Soon after he came on board as Vice President of Enterprise Excellence at Textron, Inc. in the fall of 2000, Edward H. Orzetti created a supply chain council for the company. The council's first meeting in February 2001 brought together procurement leaders from each of the company's businesses: Aircraft, Fastening Systems, Industrial Products, Industrial Components and Finance. Since then, the council—whose purpose is to improve all internal processes used to satisfy customer orders—has evolved to include representatives of other supply chain functions such as manufacturing and operations.

As one of two co-chairs of the council, Orzetti's efforts align closely with those of Textron top management to transform the company into "a networked enterprise of globally strong businesses and powerful brands in attractive industries."

Well-known Textron brands include Bell Helicopter, Cessna Aircraft, E-Z-GO, Greenlee, Camcar, OmniQuip and Kautex (see sidebar on page 28). With annual revenues of $12 billion, Textron is one of the country's largest multi-industry companies. Headquarters are in Providence, R.I. Its annual spend is about $6 billion.

Textron recruited Orzetti after he spent five years in various positions at General Electric, where most recently he served as general manager, supply chain management, for GE Supply. He has also directed GE's central European sourcing operations in the Czech Republic.

In his current post, Orzetti is responsible for Textron's supply chain and other initiatives, including the company's Six Sigma program. He's a member of the Textron Transformation Leadership Team, led by Lewis B. Campbell, chairman, president and CEO, and comprised of 17 of the company's top executives.

During its first year, the supply chain council (the other co-chair is Sam Licavoli, industrial sector president) centered its efforts mainly on strategic sourcing and distribution and logistics issues. While these activities are on going, the council next is addressing other aspects of the supply chain: asset/inventory management; demand forecasting; manufacturing, assembly and test. Later it will work on planning and scheduling and field service support.

Says Orzetti of the importance of the council's work to Textron: "For a company like ours, supply chain management really needs to be a core competency."

In the past, Textron had tried to consolidate some of its purchases, with limited success. Typically, each business had entered into agreements with key suppliers on its own. The supply chain council is not centralizing the company's purchases nor is management naming a chief purchasing officer. Instead, the council is simply a vehicle to leverage common purchases and share best practices across the businesses.

As such, the supply chain council is focusing on six areas in 2002: inventory; warehousing and logistics; globalization; e-auctions; commodity teams; and sales, inventory and operations planning. Each focus area is led by a CEO champion (who communicates the team's activities to the businesses as well as the Transformation Leadership Team) and a subject matter expert. "Alignment across the enterprise is a big part of Textron's transformation," says Orzetti.

Representing procurement from the businesses on the supply chain council are the following individuals: Rick Rosenjack (Bell Helicopter), Mike Katzorke (Cessna Aircraft), Jim Murosky (Textron Fastening Systems) and Bill Rogers (Textron Industrial Products, TIP, and Textron Industrial Components, TIC). Also on the council representing TIP and TIC is Dirk Busch, who acts as a link between procurement in the U.S. and Europe. Added to the council earlier this year are representatives of the manufacturing and operations functions of the businesses.

Because it impacts each Textron business directly, globalization (low-cost global sourcing) has perhaps the greatest potential to transform the supply chain. It is one of the supply chain council's focus areas for 2002.

Leading the globalization team is Jake Hirsch, CEO, Textron Fastening Systems (champion), and Joseph C. Sponholz, director, Enterprise Excellence (subject matter expert). Sponholz reports directly to Orzetti.

The company has a goal of increasing sourcing from global suppliers by $1 billion by June 2003. Global sources can help Textron cut costs up to 25%, while maintaining stringent quality standards and on-time delivery schedules.

To help the businesses meet the goal, Orzetti and the supply chain council are setting up International Purchasing Offices (IPO) in three geographic regions, or poles—Central and Eastern Europe, Asia, and Central and South America. The IPOs prequalify suppliers and coordinate activities of Textron businesses in the region.

