Partnering for success

At Waste Management, it's about procurement AND business improvement.

By Susan Avery -- Purchasing, 1/13/2005

When hurricanes hit Florida last summer, Waste Management was there to help with the cleanup—and so were its suppliers. One supplier diverted trash containers from other areas to the region. And a company that supplies uniforms to Waste Management even had some of its personnel on hand to deliver food and ice to the cleanup workers who were putting in long hours on the job.

The presence of its suppliers in Florida is testimony to the relationships that the procurement team, led by Bradley J. Holcomb, vice president and chief procurement officer, has built with its suppliers in the last four years.

The Total Customer Satisfaction (TCS) process that it uses to select and manage suppliers rewards suppliers that meet their expectations with larger shares of its business.

The process has helped Waste Management reduce its supplier base from 500,000 to 65,000. Equally as significant, Waste Management now purchases 50% of its $5 billion annual spend through 105 suppliers, and 95% from 6,600 of those suppliers. And it has increased its spend with minority and women-owned business enterprises (MWBE) from virtually nothing to 5%.

It is also helping procurement to meet a long-term cost-reduction target of $350 million. Through negotiations with suppliers, it regularly achieves 10% savings and to date has reduced costs by $300 million.

To ease the ordering process for end users, Strategic Sourcing Director Ric Davis has put in place a purchasing system for the $1.3 billion annual buy for capital equipment: containers, landfill work, etc. All autonomy has not been removed from the buy: End users use the system to make purchases; they can configure a truck to their specs according to a standard developed by the fleet organization.

Orders for some general goods such as office supplies are placed through links to supplier Internet sites located on procurement's home page, 1 Procurement Place, on the company intranet. End users pay for these buys with purchasing cards, a spend of about $1 billion annually. Purchasing systems also track the company's spending, including buys with MWBE suppliers.

Supplier performance metrics have also dramatically improved. Two years ago, compliance to contracts negotiated by procurement was 75%. Today, it's 99.6%. Such a high compliance figure is a direct result of procurement involving its customers—the truck drivers and trash haulers working at its sites across North America—in the sourcing process through cross functional teams, a mandate when former CEO Maury Myers came on board in 1999.

What's more, overall supplier performance has improved from a C to a B grade and many of them have become strategic business partners and literally an extension of Waste Management. For example, one is helping to develop a hybrid vehicle that promises to operate more efficiently, reduce fuel consumption and have built-in intelligence that would enable it to predict its own maintenance. Others are helping with tire management and container inventory programs.

Through procurement's Total Customer Satisfaction process, "suppliers understand our business needs and how they can help us in the march toward process and productivity improvements," says David P. Steiner, who joined the company at the same time as Holcomb did in 2000 and became CEO earlier this year. "When Brad's group deals with suppliers it's not about buying at the lowest price, it's about procurement communicating to suppliers what we are trying to accomplish in our company and how they can help us meet our goals. They've done this with a truck supplier that started to change the way they produce our trucks in order for us to improve safety. It's a spectacular way to run a procurement department. Frankly, it's not just procurement, it's a procurement and business improvement department."

What surprises Steiner about Holcomb and his procurement team is that he hasn't seen a flattening out of the curve. Typically, when a company creates a purchasing operation, it's able to dramatically reduce costs because it's started from scratch. Then the benefits begin to fall off. "Brad and his group set high expectations and they exceed them every year. They are well on their way toward meeting a $350 million cost-savings target set for them four years ago.

"They understand how we do business," says Steiner. "It helps them to buy better products and understand the next steps we need to improve as a company. It allows them to help our suppliers get down that road."

The transformation of procurement at Waste Management began when former CEO Myers—who just stepped down two months ago—was hired in 1999 to turn the company around, or, as he likes to say, "pull the truck out of the ditch." One of his initiatives: transform procurement from a decentralized operation where each location purchased goods and services on its own to a world-class procurement program that leverages the size of its spend and its buying power.

To lead this effort, he hired former Eastman Kodak and Praxair procurement executive Holcomb as vice president and chief procurement officer. After working with A.T. Kearney to determine the size of the company's spend, Holcomb developed a centralized operation—with responsibility for strategic sourcing, supplier diversity, finance and working with end users in the field—at company headquarters in Houston

About 50 experienced procurement professionals, many with advanced degrees, manage Waste Management's $5 billion annual spend. The posts have become highly visible both inside and outside the company. For instance, procurement professionals help break down departmental silos within the company and now approach suppliers as a united front with both commercial and technical specifications, points out Dennis McKinney, director and team leader, trucks, parts, tires and service. In their negotiations with suppliers, they often hammer out agreements with such high-level personnel as the company president or vice president.

