ATI Allvac streamlines MRO buying with integrated supplier
Spend analysis work leads metals manufacturer to outsource transaction-heavy MRO buying
By William Atkinson -- Purchasing, 9/17/2009 2:00:00 AM
Seven years ago, Monroe, N.C.-based ATI Allvac, an Allegheny Technologies company, turned over the bulk of its MRO spend to an integrated supplier, and the company is still reaping benefits.
ATI Allvac manufactures superalloys, alloys and specialty steels, primarily for the aerospace industry. In 2002, the company found that 67% of its purchasing manpower was consumed in managing 12% of its spend, explains W. Keith Templin, MRO purchasing manager at ATI Allvac. "That also represented about 85% of our transactional activity, with the average unit cost being about $10 each. That just didn't make sense." In addition, the company realized that MRO buying was not set up to be a core competency.
In response, the company brought in an integrated supplier and was soon so impressed with its performance that it decided to turn its stockroom inventory management process over to them. ATI Allvac signed a five-year contract with them and has since renewed it for another five years.
ATI Allvac still has a buyer who handles MRO spend for certain items that the integrated supplier does not want to get involved in, such as hazardous materials, which the integrated supplier doesn't want to assume liability for.
One of the first things to change was the management of the stockroom. "Over the years, our stockroom had become a 'working hospice' for employees who had been injured on the job and were unable to return to their regular jobs, instead of being run by professional inventory management people," Templin says. Prior to bringing in the integrated supplier, the stockroom had been running on what Templin describes as "tribal knowledge" or information that the company's employees who were working there happened to know personally but was not written down or standardized. However, as employees turned over in the stockroom, much of this personalized knowledge was lost.
When the integrated supplier arrived, it began to clean up item descriptions, create a naming convention, and bar-code products. It also conducted an ABC analysis on volume, and placed the bin locations accordingly. It then implemented reorder point and replenishment programs.
Initially, according to Templin, ATI Allvac brought the integrated supplier in primarily to manage the company's high-transaction, low-dollar-value activities, with the hopes they could save the company some money on unit prices. "They have certainly done this," he reports. "However, that tended to be a one-time savings." For example, the integrated supplier could reduce the unit price of a certain item from, say, $20 to $15, but it was unlikely that it could continue to reduce the price over the years and get it down to, say, $10.
But in addition to offering the one-time unit price savings, the integrated supplier has also been able to offer continuous process savings. "These are savings we can recognize every time we run the process, and this goes on forever," explains Templin.
In addition, the integrated supplier has been able to hold the line and even continue to reduce costs on some items, which has been important during the economic downturn. "They continue to provide cost-savings performance at the unit price level," he explains. In Templin's experience, despite the reduced demand for so many products and commodities these days, a lot of raw material suppliers aren't reducing their prices in response to the decreased demand. "In fact, in some cases, suppliers are completely shutting down their manufacturing operations rather than selling at costs they don't want to sell at," he explains. "Since they have inventory, they don't need production, and they're not dropping their prices." While ATI Allvac's integrated supplier doesn't directly buy and manage commodities for the company, it has been able to keep product costs low, and even achieve some cost savings, throughout the downturn.
And the benefits continue to accrue. "Last year, and particularly this year, they have also cranked up new cost-saving ideas and helped us improve processes," Templin says. In fact, ATI Allvac has challenged the integrated supplier to increase the amount of cost savings they generate. "They are, mid-year, right on track with what we have challenged them to achieve," he concludes.
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