As a company, "we are truly looking for the best goods and services we can acquire to better satisfy our customers," says Orzetti. "To do that, we cannot contact suppliers simply by looking through a telephone directory or surfing the Internet. Searching for suppliers in a particular geographic region requires local knowledge and expertise. And, if things go well, there is so much opportunity. But, it takes more work than anyone can imagine."

It is a concerted effort: First, Orzetti brought together individuals from within the company who have expertise in global sourcing. While at GE, he directed the company's central European sourcing operation in the Czech Republic. Based on expertise of these individuals and knowledge of the company's requirements, he and the team initially targeted Eastern and Central Europe as a site for an IPO. They selected the region for its manufacturing capacity (lots of large, empty factories), technical capability, cost structure and ease of doing business (from a time zone perspective). What's more, some Textron businesses already were sourcing parts and components from suppliers located nearby. Says Orzetti of the decision, "Poland may not necessarily be the right answer, but it's a logical one for us."

(Opportunities for Textron businesses to source goods and services also exist in other areas of the world such as India. Orzetti says recent activity centered around the IPOs is not stopping any of the businesses from pursuing those endeavors.)

Next, he worked to gain support of leaders in the businesses. (As a member of the Transformation Leadership Team, he got top management on board.) "Upfront we need to get everyone on the same page—purchasing, engineering and manufacturing," says Orzetti. "The business leaders have to ask questions, dedicate resources to the effort, visit the IPO, spend time with suppliers."

To this end, the supply chain council held one of its quarterly meetings earlier this year at the company's first IPO in Rzeszów, Poland. Next year, a meeting will be held in Asia. "We have to get people out of their offices and, frankly, their comfort zones, to understand the capabilities and challenges of the regions. When members of the supply chain council returned home, they said they couldn't believe the expertise they saw. That resonates throughout the business."

Legally established in Rzeszów in June 2001, the IPO is managed by Justin Fabbro, director of Central European Sourcing Operations, and staffed with locals and U.S. citizens working for Textron's corporate organization and its businesses. (Once the company opens IPOs in Asia and Central and South America, the office will take the lead role assisting individuals working in the regions with understanding capabilities of the businesses.) It is centrally located and is easily identifiable as a Textron entity. "You have to let suppliers know that you're there for the long haul," says Sponholz. "They are one of the best sources for helping to find a second wave of suppliers."

Textron's goal is to set up its IPOs and gather knowledge and expertise for the businesses. Specifically, individuals who staff the IPO have technical, project management and commercial (contract) expertise.

Orzetti stresses that it is extremely important to Textron to maintain a high level of integrity and process discipline in everything the company does, especially regarding its IPOs. "So we are very diligent about the individuals we hire and the suppliers we select. Having rigorous processes is critical."

While cost, quality and delivery are important supplier selection criteria to Textron, the IPO looks at a supplier's "total package", keeping in mind the company's current and future requirements. After a preliminary review of capability (manufacturing, quality, engineering, financial and leadership) including a site visit, the IPO sends the supplier an RFQ (request for quotation), which includes detailed specifications, drawings, photos and sometimes even the part itself. At this point, local Textron technical experts walk the supplier through the Textron factory to ensure that they understand exactly what it is they are quoting.

Next are a standard evaluation process and a rigorous supplier audit. The supplier manufactures and inspects (documented and shared across businesses) initial parts.

Communication between the IPO and the supplier is a must.

"The first few parts are critical," says Orzetti. "We are establishing a working relationship with the supplier who is learning about quality systems, standards, and expectations. At the same time, we are learning more about the supplier. We need to maintain an eye toward growth. We can't spread ourselves too thin and work with 100 suppliers. We really have to focus our efforts on a limited number of suppliers. Still, we can't overwhelm a good supplier."

Textron businesses currently are sourcing components from suppliers located in Eastern and Central Europe mainly for existing products. But suppliers also have capability to provide parts for new products. Orzetti says that the ideal situation would be procurement providing a link to the global suppliers during the engineering phase of new product development.

