More bang for its buck

By extending its Operational Excellence program to suppliers and customers, Motion hopes to achieve the most efficient supply chain in the industry.

Staff -- Purchasing, 1/13/2005

The success of cross-functional teams in reducing costs and improving efficiency in every aspect of its organization—including purchasing—has helped Motion Industries improve its supply chain efficiency.

Now, in an effort to achieve the most efficient procure-to-pay process in the industry, it's extending that internal Operational Excellence program outside its walls. In the past seven months, Motion has helped several key suppliers and five customers incorporate Operational Excellence programs to improve their procurement practices and efficiency. Just one example: a cross-functional team from Motion helped a customer increase its use of EDI (Electronic Data Interchange) in the MRO procurement process from 30% to 70% in two months.

And that's just the start. In 2005, the company plans to add more customers to the program.

Operational Excellence—part of Motion's overall strategic planning process—examines every single activity at the company with an eye for cost improvement, performance and improved efficiency and effectiveness. Among its successes: increased efficiency in the MRO procurement process, a reduction in administrative activities that provided the foundation for a central billing system, and a streamlined billing process at branch operations that will be fully rolled out at all branches by the end of April. Motion also is piloting a new Web-based expediting system.

"Through Operational Excellence, we are creating a more efficient business model internally," says Ellen Holladay, director of Operational Excellence and senior vice president of information of the Birmingham, Ala., company that is North America's largest distributor of bearings, mechanical power transmission, fluid power transmission replacement parts and hose products.

The rollout of the program to its partners in the supply chain began last May when Holladay and her cross-functional team met with key suppliers via a Webcast. Motion outlined its objectives for achieving the most efficient procure-to-pay process in the industry, described how it needed suppliers to get involved in that process and assigned internal resources to help meet the objectives. It also explained how it would measure performance to the goals.

As of this past November, Holladay reports that close to 80% of its suppliers have made gains against such measures, when calculated as a percentage of orders sent electronically. "Every single supplier has improved," she says. "We've had tremendous success and enthusiasm from suppliers for providing a way to measure progress toward set objectives."

A month after it introduced the program to suppliers, Holladay and her team introduced Operational Excellence to some strategic customers based on the strength of their relationship as well as the commitment and capability of the customers to devote resources to supply chain improvement.

In a similar fashion, the team analyzed with its customers, ways to increase efficiency of the MRO procurement process.

The two groups mapped out the most efficient process, agreed on measurement tools, identified opportunities and prioritized projects with the objective of improving the relationship. An implementation team meets quarterly or monthly to assess progress. "Both teams have to understand the model [for] it to work effectively," says Holladay.

There have been a number of positive impacts says Holladay. "Both organizations share best practices and leverage that knowledge across transactional relationships. MRO procurement is a very costly transactional model because of the large number of suppliers and the relatively small dollar value of the purchase order. [This helps] make sure transactions are cost effective."

The biggest change on the customer side: increased use of electronic transactions. Additional customer projects include improving their ability to accurately identify products ordered, which helps reduce exceptions. Customers that receive direct shipments from manufacturers need to properly identify materials so that when they receive them they give the distributor credit for the shipment. This sets the payment process in motion. Other projects involve inventory management and contract compliance.