Timken transforms sourcing

Susan Avery -- Purchasing, 3/16/2006

The purchasing operation at The Timken Co. in Canton, Ohio, is taking steps towards becoming more strategic and the goal of the transformation is to better link internal and external customer requirements with supplier capabilities.

In a recent presentation at the annual meeting of the National Association of Purchasing and Payables professionals in Orlando, Fla., Mary Alice Kuhn, manager of strategic sourcing and design at Timken, likens Timken's transformation to a highway under construction.

In the past, the typical supply chain was relatively simple to navigate, she says, much like a two-lane highway. Whereas once companies like Timken manufactured most of the materials that go into their automotive and industrial products, today most manufacturers buy these materials from more specialized suppliers. The supply chain today is more complex, like a four- or six-lane interstate, with more influences challenging purchasing professionals putting commodity strategies in place.

And, for Timken, the supply chain highway became even more complex when it purchased bearing manufacturer Torrington in 2003.

After the merger, the purchasing operation assessed its capabilities and found that it was doing a good job at such activities as evaluating and selecting suppliers. It was also proficient at managing relationships with suppliers. "An area for improvement," Kuhn says, "was making a connection with the company's businesses to establish customer requirements and translate them to the supply base."

To improve in those areas, Kuhn benchmarked Timken's purchasing operations against those of other companies, using such sources as Purchasing magazine (including a story on Cessna Aircraft Co., recipient of Purchasing's Medal of Professional Excellence in 2003) and research from Michigan State University and ISM's Center for Advanced Purchasing Studies. Kuhn's benchmarking showed that world-class supply operations typically spend more time up front developing commodity strategy with internal customers. She also learned that they measure themselves using total cost of ownership (TCO) metrics rather than price.

THE SOURCING PROCESS. Timken's process to this point consisted of six steps, from receiving a sourcing requirement, through identifying and selecting suppliers, to managing the agreement. Since many of the company's customers are automakers, the process also included a step that covered certifications required by the industry.

As it was set up—with little interaction with the company's businesses—Timken's purchasing pros often spent a good portion of their days "putting out fires," rather than developing strategy.

Timken put a new six-step sourcing process in place last fall which lets purchasing pros spend more time working with their internal customers to understand their requirements. The six steps are: receiving a sourcing requirement, strategy planning, analysis and decision-making, relationship structure and contract, transition and implementation, and managing and measuring.

For the new sourcing process, purchasing selected 23 commodities, including raw materials (i.e., steel bar, tube, wire, strip), packaging components and transportation, representing a significant portion of the company's annual buy.

The second step, strategy planning, is the heart of the sourcing process. It's where the commodity manager strives to learn all he or she can about the commodity, the market and the business surrounding it.

Specifically, they focus on the commodity's specs, raw materials it's made of, manufacturing process and the like. They research the supply base—location of suppliers, their capability, quality processes, technologies and cost drivers. They study how Timken approaches the market—company goals and the competition, among other things.

Unique to the six steps is a framework that Timken calls the strategic sourcing council process. The cross-functional council has two executive sponsors and keeps tabs on the progress of the commodity strategy. It follows the strategy step by step, ensuring that the team is achieving metrics it put in place. It also allows for the team to make changes in the commodity strategy if necessary as customer requirements shift.

"When we first started sharing this framework with others, they said that it is going to slow us down," says Kuhn. "But it hasn't. Because the commodity managers have executive consensus, direction and everyone agreeing to the rationale, it helps speed the process."

Requirements of internal customers come into play also in determining ways purchasing measures itself. From her research, Kuhn learned that world-class supply operations track their progress at how well they manage total cost of ownership.

"There's always been pressure to reduce price," says Kuhn. "But it's just the tip of the iceberg. Under the water are costs related to on-time delivery, customer satisfaction and inventory. We are working with the supply base to better manage these costs based on requirements of our customers."

Looking ahead, Kuhn expects to be working to reduce costs associated with quality, supplier quality reliability and capacity, logistics, and transaction processing.