Currently, one supplier located in the Czech Republic is manufacturing metal frames for a piece of heavy equipment for Textron's OmniQuip business in Wisconsin. The supplier is continuing to make process improvements (is willing to paint the part in addition to current requirements) and is close to full run production. At the same time, the supplier is willing to expand its capabilities (it's evaluating different metallurgies) to produce additional parts for the company. Says Sponholz, "This is a good example of a relationship that is going to grow. This supplier is willing to invest time, effort and capital in its capabilities." Other Textron businesses already purchasing components from suppliers in the region: Fastening Systems is purchasing finished products (tooling) while Cessna Aircraft is sourcing sub-assemblies. Some products manufactured by Textron are controlled by government regulations (FAA and others) so the company needs permission to source components overseas. Bell Helicopter has done this.

Another focus area for the supply chain council in 2002 is commodity teams.

For the teams, the council initially targeted indirect goods and services. Using the company's leverage and by improving internal processes, teams so far have helped reduce costs of purchasing indirect goods and services by about $100 million. Plus, the teams have committed to additional savings goals of at least that amount for this year.

One of the first commodities Textron has purchased through its commodity teams is travel. Other indirect goods and services purchased by teams are office supplies, copiers, paper, MRO items, PCs, fleet vehicles and temporary labor. On the direct side, teams have purchased steel and plastic resins.

The commodity team focus is led by Scott Warren, director, Enterprise Excellence (expert) and Sam Licavoli, president, industrial sector, (he's called an executive sponsor). A steering committee of supply chain executives from the businesses select commodities to be purchased by the teams as well as members of the teams.

The steering committee chose travel for several reasons: One business was looking to hire a new travel agency. And, at the time it made sense to take a broader look at the travel needs of all the businesses as well as the corporate headquarters location. Also, the committee saw the travel purchase as a way to help demonstrate the supply chain council's efforts to the Transformation Leadership Team as well as to employees throughout the company (many of whom travel). "Purchasing goods and services through the commodity teams is very different from the way we approached things in the past," says Orzetti.

For travel, a $50 million annual spend for Textron, the commodity team is made up of representatives of the businesses considered subject matter experts as well as reps of such related functions as finance and legal. Typically, the team leader represents a business that purchases a large volume of the commodity or who has expertise in the purchase. For travel, the team lead is Michael A. Charron, a manager with Cessna Aircraft. (A CPM and professional engineer, Charron has years of supply chain management expertise.) "Aside from leveraging the volume, we are able to get a critical mass of knowledge and expertise from getting these folks together," says Orzetti. "None of the businesses could do this on their own." Once team members were identified, the group created its charter.

To purchase travel or any good or service, a commodity team uses a five-step sourcing process developed by a team of supply chain representatives from within Textron businesses overseen by Kevin J. Canavan, director, Enterprise Excellence. Says Orzetti of the process, "It's one thing to say that we are going to buy together. But, in many cases, there is a feeling of a loss of control. The businesses need to be confident that there is a process through which they have input." In addition to the businesses having representation on the commodity team, the process includes two "gates" (one after step two, another after step four) through which the supply chain council lends its approval to progress made to date by the commodity team.

Depending on the commodity, the five-step sourcing process typically takes two to five months. For travel, the team used the process to establish national agreements with one travel agency, three airlines, one rental car agency, one corporate card program and 75 hotel properties which are listed in an enterprise-wide directory. (Previously, the company had been doing business with about 160 travel agencies, a dozen airlines and seven corporate card programs.)

"I think use of the commodity teams and the five-step sourcing process has done a lot for us," says Orzetti. "It demonstrates that we can reduce cost and improve service levels as well as accomplish something together as an enterprise."

He cites an anecdote: "In the past, travelers from three Textron businesses may have had three different agreements with one hotel property, and therefore paid three different room rates. Why didn't the three businesses just pick the best agreement? We don't know which is best until we come together and figure it out in a coordinated way. At that point, I bet we can take the rate on the best agreement and move it another $10. Then people start realizing that there is a lot of value to be had in the transformation of the company."

Sourcing process

The sourcing process has these five steps:

One: Identify baseline spend and requirements. At this step, the team gathers spend data and researches supply base economics and industry dynamics.

