Over the past decade, Eastman Chemical has developed a formal process for identifying supplier performance opportunities, allocating its performance improvement resources, using cross-functional approaches to changing operations, and deploying formal measurements to ensure that costs are actually removed from the supply chain—not just avoided or shifted to other areas. Eastman also follows through on its supplier performance measurements by awarding more business to top performing suppliers and offering other forms of supplier recognition.

Through its Supplier Excellence Program (ESEP), Eastman Chemical aims to increase value throughout the supply chain by working closely with suppliers of raw materials, equipment and services. ESEP goals include:

• Encouraging suppliers to achieve product control, and where appropriate, to implement process control,
• Achieving measurable process improvements affecting cost and quality,
• Realizing efficiencies that significantly benefit both Eastman Chemical and its suppliers, and
• Formally recognizing suppliers that are best able to achieve these goals.

To qualify for Eastman's ESEP program, suppliers must exceed $75,000 in business with Eastman annually and deliver at least a dozen shipments per year. Only key suppliers or commodity combinations are considered for ESEP emphasis. "For instance," says Steve Dickerson, olefins procurement manager at Eastman's Longview, Texas production facility, "we buy many of chemical products from Equistar, but we may set up a formal cross-functional team to improve their delivery or quality performance on only two chemicals, such as ethylene and propylene. This allows us to focus in on the commodity areas that are most in need of improvement, or will yield the most favorable gains for our performance improvement resources."

ESEP procedure directs the company's purchasing managers and purchasing engineers to investigate and identify opportunities for continuous improvement with key suppliers or commodity combinations. Strategic areas are addressed by cross-functional ESEP teams comprising key procurement personnel, operations engineers and management and supplier representatives. At the outset, the teams formally commit to provide the necessary information and resources to achieve their outlined continuous improvement goals.

Eastman's global chemical and energy procurement organization supports two dozen of these strategic, cross-functional teams, which meet formally with key suppliers at least once per year. They meet more frequently with suppliers that have low performance ratings in particular areas (such as on-time delivery) or who have active lists of performance improvement projects on the table. According to Dickerson, formal supplier meetings may convene as frequently as once per quarter, while informal communications regarding supplier performance may take place on a daily basis.

Continuous process improvement projects take many forms under ESEP, including:

• Improving communications between Eastman's procurement personnel and supplier representatives,
• Improving product quality (fewer defects, less rework, streamlined approvals),
• Enhancing supply reliability (on-time delivery, guaranteed product availability, supplier managed inventory—telemetry, replenishment, consignment inventory, etc.—and
• Cost reduction (through long-term contracts, product substitution, risk management, and volume rebates).

One process improvement project, according to Dickerson, focused on hexene deliveries by railcar. Eastman's procedure was to wait a couple of days after delivery before using the material and returning the railcar to the supplier. "We had a number of tests and sampling procedures we had to conduct, that required us to hold onto the car longer than the supplier wanted," Dickerson says. Through formal product control outlined by the ESEP program, the supplier was encouraged to develop more statistical control of its product. "We worked with them to implement our product sampling procedures," Dickerson says. "We discovered that if we knew the tank-car oxygen headspace was below a certain level, we could be confident that the rest of our requirements would be met," he explains. "The supplier agreed to include in their certificate of analysis the measurement of oxygen headspace in the tank-car, which greatly reduced the amount of time we had to spend sampling and testing the hexene."

Another example involves an ethylene feedstock buy at the company's Longview, Texas plant. "We were purchasing an ethane-propane mix stream delivered by pipeline from Union Pacific's facility nearby," says Dickerson, adding that the feedstock mix from the Union Pacific plant represented a significant portion of the Eastman cracker's ethane supply. "At that time, they weren't getting it done," Dickerson says, citing product availability problems and no clear-cut lines of communication between Eastman and the Union Pacific facility. A formal ESEP team was assembled to address the problems, yielding "significant improvement," according to Dickerson, "as the facility came under increasing internal pressure from their management to streamline operations to improve profits."

