Kimball Electronics has a five-year plan to reach $1 billion in revenue and believes strategic sourcing and tapping into its suppliers' expertise will help it achieve that goal.

The electronics manufacturing services (EMS) provider, based in Jasper, Ind., had $430 million in revenue in fiscal 2005. By increasing business with existing OEM customers, adding new customers and making selective acquisitions, Kimball expects to grow its sales to the $1 billion mark by 2010.

Strategic sourcing will be important in achieving that goal because Kimball needs suppliers to help satisfy customers and gain more of their business and to win business from other OEMs.

At the same time, Kimball is actively looking to consolidate its supplier base so it can work more closely with fewer suppliers to tap into their business and technological expertise.

Besides increasing revenue, Kimball is also looking to improve efficiency and profitability. Since it spends about $300 million for production materials, any materials cost savings it can achieve by better leveraging its purchases can go right to the company's bottom line.

"Our goal is to manage every penny of every dollar that we spend with our suppliers, be they raw material suppliers, freight suppliers, or indirect," says Everett Tucker, director of global supply chain management for Kimball. "We want to touch every penny."

To help manage its spend, Kimball recently completed deployment on an SAP ERP system at all of its facilities, a process that took five years. Kimball has six facilities, four in North America, one in Thailand and one in Poland.

"The SAP system has afforded us a lot of visibility and access to information that we didn't have before," says Tucker. "We were on at least three different materials resource planning (MRP) systems. Access to information and the ability to analyze the information was limited, at best," he says.

So much data Moving to SAP has enabled Kimball to collect more information about its spend with suppliers.

"Now we are a lot more efficient at collecting and aggregating spend information by supplier, by commodity, by customer, by product," says Tucker. The information gathered is used in negotiations because Kimball can show a supplier what its total spend is with the supplier and how much it spends for certain commodities.

"SAP is a spend analysis tool that is obviously important in the negotiation process, and in benchmarking. We can evaluate our pricing picture and our supplier's pricing," he says.

Tucker says Kimball has reduced the cost of materials 3-4% by using SAP and is improving its leverage with suppliers.

SAP has proven to be a useful tool to Kimball's commodity teams and materials council. Kimball has commodity teams for electronics, mechanicals, and printed circuit boards and sub-teams within those groups. Sub-teams could include semiconductors, passives, connectors and specific types of boards.

Commodity teams, comprised of buyers and supplier quality engineers, use the information from SAP to recommend sourcing strategies, including which suppliers to use.

Kimball's materials council, made up of the materials managers of each business unit, makes the final decisions about sourcing strategies, including supplier selection.

Cutting suppliers A key initiative for commodity teams and material council is supplier consolidation. It can be difficult for an EMS provider to reduce its supplier base because it may have to take on the suppliers on its customer's approved vendor list.

Often an EMS provider has to show its OEM customer a clear advantage of using its own supplier rather than the one the OEM's list.

"We have made some progress influencing the sourcing decision that our customers make," says Tucker. "There are a growing number of examples of where we participated in the customer design and development and made recommendations about suppliers. The customer allowed us to make sourcing decisions on their behalf."

Tucker says Kimball will continue to work to reduce its base of 1,500 suppliers and consolidate more spend with fewer suppliers. Right now, he says, about 75% of Kimball's spend is with 50 suppliers. In the future that percentage will rise.

As the company cuts its number of suppliers, it will work to become a better customer to the ones who are left. Doing so will help Kimball leverage its status with those suppliers to get better prices and service, and to get access to their technical expertise.

In deciding which suppliers to keep or to award more business, Kimball is using scorecards rating suppliers on cost, quality, delivery, services and technological advancement. Essentially, the company looks at total cost of ownership and supplier commitment.

"We expect suppliers to be as committed as we are to our customer's success," Tucker says. "We have to get a total package of value from our suppliers that meet or exceed our customer's expectations."

He says Kimball tries to solve problems for a customer even if the problems are not related to business with Kimball. "We want suppliers who have the same type of attitude."

Suppliers holding out Tucker says Kimball needs to work more closely with its suppliers. He believes they have a lot more to offer.

"Although we have made improvements in supply chain execution, suppliers continue to be the most underutilized asset that we have," he says. "There is value yet to be gained from our suppliers."

For instance, Kimball is embarking on a "Lean Sigma" initiative where it plans to identify waste in its processes and eliminate it by employing Lean methodology. In addition, it expects to improve its quality by using Six Sigma principles.

Tucker says suppliers can provide critical input about how Kimball can take cost out and improve quality. "They can tell us what are some of the poor practices that we are imposing on them that make the cost of doing business with us higher," says Tucker. "What is impeding their ability to provide low total cost of ownership? How can we identify and reduce waste and eliminate errors in our processes? How do we get rid of inventory that is not value added?" Suppliers can provide input on all of these issues, he says.