Two: Develop commodity strategy. Here, the team evaluates sourcing strategies, supplier capabilities and desired project goals.

At this point, the team approaches the supply chain council for its input and approval of its chosen strategy (Gate A). Then, the team begins its work with suppliers. "We have a very rigorous RFP (request for proposal) package which we developed in a coordinated fashion," says Orzetti. "When we talk to a supplier, we use standard templates (i.e., letters, contracts, etc.) based on Textron best practices."

Three: Solicit bids from suppliers and evaluate. As such, the team analyzes capability to meet Textron requirements.

Four: Negotiate contracts.

Next, the commodity team provides the contract to the supply chain council for review and approval (Gate B).

Five: Implement contract and monitor supplier performance.

For travel, the commodity team held its first meeting in February 2001. "At the beginning, gathering travel spend data was more challenging than it should be," says Orzetti. "But it's the real world. The company's systems are not as integrated as they need to be, but we are working toward that." (Under its agreement with Textron, the travel agency selected by the team now collects data on the company's spend. With new data generated by the agency and a new corporate card program, the team expects to have improved leverage next time it negotiates travel agreements.)

By March 1, the team had put together a plan "to bid out the agency" (Step two). It had identified 160 agencies with whom the company had been doing business in 2000.

The team sent its RFP package to six travel agencies. In so doing, it was looking for an agency with size and scope to handle requirements of a company the size of Textron. It also evaluated the agency's track record, information systems and implementation plan. Charron says that the final selection came down to two agencies. One was smaller and more flexible (Textron would be its largest customer). A second was larger and probably not as flexible, but it had an implementation process the team believed was necessary to help ensure success of the transition to a single travel agency. It was the agency the team ultimately selected.

Also, the team hired a consultant to help it look at the industry. He advised that airlines would soon not be paying commissions to travel agencies, and that the team should negotiate them into upfront discounts. "We did that and in a year the commissions disappeared," says Charron. "If we had waited, it's safe to say we would have seen up to 3% less in our discount. That kind of industry knowledge was very powerful."

The team had an agreement with the agency by June 1, when it began phase one of an intensive implementation plan. Phase two of the plan began 45 days later and phase three 45 days later. "A lot of effort went into implementation," says Charron. "We had to go out to each of the businesses to communicate the company's expectations. Some didn't have a designated travel agency. Others were losing agents with whom they had maintained relationships for years. It was a very big change management effort."

In consolidating the travel spend, Textron reaps the benefits of reduced costs (from leveraging its volume, streamlining its processes) and improvements in customer service levels. However, it is not a one-way street. The company has agreed in turn to steer its employees to its preferred suppliers. It is accomplishing this by enforcing a new travel policy. (The commodity team isn't just about cutting costs or negotiating agreements. It also evaluated best practices and looked at how other companies have streamlined their travel processes.) The policy, which has been approved by the CEO, Executive Vice President of human resources, the legal function as well as the Transformation Leadership Team, is communicated to employees and enforced by the travel agency.

To set its travel policy, the team again worked with a consultant. "The policy dictates a standard of behavior with the goal of booking travel such that the trip objective is met at a reasonable cost," says Charron. "We don't allow a traveler to come back and say that because the agency booked him or her on a particular trip, he or she didn't make it to the meeting. The traveler is responsible for that. The agency gives the traveler options and costs and the company asks that he or she be reasonable when making travel arrangements."

Through the consultant, the team found that it was not as restrictive in its travel policy as most other companies, says Orzetti. "But now that we have an agency in place we can measure leverage points in the policy that produce greatest savings. For instance, how important is it that we save money by enforcing a policy that has travelers refueling their rental cars before they take them back to the airport? Once we make that determination and others like it we can decide which behaviors we really want to change and which we want to keep as a perk for travelers."

The agency measures Textron's performance to the policy (i.e., exception reporting, reason codes) and Textron measures the agency on its application of the policy and savings associated with that. Beyond this, the company looks to the agency to come up with strategies to improve management of the program.