Back when Eric Carlson was a commodity manager, every quarter he would update a 1,500-line spreadsheet used to track Emerson Electric Co.'s purchases of steel bar products. "It had to be updated that often because the information went out of date that quickly, yet we never quite got the whole picture." The $120 million/year steel bar buy was decentralized among the St. Louis-based firm's 60 corporate divisions.

Now that he is director of procurement strategic planning, Carlson is project manager for the company's Intranet-based Material Information Network (MIN), which is allowing the company to aggregate data to better source common commodities and parts. MIN uses information technology (from i2 Technologies) to create a database of who buys and supplies some $5.3 billion worth of direct materials within 475 commodity groups.

"MIN now allows us to look across all 60 divisions and aggregate the information of exactly what is purchased, and from what suppliers," Carlson says. Using that data, buyers can coordinate and leverage their purchasing of similar materials, reduce the number of suppliers, initiate electronic procurement and coordinate deliveries with the manufacturing sites. "Basically, we are aggregating information to enhance our traditional buying systems and new electronic-procurement platform," he explains.

Emerson buys steel bars as the raw material for various applications. What MIN found, Carlson says, is that "we had as many as 10 divisions buying the same type of steel bars, but we didn't know it because their information systems didn't talk to each other." Now, "everybody knows, in plain English, who buys exactly what and from whom." Armed with this information, for example, buyers of small-diameter hot-rolled carbon steel bars from two Emerson divisions have harmonized a 15,000 tons/year supply contract with a single domestic mini-mill—and gained an edge in price negotiations. "We're now saving more than $500,000 annually through a unified contract with this preferred supplier," Carlson says.

"This may not be a huge contract, but the guaranteed tonnage was substantial enough to get the attention of the mill," he says. "And, because of MIN, we have good and easy-to-understand data on needed quantities, chemistries, shapes and lengths that are just as important to efficient production by the supplier as to efficient processing by our internal users."

The information system, for example, shows the bar products' similar quality standards—whether the grade is based on standards developed by ASTM (American Society for Testing and Materials), AISE (Association of Iron and Steel Engineers), AISI (American Iron and Steel Institute) or Emerson's own metallurgical engineers.

"Getting the correct information, both for ourselves and our suppliers, requires commonality of language, and that's what MIN accomplishes by getting the end users, the design and manufacturing engineers and the suppliers all on the same page, reading the same specifications in an easy-to-understand format," according to Carlson. The attributes of the purchased material or parts detailed by MIN also include internal demand trends, a history of transactional data, current inventory and such parametric data as applicable part numbers—and, in the case of bars, the exact chemistries, diameters, lengths, commercial designations and quality requirements.

Not only does this help buyers and commodity managers get an accurate picture of corporate purchases for leveraged repetitive-buying and value analysis projects, it also gives design engineers data for new-product development projects. It can also expand the horizons of existing and potential new suppliers needing information for reverse auction bids. "Because MIN defines what we at Emerson need better, it gives the steel mills a chance to do internal production analysis necessary for them to bid effectively on a contract," Carlson says.

"Most of our corporate knowledge about purchased commodities like steel bar came from suppliers, when they were asked. But we had no coordinated database of what bars were bought, what sizes were bought, or where suppliers were located geographically," says Carlson. "We didn't know if our buy was leveragable, we didn't know if there were potential inter-divisional purchasing synergies, and we didn't even know what products were matched up against our part numbers."

Now, the company uses MIN to optimize the processes in the value chain—from product design through product planning, materials procurement and final production—so all participants can speak the same language with consistent, complete content. He defines content as complete information about materials, their suppliers and their use in manufacturing that can be used to search and compare an item for purchase, to create a supply plan or to identify requirements needed to meet a demand plan.

And, because of the success in the pilot hot-rolled bar contract, other Emerson divisions are using MIN data to develop synchronized contracts for numerous other commodities.

Some of the steel supply pacts using MIN-generated data are based on traditional request-for-bid methods, but Emerson is moving most of these and other supply contracts through reverse auctions being coordinated with FreeMarkets of Pittsburgh. Lawrence J. Kremer, vice president of materials for Emerson, suggests 90% of the supply transactions in the future will be reverse auctions. "Reverse auctions are simply another name for what materials organizations have done traditionally. Technologies simply allow us to do our jobs with greater efficiency and broader supplier outreach," he says.

"When used with information provided by MIN, the reverse auction is a valuable cost-reduction and productivity tool," Kremer says. "We determine all the variables that constitute the value for any given commodity and establish an electronic request for quote (RFQ) or reverse auction calendar of events that the suppliers provide. And because of the simplicity and completeness of the specifications and requirements data we provide, FreeMarkets can contact our existing preferred suppliers as well as other suppliers that meet our qualifications." That's important for a raw material such as steel bars, which are produced in a variety of chemistries, diameters, shapes and surface finishes.

