A presentation on what MRO customers are looking for in 2009. Includes demongraphics on how a company can judge has efficient and effective they are at buying MRO materials
3. My Background
Education
• BS, Montana State University 1983
• MBA, Miami University 1987
• Completed Six Sigma Training, Green Belt Certified, General Electric
• CEO SIX SIGMA AWARD, General Electric.
• Three time Nobel Prize Winner
• SCORE Trained and Certified through Chrysler
1988-1996 CHRYSLER CORPORATION Auburn Hills, MI
1996-2001 GENERAL ELECTRIC CORP Various
2001-2004 HARRIS CORPORATION Cincinnati, OH
2004 – 2007 LOUISIANA PACIFIC Nashville, TN
2007- 2008 BIOMET Warsaw, IN
2008 – Present ABERCROMBIE & FITCH Columbus, OH
6. From a customer perspective, the MRO supply market
remains highly competitive where companies can
exercise considerable leverage…
•Minimal product differentiation
•Significant capital requirements
Entry Barriers Medium
•Economies of scale can create an impact
•Alliances being formed to compete with mega-distributors
•Large competitive supply market
•Regional / Local fragmentation
Intensity Of Rivalry High •Consolidation and merger activity
•Low product differentiation
•Value added services and product breadth are differentiating factors
•Standard product requirements
•Low switching costs
•Potential high volume of supplier’s sales Buyer Power High
•High leverage potential
•Good product information
•Low costs to switch to substitutes
•Minimal product improvements
Substitutes Medium •Some brand loyalty issues
•Increasing usage of “generics”
•Influx of “global” products
•Commodity like products
•Cost-sensitive industry
•Low switching costs Supplier Power Low – Medium
•Competitive supply base
•Sunoco is an important customer
7. … however to achieve optimal savings,
companies need to consider the total cost of
the MRO spend
Total Cost Levers
Total Cost
• Consolidate number of suppliers
Buying Power Leverage • Pool volume across units and combine volume from
Labor Cost different commodity categories
• Redistribute volume among suppliers
Indirect/MRO Product/Service Specification • Conduct product value analysis and engineering
Overhead – Rationalization • Substitute materials
10 to 15 Process and • Pursue system buying alternatives
• Optimise life cycle costs
Percent Systems Costs
Total Cost Business Processes/ • Reengineer joint processes
• Share productivity gains
Labor Efficiency • Integrate logistics
Inventory • Support supplier operations improvement
Carrying Cost • Establish/develop key suppliers
Transactions/Systems • Develop integrated supply chain
• Supercharge process with consistent technology platform
• Monitor compliance through IT
Compliance/Shrinkage • Reduce costs further by controlling usage
Purchases of • Identify means to reduce demand through
Material/ Demand Management rationalization and/or substitution
Service Material/
85 to 90 Service • Dispose of long-turn inventory to suppliers
Percent Cost Redeployment of Inventory • Reduce downtime
Total Cost
Inventory Visibility Through • Manage inventory across plants
• Share inventory across sites
IT • Reduce downtime caused by lack of parts
Increased Use of • Implement process to improve warranty use
• Reduce downtime through improved service
Manufacturing Warranties
8. What customers want
Immediate results. Yesterday!
Do more with less / more resources!
Faster processes/Less work
What are we buying exactly? Clarity of
buy.
No political impact
9. In response to these market conditions, the MRO
strategies of both suppliers and customers are
evolving & becoming more sophisticated
Consolidation Among Suppliers Product
Through Acquisition And Alliances Availability
Expanding
Product Differentiation
Lines Among
EDI/
Suppliers Based Technical
Electronic
On Service And Support
Catalogs
Technical
Capabilities
Increasing Geographic Scope Number Of Products Offered
Inventory
Customer Focus On Management
Total Cost Instead Of
Price Customers Reducing Vendor Base
• Procurement
• Inventory costs
• Service/availability
• Price
Number Of MRO Suppliers
10. Suppliers & Distribution of Work
11834 Suppliers $673,333,339 Total Spend
Number of vendors Spend per category
$100 or less 952 8.04% $48,432 0.01%
Between $100 and $500 2360 27.99% $666,333 0.11%
Between $500 and $5000 4501 66.02% $9,029,460 1.45%
Between $5000 and $100k 3371 94.51% $80,699,738 13.43%
Between $100k and $500k 480 98.56% $102,986,142 28.73%
Over $500k 170 1.44% $479,903,234 71.27%
98% of suppliers = 28% of spend
Where is the buyer’s time spent?
