Only the best suppliers will do

Tried and true sourcing practices deliver an optimal supplier base for FedEx

By Susan Avery -- Purchasing, 8/11/2005

It may read like a trick question, but it's not: How does a purchasing operation manage an optimized supply base while meeting growing customer demand for diversity?

Mary H. McDaniel, vice president of materiel and corporate sourcing for FedEx Express in Memphis, Tenn., was asked to address this issue at a diverse supplier event recently. "Many companies are struggling to understand requirements for doing business with small, minority or diverse suppliers," she says. "Often, because of changing demographics, customers are saying that if you want us to spend money with you, then we want to know about your diverse supplier program, including what you're doing to meet its goals."

Among her responsibilities at FedEx Express, the largest of the FedEx Corp. businesses, McDaniel oversees the diverse supplier development program, led by Dennis Taylor, program management adviser. The program, which provides avenues for underutilized suppliers to access the FedEx supply chain, has been in place since 1992. Other FedEx Corp. operating companies include FedEx Ground, FedEx Freight, FedEx Trade Networks and FedEx Kinko's.

The question posed to McDaniel appears tricky because purchasing operations at many companies looking to better manage costs see supplier optimization as a reduction in the size of the supplier base which tends to squeeze out small or minority or women-owned businesses, explains Taylor. "At FedEx, we take a different view and look at optimization in the true sense of the word, as working with the best suppliers, not necessarily the least."

Diversity is the way FedEx Corp. does business. Employees at FedEx Express regularly receive training (new hires spend two days on diversity) and learn about diversity through employee meetings, a quarterly magazine called Diversity Appeal and the company intranet. McDaniel's organization, which has strong management support, communicates its activities surrounding diversity to employees and suppliers through its web page. Both she and Taylor are active in national and regional organizations that support and promote diversity such as the National Minority Supplier Development Council. They regularly attend conferences and trade shows.

When it comes to selecting suppliers and managing relationships, McDaniel and her team rely on sound sourcing strategy. During the supplier selection process, for instance, the materiel and corporate sourcing organization uses an online supplier database (FedEx encourages suppliers worldwide to approach the company with ways they can add value to the supply chain) and RFI, RFQ and RFP (request for information/quotation/proposal) processes. To be considered a diverse supplier in the database, FedEx requires third-party certification confirming status as a small, minority or woman-owned business.

Later, the purchasing professionals may use an online auction tool to negotiate terms with suppliers before making their decision; they select suppliers based on capability to meet the company's stringent requirements. As part of materiel and corporate sourcing policy, individuals who place contracts with suppliers use a checklist to ensure that diverse suppliers have an opportunity to bid for FedEx business. Once the agreement is implemented, the purchasing pros track performance of all suppliers with a scorecard that uses rigorous measures, including on-time delivery, quality and cost. "Ultimately", says Laura Bullion, senior supply chain specialist, echoing Taylor's words, "FedEx Express works with only the best suppliers."

McDaniel tells of a recent e-auction to negotiate contract terms with a battery supplier. After consolidating the company's spending on batteries, the materiel and corporate sourcing organization's due diligence resulted in a base of 89 potential suppliers. Online negotiations resulted in FedEx Express awarding the business—a three year agreement—to a diverse supplier in Atlanta.

"Diverse suppliers comprise an important part of our supply chain because when we go to market we look for suppliers that deliver value," she says. "When packages absolutely, positively have to be there overnight, we have to have high quality, high caliber, very motivated suppliers."

At FedEx Express, "we believe that any program worth its weight in gold is worth monitoring and ensuring that we have a benchmark to measure ourselves against," says McDaniel. Her organization's annual diverse supplier goal is 5% of sourceable spend under its control. That is, 5% of the goods and services that FedEx Express buys that the company can reasonably expect to purchase through diverse suppliers. She uses jet fuel and aircraft as examples of commodities that she does not consider sourceable. Janitorial supplies is a sourceable commodity. Two months into the new fiscal year, McDaniel is looking not only to meet but to beat that 5% goal in some spend areas.

In Taylor's group, McDaniel has a professional staff dedicated to diverse supplier development. The group trains mentor-certified employees, raises diversity awareness internally and externally and shares best practices with similar groups within other FedEx companies. McDaniel recently moved Bullion, who will help identify and develop suppliers, to the group. "We also collectively gather information on spending with diverse suppliers," Taylor says. FedEx tracks such data to meet requirements of several government agencies and some corporate customers.

The materiel and corporate sourcing organization at FedEx Express also consists of a team of diversity champions, which McDaniel is looking to grow this year. These individuals represent such spend categories as aircraft parts, vehicles parts, IT and facilities; part of their responsibility is to encourage purchasing through diverse suppliers. In addition, each individual working in the materiel and corporate sourcing organization has goals related to diverse supplier development; these goals are measured as part of their annual performance reviews.

Diverse supplier development at FedEx Express includes outreach activities and organizing matchmaker events. As a matter of course, the materiel and corporate sourcing organization will assist new suppliers if they need help using certain tools that may be unfamiliar. "Through the RFP process we make suppliers aware of how we do business," says Bullion. "However, it may be the first time they use a particular tool set. We will help them get up to speed on our processes, such as navigating the order fulfillment process that we use."

Diverse supplier development also consists of helping suppliers identify opportunities to grow their business. McDaniel tells of a supplier that sells "blue juice", the lavatory chemical used in all planes that fly commercially. The supplier began its relationship with FedEx Express by delivering a better product at lower cost to the aircraft side of the business. After a while, McDaniel introduced the supplier, which also provides janitorial supplies, to the general commodities side of the business. This opportunity led to a meeting with one of FedEx's majority suppliers, Corporate Express. The office supplies distributor has entered into a joint venture with the supplier through which it delivers office and janitorial supplies. "Mentoring helped this supplier grow economically, expanding its business opportunities from a regional to national base," McDaniel says. It works both ways. She also likes to tell of the flexibility of some diverse suppliers to meet FedEx requirements, recalling an instance of one moving its facility to Memphis to be near its large customer.