Purchasing involves suppliers who help develop new products
Susan Avery -- Purchasing, 10/9/2003 2:00:00 AM
Applying supply chain management practices to an annual MRO buy of $291 million has helped the U.S. Postal Service reduce its purchasing costs.
In August, 2001, the USPS entered into national agreements with two suppliers of custodial items (paper products, deodorizers and disinfectants, cleaning products and chemicals, mops and brooms and light equipment and accessories), an annual spend of $89 million. In so doing, the Postal Service slashed its MRO supplier base from roughly 1,000 suppliers. The two suppliers are W.W. Grainger, Lake Forest, Ill., and Cleanwise, Marlboro, Mass.
With annual revenues of more than $66 billion, the USPS is the world's leading provider of mail and delivery services. The Postal Service makes deliveries to more than 141 million addresses every day. An independent federal agency, the Postal Service derives its operating revenue solely from the sale of postage, products and services; it receives no taxpayer dollars for routine operations. It employs more than 770,000 and operates more than 38,000 locations.
To remain competitive, the Postal Service unveiled a transformation plan in spring of 2002 that presented steps it was taking to help better manage costs. These include adopting more aggressive purchasing strategies (based on those practiced by many U.S. businesses) to leverage its immense buying power.
The Postal Service put the supply agreements in place in August 2001, just prior to the beginning of its new fiscal year. It began implementing the agreements in November, placing the suppliers' catalogs on an internal purchasing system called eBuy. As such, purchasing's internal customers have the option of selecting custodial items from either of the two suppliers.
"This way, we continue to nurture the competitive nature of the market," says Michael Parson, team leader, MRO category management team, U.S. Postal Service, Environmental and MRO Category Management Center, Dallas, Texas. "We have two suppliers keeping each other in check. That's what drives some of the performance on these two contracts." Use of the purchasing system by postal employees to place orders for items with suppliers also provides Parson and his team with detailed information on the USPS's custodial items buying activity.
By consolidating purchasing of custodial items for its 38,000 locations with two suppliers, the Postal Service also is working to standardize not only items purchased through the agreements, but also internal processes and procedures. It reduced the number of line items for custodial products purchased by its locations from 13,000 to 6,000. For floor care products alone, it reduced the number of items from 150 to 15.
"By eliminating duplicate products we could get this number down to 3,000, but we wanted the locations to comply," says Parson. "Bringing in the additional 3,000 items helped the Postal Service better meet this objective." Parson and his team are working toward 85% compliance through the first four years of the agreements.
Early supplier involvement
The team follows an eight-step strategic sourcing process. During the supplier selection process, Parson and a cross-functional team evaluated suppliers in a number of areas, including early supplier involvement. "Both of these suppliers were extremely strong in this area, promoting early supplier involvement along their supply stream," he says, "and, they demonstrated a willingness and past experience of being able to add value to the process." Other key criteria include ability to fulfill requirements of a national agreement while providing local service and ability to help the Postal Service meet objectives of its supplier diversity program through use of subcontractors.
Under the agreements, the suppliers have dedicated teams that meet with the USPS MRO purchasing team quarterly. At the meetings, progress is charted against supplier suggested cost-reduction initiatives. Each supplier must provide the Postal Service with three initiatives over the four years.
"What we saw in the past was that suppliers were reluctant to a certain degree to become that integrated with us because we didn't have a long-term agreement or partnership with them," says Parson. "Yet, at the same time, we were being inundated with information from suppliers. Everyone had their own idea about the best custodial products for the Postal Service. It was confusing. We didn't have a central team to pull this information together, analyze it and create a formal program out of it that could be applied to the postal environment."
Now, suppliers are bringing the most innovative knowledge and practices to the table because they are competing in this captive market. "Traditionally, we thought that the Postal Service was unique and demanded that suppliers meet our specifications," says Parson. "As such, we haven't gained from industry knowledge. That's all a thing of the past. Now when a supplier has a new idea or product, the MRO category team passes this information on to field points of contact who relay it to their offices." In turn, the offices provide the information to their maintenance and operations managers. Feedback comes to the MRO category team back along this same route.
One of the Postal Service's major facilities in St. Louis invited the two suppliers to analyze the way its personnel was applying cleaning and maintenance products to its floors. Each of the suppliers with their manufacturer suppliers of floor care products conducted the analysis, and the facility selected the best product for use on its floors. "Now, we are focusing on the process as well as the products," says Parson. "Early supplier involvement brings the Postal Service the best industry knowledge in floor care. From this point on, the post offices were very receptive to suppliers."
Most of the major facilities have a black plank floor unique to the Postal Service. Made of asphalt, the floor is a thick, rubbery material that gives with the equipment that's placed on it so it doesn't crack or chip. It is, however, difficult to maintain and it's been challenging for the purchasing operation to find the right products to clean the dull finish. Many of the post offices were using cleaners from local suppliers who would blend certain chemicals. This worked in some areas of the country, but not all. To resolve this issue, the suppliers met with their manufacturer suppliers and worked together with the Postal Service as well as builders of the flooring to develop effective cleaning and maintenance products for use on the black plank floors.
When anthrax was found in the U.S. Postal Service after the events of Sept. 11, 2001, the post offices were inundated with sales people trying to sell products that were said to kill anthrax. To protect its employees internally (in addition to ensuring their security within its buildings) the post offices were purchasing these products at a premium. With the purchases, however, there was a false sense of security, says Parson. "Our suppliers took samples of the products and determined that they were not effective against anthrax."
At the time, employees began to spend more time washing their hands. Both suppliers visited postal facilities and analyzed the situation (absenteeism, how often employees wash their hands, how much time they spend washing their hands, how much more product they use, how much more tissue they use).
One manufacturer supplier has introduced a new sanitizing product that's both a germicide and moisturizing lotion that's now used by many postal employees. Use of the product helps protect their skin while reducing the number of times they wash their hands: Employees simply apply the lotion, which is absorbed into the skin. The supplier has placed a number of lotion dispensing stations that dispense the lotion throughout the facilities. "The employees really seem to like it, knowing that the stations are available and that they can clean their hands at any time," says Parson. Use of the lotion has also helped reduce the number of gloves used by employees.
Suppliers have also helped the Postal Service reduce costs by introducing touchless towel dispensing systems, coreless towel dispensing systems and source control systems for use in rest rooms at its many locations.
As a result of this supply chain management strategic sourcing initiative for custodial items, the USPS reduced costs in its fiscal year (FY) 2002 by $8.5 million, and realized an additional cost reduction of $13 million in FY 2003. Further, the USPS realized significant improvements in client satisfaction, product standardization and optimization and overall business effectiveness.
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