In addition, they often take on additional responsibilities such as serving on company projects, such as Strategic Sourcing Manager Hether Benjamin's involvement with container inventory management. Another strategic sourcing manager, Mary Kay Runyon, was recently promoted to vice president, fleet and logistics.

"I've always believed that the true measure of the quality of a procurement operation is that we can take key people and elevate them into other management roles within the company," says Chuck Williams senior vice president of operations with responsibility for overseeing procurement, fleet and other groups.

Holcomb, together with Elias Leger who came on board as director of supplier development in 2001, built the TCS process on the concept of ensuring that all products and services meet or exceed customer requirements, are backed by extraordinary service and support, exhibit flawless quality, and deliver precisely when needed, at a competitive price.

Based on this concept, suppliers are measured in five key result areas: Product & Technology Leadership, Service & Support Leadership, Quality, Delivery & Leadtime Performance and Total Cost Performance. Each result area has subcategories. For instance, under Product & Technology Leadership are such elements as Technology Leadership, Process Leadership and Product Leadership. Under Service & Support Leadership are Management Leadership, Business Support and Technical Support.

When selecting suppliers, procurement embeds these key result areas in its Request for Proposal (RFP) process, with added emphasis on the first two areas that Holcomb sees as leading indicators of performance. "We believe that when we have good input and a good feeling about a company's capabilities, track record of success and depth in these dimensions then we have good reason to believe they will produce well in the other indicators areas." Cross functional teams select two or three suppliers for each category, helping to ensure competition among suppliers. The teams rarely choose a single source of supply. About 65% of the company's annual spend is strategically sourced.

"TCS is about letting suppliers know first and foremost our expectations across the board—it's not just cost, quality or delivery, it's everything and we expect our suppliers to perform well in all dimensions," says Leger.

To measure performance, end users in the field—procurement's customers—use a Web-based tool to respond to between three and five detailed qualitative and quantitative questions based on their perception of how a supplier is doing. They may add comments if they wish. Suppliers tracked with the tool were chosen by procurement based on criticality of spend-heavy equipment, trucks, containers. Heavy equipment suppliers were the first, when the tool went online in the fall of 2001. Procurement now uses the tool to measure performance of strategic suppliers of heavy equipment, trucks, containers and some general services.

Customer response has steadily increased over the years, from 25% to 50% today, says Holcomb. "They find value in the program because it is based on results, suppliers take action and work to resolve issues identified through the process."

With the information, procurement then gives each supplier a grade A, B or C. Scores are compared within categories of spend (trucks, heavy equipment, containers). Through quarterly business reviews, procurement lets each supplier know how it scored in each area and whether they lead or lag (and by how much) other suppliers within their category. Those with higher scores are rewarded with a larger share of Waste Management's business. Top performers for the year also are recognized with Waste Management's supplier of the year award. Recipients for 2003 are: Wastequip, McNeillus Companies and Volvo Construction Equipment-North America.

"Since the beginning, we absolutely have not blinked," says Holcomb. "Our suppliers tell us all the time that this program is helping to make their companies better." Some have started measuring themselves internally on key areas of TCS. Some are extending TCS to their suppliers. All agree that communication between their companies and Waste Management procurement through the quarterly business reviews is vital to success of the process.

At Cleveland-based supplier Wastequip, CEO Bob Rasmussen says that his company developed a Quality Assurance Program for manufacturing containers that is a result of its involvement in the process. "As a company with 28 locations, this is a real test of pulling together all our operations towards one driving goal. It's a very significant event in our history." The supplier has agreed to move inventory from one location to another if it needs to to service Waste Management.

Says Michael Wuest, CEO, McNeilus Companies, Dodge Center, Minn., "Waste Management is constantly working with us to improve quality and efficiency to help us further reduce costs." These efforts are extended to the company's supply base as well. Wuest is familiar with purchasing policies and programs; previously he was chief procurement officer at Oshkosh, parent company of McNeilus.

At the other end of the supply chain, Dennis Slagle, CEO, Volvo Construction Equipment-North America, Ash-ville, N.C., says the company is starting to involve its dealers in the program, an effort that Holcomb and Leger view as a next step for the TCS process.

Moving forward, CEO Steiner also expects that procurement is going to become more ingrained into the day-to-day operations at Waste Management. "As more people with procurement backgrounds move into other areas of the business they are going to be able to buy local goods and services better. They will get support from the field and help educate the field to their way of thinking. With that foothold, the next level of procurement, demand management, will kick in."