Metals buyers want to cozy up to top suppliers
By Tom Stundza -- Purchasing, 1/13/2000
Metals buyers say purchasing strategies of the future will center on improving internal measurement systems and creating better relationships with suppliers, according to the results of a recent PURCHASING Magazine survey of metals buyers.Having a consistent supply of high-quality metals is critical to metalworking OEMs where, according to McKinsey & Co. estimates, production metals can be as much as 80% of total costs. Little wonder then that metals buyers are looking to ensure that future metals suppliers are stable, especially since supply problems exist right now because strong orders are being met with tightened supply as mills, service centers, and merchants have reduced reserves as part of their near-term strategy to boost spot-market pricing.
The need for new metal-purchasing strategies is based on a widespread corporate belief that competition in the global metalworking arena will intensify next decade as offshore firms target North America as a market of opportunity for expanded production. To remain competitive, North American firms will have to remain or become low-cost producers of high-quality products.
To achieve this, domestic buyers will have to source materials a lot more effectively than they are today. It's no secret that, for years, relationships between metals buyers and suppliers have been far from harmonious. Quality, delivery and price issues continue to roil the metals marketplace. The majority of buyers surveyed by PURCHASING say they will develop or refine internal information systems to better collect and analyze data on annual procurement costs, pricing histories for metal commodities and processed parts, and preferred supplier performance. Only then, they say, will they be able to refine supply strategies to help their companies make products that will be competitive globally in the new millennium.
"We have to help the company's drive toward manufacturing performance improvements," says H. Fuseler, PM at the Square D plant in Columbia, S.C. "Everything purchasing will do strategically will be geared toward further improvement of our relationship with suppliers." Specifically, he says the purchasing strategies at Square D will center on cross-functional purchasing teams, strengthened supplier alliances, the development of world-class supplier programs, and the refinement of internal performance metrics for supplier evaluation.
Interestingly, the survey found that many "strategies of the 1990s" centered on the use of total quality management (TQM) principles within purchasing, the improvement of technical qualifications of purchasing and supply management employees, and improved internal forecasting of material. The "strategies of the 2000s" cited that most appear, instead, to focus on suppliers. In fact, the top five strategies the buyers surveyed say they will use this decade are:
- Strengthened supplier alliances.
- Refined performance metrics for supplier evaluation.
- Intensified world-class supplier programs.
- Involvement of suppliers in new-product development.
- Expanded purchases through e-commerce.
"We need to be able to rate the performance of suppliers on many merits, and not just the up-front price of the metals," says Andrew Brautigom, buyer at Baumfolder in Sidney, Ohio, which manufactures folding machines and related bindery equipment to the paper industry. "Since ISO has been implemented in many companies, the vendor is being held responsible for rejections (i.e., nonconforming parts) and quality," he says.
He explains that purchasing helps suppliers with materials management. "We now have a buyer who spends half days at two suppliers' facilities helping them in production-material purchasing." Good supplier alliances allow the suppliers to develop ways to save money for themselves and their customers, says the precision-processed metals buyer. "If the supplier can do something better, then we will let them, and we don't try to reinvent the wheel," Brautigom says.
Why alliances are so popular
Supplier-alliance programs in the metals marketplace aren't new, but they appear to be undergoing a renaissance because of the increasingly complex nature of the metals supply base. Suppliers include the smelters and producers of basic mill products, specialty processors and distributors of lower-volume metal shapes, traders, and importers. Atop that, pricing is volatile--nonferrous metals are traded daily and are extremely cyclical while ferrous metals are subject to numerous global supply demand factors.
Buyers such as Steve Lawler, strategic sourcing manager, Ericsson Energy Systems, Richardson, Texas, for example, suggests that stronger supplier alliances eventually will lead to better world-class supplier development programs with less worry about price volatility or product availability. This, in turn, will put the company's purchasing organization in the lead of metals supply chain management projects. And that, he says, will save the company money on better performing raw materials. He notes, however, that purchasing will have to learn how to develop partnership agreements into a strategic strength.
Better supplier alliances also are on the top of the list for Greg Maynard, director of purchasing at Snap-Tite Inc.'s Autoclav Engineers unit in Erie, Pa. He says better supply partnerships will allow internal improvements in purchasing and supplier performance data collection, which will be needed, he says, because of the pending implementation of cross-functional purchasing teams. "I have been concentrating efforts in developing alternate sourcing and strengthening our relationship with our major suppliers," he says. "This is important in order to maintain first-rate quality, pricing and service in today's changing marketplace."