In fact, finding new suppliers has been an added benefit of the program, Kremer says. "This process scenario has opened up supplier knowledge we don't have the resources to explore in our day-to-day operations." Emerson globally buys 475 raw materials and commodities for production materials that account for at least two million purchase orders annually issued to more than 30,000 suppliers. Kremer says, "Emerson is using such e-business strategies as the FreeMarkets Internet auctions to achieve cost savings and improve productivity by lowering procurement costs and increasing efficiency." He says MIN already has been instrumental in providing information for many successful reverse auctions. Emerson has participated in more than 50 FreeMarkets auctions for various commodities since 1999, totaling more than $500 million in purchases.

Kremer also says that, "at the moment, most buys aren't requoted as annually, and that's what we want to change." He suggests that long-term contracts from a smaller supply base "definitely will occur" under the MIN-enhanced sourcing process, which is expected to save the company $100 million in procurement costs over the next five years and consolidate the supplier base up to 40%.

Emerson's brand of new age purchasing probably will speed the ongoing consolidation of the steel bar supply base in North America. Steel bar production capacity worldwide is in excess. Several U.S. producers of long products, accounting for almost 9 million tons of capacity, are bankrupt. With more than 20% of supply coming from offshore, a significant number of domestic plants are closed and a majority of the bar mills report negative operating margins for the past 18 months. U.S. demand for carbon steel bars (excluding light structurals) peaked in the latest manufacturing cycle in 1999 at 18.7 million tons but fell to 14.8 million tons last year.

And what Emerson is doing with MIN isn't going unnoticed by steel bar producers. AISIS Bar and Rod Market Development Group, for example, is working to establish a common technical database—including machinability standards—for common grades of carbon steel bars. Bars can refer to any long product from low-carbon grades used in basic screw-machining operations or as concrete reinforcements in construction to high quality hot-rolled and cold-finished products used in critical applications in automotive and industrial equipment. Already, 16 steel-producing companies are working with the automotive community about that target market's future needs for carbon and alloy bar products, and the effort is being expanded into other end-use areas.

Such steel bar supplier endeavors should make bar specifying and purchasing less complicated and less costly in the future for consumers such as Emerson, which has grown from a maker of electric motors and fans into a $15.5 billion (fiscal 2001 sales) global conglomerate that operates 380 manufacturing sites worldwide.

To support these operations, Emerson spends $6.7 million on direct (production) materials and indirect (nonproduction) goods and services. Kremer says that even before the current manufacturing recession, global competition mandated continuous cost-savings by all of the company's operations—including procurement. The MIN initiative is viewed as an integral part of that effort, as a pillar of the company's strategic procurement program.

The company also spends another $5 billion annually in support costs such as selling, general and administrative expenses, travel, logistics and information technology infrastructure. In a recent report to shareholders, upper management indicated that e-business will enable Emerson to become a single purchaser in support costs, noting "only a few percent savings in either category can generate over a full point of margin improvement.

"While divisional autonomy remains a hallmark of the Emerson organization, there is recognition that teamwork is needed to leverage Emerson's global scale. "But, balancing Emerson's strong divisional and business autonomy with centralization is not always easy. But done properly, it can provide growth and profit opportunities that were previously unachievable," David Farr, the chief executive, told stockholders. In fact, the company's purchasing organization already has identified $30 million in savings from instances where MIN has found different divisions paying different prices for the same item.

"MIN is a tangible example of a cross-divisional solution where we use technology internally to leverage the combined strength of our divisions and drive bottom-line results," says Kremer, the company's vice president of materials The roots of MIN go back to 1996, when the strategic procurement program began efforts to better integrate the 60 manufacturing divisions through technology. "The goal was to develop a system to make sure all divisions would be paying the same prices for the same or similar parts," he says.

Basically, MIN provides a common set of specifications and other purchasing information that allows buyers in the various divisions to compare their purchases within a common database. With this information available, they can aggregate and leverage purchases with suppliers globally to generate short-term or long-term cost reduction opportunities.

Recently, buyers at three Fisher Valves sites found they were sourcing the same 12-foot tubing used to hook up different accessories from two different suppliers. When MIN data showed that all of the tubing could be purchased from one supplier at lower total cost, the Fisher Valves buyers consolidated the purchase and saved $45,000. In the past year, Fisher has saved more than $1 million in "price parity savings" for 40 commodities—ranging from stampings to fittings.

MIN has also helped Emerson divisions make better use of existing inventory. Astec Power found itself overstocked with more than $300,000 worth of electronic components used in power systems. Using MIN, Astec identified two other Emerson divisions that used these parts in their power products; so, the materials already in excess within the company were simply transferred internally. "