Sonoco MRO team unearths savings from screen cylinders

Susan Avery -- Purchasing, 10/7/2004

Ever wonder what happens to cardboard boxes once their contents are removed and the boxes thrown away? How about yesterday's newspaper? Every day, all across America, employees of Sonoco's Recovered Paper Division gather these materials and deliver them to paper mills operated by Sonoco in North America. These items are the company's primary raw material for making everything from industrial carriers (tubes and cores) to snack, dough or orange juice cans. But before this reclaimed material can become reusable paper, it must first pass through a screen cylinder.

Screen cylinders can be found in every paper mill in the world. These large, metal, basket-shaped products are used to remove contaminants from pulp. The screens are consumable items as the contaminants they remove also wear away the cylinder's surface over time. This is especially true for mills that use recycled material as their primary input. Screen cylinders are critical to ensuring the quality of the pulp, which in turn affects the quality of the resulting paper and packaging products. Sonoco spends more than $1 million a year on screen cylinders.

Historically, Sonoco's Supply Management group did not play a lead role in the sourcing of screen cylinders. The product was considered by some to be too technical for purchasing to source. Sonoco had a preferred supplier; however that supplier was receiving less than 30% of its purchases.

"Our failure to consolidate the buy resulted in our preferred supplier losing confidence in our agreement and raising prices, says David D. Kipp, senior sourcing specialist, Sonoco Products Co., Hartsville, S.C. "After forecasting to purchase 118 screens in one year, we bought fewer than 30. We spread the rest of our purchases out in a manner that ensured we failed to capture any leverage we might otherwise have." Kipp is a member of PURCHASING magazine's All-Star MRO buy for 2004 [PUR: Aug. 17, '04; p. 34].

Being involved early on in the company's budgeting process and capital plans for the year alerted the MRO team to the screen cylinder spend, says Kipp who sees opportunity for savings in some of the company's smaller (approximately $1 million in annual spend) MRO buys. "If we can drive 20% to 30% savings that's better than going after a larger spend category and only generating 5%."

Sonoco's MRO sourcing team began to apply the company's strategic sourcing process to screen cylinders late last year.

"What's really exciting about this agreement, other than the fact that we now have all 16 paper mills buying from the same supplier, is that the supplier's ability to drive total cost savings may exceed initial price productivity of $500,000," says Kipp. Recommendations by the supplier, such as redesigning existing screens to increase throughput, could increase our production capacity. This is a big help since we anticipate running close to capacity next year."

In addition, the new preferred supplier is assisting Sonoco employees in determining when to remove the screens for refurbishing before they become damaged at a fraction of the cost of buying one new. "They're doing this knowing that it will result in our mill purchasing fewer new screens," says Jim Jilek, MRO team member from Sonoco's paper mill in DePer, Wis.

Working with a third-party consulting firm, Sonoco's Marc Ensign and Greg Munoz developed the strategic sourcing process. The process places importance on collaboration, market understanding, strategy development and competition. At Sonoco, all categories of spend over $500,000 must go through the process. The result, Kipp says, is a more structured, consistent approach that ensures Sonoco's objectives and targeted benefits are achieved.

Sonoco's strategic sourcing process requires strong market analysis and data collection. "To make sure we understood exactly what information we'd need, we relied on two paper industry experts at Sonoco, John Davis and George Baker," says Kipp. They identified 14 individual specifications from each screen that would be needed to ensure the accuracy of future bids. Team members were tasked with collecting specs from the mills they represent on the team. In some cases, this meant having to pull the screen cylinder off the paper machine during shutdowns to identify model numbers and other required information. This information did not exist in any other place. An arduous task, but when complete, the team had for the first time a complete and accurate listing of every screen cylinder on every paper machine in every mill.

While the MRO team was collecting the specs, Kipp gathered market data. This includes identification of suppliers, their product lines, technology, financial stability, and industry references. One of the defining characteristics of the screen cylinder industry is its competitiveness, he says. "We needed a strategy that capitalizes on this."

As part of its market research, the MRO team chose to host a Supplier Day for the screen cylinder manufacturers. Each company was invited to present its capabilities, meet the team and hear about Sonoco's strategic sourcing process. "The Supplier Day was an excellent way to increase competitive tension among suppliers," says Kipp. "It also provided Sonoco an opportunity to demonstrate our commitment to developing a partnership as well as our ability to deliver on our promises."

With complete specifications in hand, the team worked to determine Sonoco's service needs. It was not just interested in finding the lowest priced screen cylinder; it wanted to find a supplier that could help optimize the entire cleaning and screening system in mills. The team documented service requirements and included them as a part of the Request for Proposal (RFP) package.

The next step in Sonoco's strategic sourcing process is to conduct a formal review with the senior leadership to ensure management agreement to the team's strategy recommendation. Feedback on the team's strategy for screen cylinders was positive; it was given the green light to move forward and issue a Request for Quotation (RFQ).

"Consistent with our desire to use technology where appropriate to streamline the RFQ and negotiation process, we published the screen cylinder RFQ online," says Kipp. "We also posted all our responses to supplier questions online." This ensured that each supplier prepared its bid with exactly the same information. In addition to the RFQ package, suppliers had opportunity to review Sonoco's standard contract terms and conditions. Participation in the e-sourcing process was mandatory for award consideration and all suppliers submitted preliminary round bids.

Based upon the results of the preliminary round bidding, the MRO team elected to hold a final bid round using an online bidding tool.

Sonoco does not always choose to award the business to the low bidder. "Our strategies are developed with a total cost of ownership perspective," he says. "In particular, it was the supplier's ability to drive additional savings through system audits that weighed heavily in our award decision."

Six months later, the agreement is meeting or exceeding the team's expectations.

The team developed and worked an implementation plan with the preferred supplier, which gives them complete access to Sonoco's mills and internal resources to conduct their screening audits. Recommendations from these audits will drive the year-over-year savings mandated by the agreement.

For example, in one Sonoco mill throughput is a big problem and the bottleneck includes the screening process. "Our preferred supplier is working with that mill on a new screen cylinder and rotor design that could potentially increase throughput and allow the mill to produce more paper," says Kipp. Other recommendations involve purchasing fewer new screen cylinders and refurbishing older ones at a quarter of the cost. These are the kind of improvements that Sonoco expects from its MRO partners in return for longer agreements and opportunities to gain new business. Next year, the team plans to look at expanding its current agreement to Sonoco's European paper mills.

"This project was a terrific example of how Sonoco is using its strategic sourcing process to improve collaboration with our internal customers, gain a more meaningful understanding of the marketplace, develop robust strategies, and ultimately drive continuous productivity," says Kipp.