The firm manufactures a wide variety of metalworked products--from fluid power components and hydraulic valves to high-pressure and high-temperature systems, from agricultural equipment to aerospace components. At present, the company's buyers are in a continuous cross-training program that will make them familiar with upgraded corporate buying strategies no matter what commodities they buy. The firm's biggest buys are metals, polyester filament and spun yarns, polyurethane and PVC/NBR rubber. But the firm has no commodity specialists; instead, commodity buyers will be trained as supply specialists.
Douglas Allie, PM at Super Steel Products in Milwaukee, plans to stress strengthened supplier alliances. The goal is to get better materials cheaper--a common theme among buyers of production metals. Better supplier partnerships also is the goal of Debbie Torina, PM at Cadet Mfg. Co. in Vancouver, Wash. She says her firm--a maker of heating, ventilating, and air conditioning equipment, and floor-heating and snow-melting equipment--"is trying to get our suppliers more involved with our company's manufacturing goals to strengthen our purchasing partnerships." She says the goal is to obtain more and better information on materials from the supply base "so our buyers can make better buying decisions." She also says that another goal is to use these alliances to involve more downstream suppliers in new-product development. "We are making this a higher priority in order to develop the best products possible, more quickly," she says.
None of this planned strategic expanded reliance on suppliers comes as a surprise to Robert M. Monczka, Ph.D., director of the Center for Advanced Purchasing Studies. He says that "the trend over the past several years has been toward an increased reliance on suppliers, yet buyers--especially metals buyers--say suppliers currently perform only at slightly better-than-average levels."
The latest PURCHASING magazine survey of metals buyers finds this still to be true because many--especially steel and aluminum buyers--still complain that without partnerships, they can get no commitments from suppliers on long-term pricing stability and continuous improvement of non-automotive or non-aerospace mill products. "Buyers must take strategic actions that are increasingly aggressive to ensure that supplier contribution satisfies current and future competitive requirements," says Dr. Monczka.
Jon Elvy, buyer, Caterpillar Paving Products, a maker of cold asphalt recycling and reclaiming equipment in Milwaukee, Wis., thinks that refined performance metrics for supplier evaluation will be the company's key buying strategy. "We need to improve this to better analyze who will be able to grow with our company and who will be ready to participate in new-product development," he says. Elvy contends that "better suppliers will provide the means of our building world-class yet cheaper equipment in the future."
"We feel we need to measure performance to drive improvements in the supply base and also to communicate with suppliers about our expectations," says Todd Schlosser, PM at Fleck Controls in Brookfield, Wis. The brass casting buyer notes that the firm--which makes components used in water-conditioning systems--also is implementing a "demand flow" manufacturing process to better satisfy its customers. "Our suppliers will be an integral part of the new supply chain we will be implementing," Schlosser says.
James Lawall, PM at the Pittman electrical motors and gearmotors manufacturing plant in Harleysville, Pa., wants to shorten internal leadtimes and reduce inventory of processed metals. For that reason, his strategy change will involve expanded outsourcing of processed metal products. He and other buyers who plan to expand outsourcing see it as a logical next step in the evolution of purchasing's support of just-in-time manufacturing systems.
Web-based buying
Surveyed buyers believe that expanded supplier involvement in electronic commerce appears to be on the near horizon. They agree with e-commerce experts who expect business-to-business purchasing via the Internet, including metals, eventually to exceed the volume of online consumer purchases.
Dominic Rossi, PM at Synthes USA, Paoli, Pa., a manufacturer of surgical instruments and implants, says he will key his changing strategies to expanded purchases through electronic-commerce-based purchasing. He thinks the Internet will allow the firm to find world-class suppliers worthy of alliances. "Establishing world-class suppliers benefits the enterprise by efficiency gains in quality, delivery and price--which relate to profits," says the buyer of high-grade titanium and stainless steel.
Some halting steps have been made in Web-based procurement systems, the buyers report. Most purchasing groups, however, appear to be waiting to see just how well General Motors and Ford handle their planned electronic-procurement programs. Since these two firms are the biggest steel and nonferrous metals buyers in North America, "we're going to wait and see just how well the automakers do in using e-commerce to reduce costs and improve vendor performance," notes the PM at a major heavy machinery manufacturer in Milwaukee.
The GM MarketSite, expected to begin operations later this quarter, is what Harold R. Kutner, group VP of worldwide purchasing and North American production control and logistics, calls "the world's largest virtual marketplace for a wide array of products, raw materials, parts and services." However, its potential as a "metals purchasing vehicle" is uncertain because of its tie-in with the automaker's e-GM activities that will involve dealers buying parts and consumers buying motor vehicles.
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