Eastman's manager of chemical procurement, Vaughn McCoy, provides another example, using a fine chemical transaction. "Vendor-managed inventory (VMI) is one way some of our suppliers work with us toward a 'win-win' that results in more business for the supplier," says McCoy. For buying di-isobutylene, an intermediate used in several of the fine chemicals Eastman produces, McCoy says, "We improved communications with our supplier through a telemetry signal on our bulk storage tank," he says. "This allowed the supplier to reduce the amount of material it kept in inventory and in transit." Likewise, he says, it allowed Eastman to reduce the amount of inventory it required, lessen the need for warehouse space and labor, and share in savings with the supplier.

The VMI example involves a great deal of shared information between Eastman and its fine chemicals suppliers, including production schedules and goals, according to McCoy. "Companies that are agreeable to innovative supply management techniques, such as vendor-managed inventory, increase their shares of our business," McCoy says. And the benefits don't stop there, explains McCoy. The next time Eastman requires a compound or raw material, it looks to the suppliers—listed in its world chemical manufacturer index—who consistently provide Eastman with strong performance. "We want these companies to keep growing with us," he says.

No process improvement program pays dividends overnight. Those worth their salt take years to develop and implement, and usually span every division of a company. And while the thrust of Eastman's ESEP program is driven by the procurement function, Dickerson and McCoy are quick to point out that every Eastman employee plays some role in continuous improvement of the supply chain. The groundwork for ESEP was laid back in 1990 at the company's Texas Eastman Division. Corporate management wanted to implement a formal program to address the question, "What are we doing to recognize supplier quality performance improvement?" according to Dickerson.

Using principles from Eastman Kodak's Quality First program, along with ISO requirements, Malcolm Baldridge standards and other best practices, Eastman formally rolled out an adapted program in 1991. Three years later, the program was developed further and its name was changed to ESEP.

Dickerson says the original Eastman Kodak Quality First program was designed as a problem solver. Teams were developed to address specific quality problems that were happening with key purchased commodities. The teams would take cross-functional approaches to solving specific problems and help bring suppliers' performance up to respectable levels.

Since then, the ESEP program has evolved to work with key suppliers that exhibit high and steady performance from the beginning of their performance measurement, as well as those who struggle with respect to quality or other performance criteria.

After success and potential of the ESEP program was demonstrated by the Texas Eastman Division, it was adopted by corporate management and quickly spread throughout the company's global supply chain organizations. Currently, the program is managed jointly by Eastman's global chemical and energy procurement, indirect materials procurement and logistics and services procurement functions.

Eastman Chemical uses three different methods of recognizing suppliers for performance:

• Eastman's Supplier Excellence Award may be presented to suppliers that meet a preset on-spec standard (99% on-spec), a preset on-time delivery standard (90% for rail delivery, 95% for trucking), and a value-added improvement standard, which is subjective, but must be backed up by documentation of effectiveness. Dickerson points out that the latter criteria has been modified over the years to maintain desired emphasis on supplier excellence and suppliers' ongoing commitments to continuous improvement. "Less than 1% of the supply base typically achieves this level of performance and recognition," says Dickerson.
• Eastman's Supplier Improvement Award is targeted to suppliers who make a concerted effort to improve performance and have made at least 20% improvements in either on-time delivery performance or on-spec performance.
• Eastman's Supplier Innovation Award is typically requested by Eastman management to recognize specific innovations or best practices applied to Eastman's processes by suppliers, which bring exceptional value to the business relationship. These innovations may include development of new technologies or processes, or new ideas that profoundly improve Eastman's processes. According to Dickerson, the Supplier Innovation Award has been presented only four times since its inception.

Eastman's last supplier to win this award was the BetzDearborn business unit of Hercules Corp., a water treatment technologies supplier based in Trevose, Pa. BetzDearborn developed and implemented a new cooling water treatment and purification system at Eastman's Longview, Texas plant.

Within the various Eastman production sites, ESEP is managed and "championed" by internal administrators appointed by purchasing. In January of each year, the administrators and procurement engineers review commodities under their responsibility and submit appropriate ESEP award nomination forms. Nominations must be approved by procurement and corporate management to ensure that a supplier's performance across all of Eastman's business units and sites merits performance recognition at a particular site.