MRO Purchasing is working to further consolidate its buys with other Sony facilities. This includes a sister plant in San Diego as well as facilities elsewhere in the U.S. (Alabama and Texas) and Mexico. "We plan to use information generated by the tool to help combine purchases throughout the division," explains Reynolds. "We then will create common catalogs which will be available to requisitioners. This will help to save time, effort and resources by each of us not having to create our own strategic contracts and catalogs."
Reynolds also is working with her counterparts at other Sony businesses in the U.S. "Whenever we can, we combine purchases with them. I think that is going to be facilitated by our strategic approach and the SMAPS e-procurement system."
Site MRO Purchasing also tries to take advantage of corporate contracts for such goods and services as travel and office equipment. "It doesn't make sense to work on agreements for these items at a local level, when we've done them at a national level," says Reynolds. "That's a challenge in itself, making sure that we are using all the resources available within the organization."
Use of SMAPS will provide internal customers with one streamlined method for placing orders for MRO goods and services, whether it's office supplies, items for the parts cage, or ad hoc purchases. "One of the things we did at our divisional kick-off meeting for e-procurement was to tear up a pink requisition form and throw it away," says Reynolds. Currently, internal customers are using a variety of methods to order MRO goods and services, including use of the requisitioning module of the company's Oracle ERP system.
Still, Reynolds says she needs to maintain some flexibility in the system for internal customers who may need to purchase an item right away from, say, a local hardware store. "So we will still be using the purchasing card. Eventually, I see p-card usage declining as people go online and order electronically. They won't be as inclined to use the card and they won't have to do the monthly reconciliation." To help make the monthly reconciliation and posting to the general ledger easier for all users, STC-P set up a system that sends email notifications to p-card users.
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