11. Requisitions and FTEs
10 Mins per transaction
Transactions # of Buyers
Site Six Months Annualized Per week % of a week # FTEs per location
ONTARIO 3,711 7,422 143 59% 1 4
REDDING 805 1,610 31 13% 1 1
CORPORATE 87,920 175,840 3,382 1409% 14 29
FAIRLAWN 2,372 4,744 91 38% 1 1
PARSIPPANY 31,147 62,294 1,198 499% 5 5
PUERTO RICO 293 586 11 5% 1 5
Warsaw/Parsippany are cutting too many orders!
$0 to 1000 per requisition
12. Spend Per FTE / An Efficiency Snapshot
$31 million industry average
XXXXXX: $11 million per FTE
13. Cost Savings Return Over Time
40%
SP Solutions
35%
30%
25%
AMR Research 20%
A T Kearney
Sup/Dem Mgt 15%
MolsonCoors 10%
5%
0
Yr1 Yr2 Yr3 Yr4
15. What supplyFORCE brings
Your biggest strengths:
$18 billion revenue
Fast savings
FTE flexibility
Information clarity
Breadth of Expertise and flexibility (The
important extras)
Always nearby…. (potentially small political
impact)
16. Proposal Comparison (s/F bulb comparison)
Sum Original Price Program Unit
Descr Quantity (Program Price) Sum Amount Price Sum Amount % savings
30 watt R20 Incandescent Lamp, 90 $1.73 $155.70 $2.26 $203.40 -31%
PAR20 Metal Halide Lamp, H 62 $46.50 $2,883.00 $41.00 $2,542.00 12%
32 watt T8 SP35 Fluorescent La 1448 $1.46 $2,114.08 $1.39 $2,012.72 5%
100W Incandescent A19 Light Bu 3 $0.35 $1.05 $0.23 $0.69 34%
34 1/4" LONG surface fluoresce 112 $190.30 $21,313.60 $55.00 $6,160.00 71%
GEL40ACL24PK lamps 17 $0.51 $8.67 $0.23 $3.91 55%
GEL50PAR30HIRSP9 lamps 86 $6.03 $518.58 $3.64 $313.04 40%
GEL40G25CRVL PQ1/6 reveal lamp 18 $2.40 $43.20 $2.05 $36.90 15%
3foot T5 MIRROR FLUORESCENT 199 $52.50 $10,447.50 $50.00 $9,950.00 5%
GE 81282 35MR16/Q/6/TAL 4265 $4.70 $20,045.50 $3.84 $16,377.60 18%
LAMPS FOR A&F D FIXTURE 741 $15.93 $11,804.13 $11.95 $8,854.95 25%
GFI RECEPTACLE 123 $17.85 $2,195.55 $14.50 $1,783.50 19%
Type EM: Sure-Lites Recessed 235 $92.38 $21,709.30 $83.95 $19,728.25 9%
Type VM: GE F28WT5830ECO. 467 12 $4.59 $55.08 $4.00 $48.00 13%
$437.23 $93,294.94 $274.04 $68,014.96
$25,279.98
Total weighted 27%
$163.19
Piece Price % 37%
17. Project Phoenix Components
• Enablers (Maximizing organizational responsibilities with fewer people)
● P Card deployment
● Full launch of supplyFORCE
• Infrastructure (“Let the system do the work instead of buyers”)
● Item Master
● Using MAPICS and Oracle to their fullest
● Fully utilizing the requisition system
● Smooth out the entire domestic P2P process
● Establish blanket orders and catalogs
● Using warehouse transfers instead of purchase orders to control intra-
company shipments
• Readiness Preparation (Ensuring the right people are in the right places)
● Buyer models, Self assessments, Force Rankings
● Common classifications & Pay grades
• Metrics
● Ensure results are maintained
● Control re-deployments
● Measure against world class performance
• Control
● Shut off purchasing access
18. Potential Resource Redeployment
Overstaffed by…
Number of MAPICS buyers 30
Number of annual Purchase orders 24176
Number of Pos a clerk can handle 2500
How many clerks should we have 10
Buyer Current s/F Impact
Barb Miller 2803 1400
Lorie Metheny 3169 3169
Marie Cuba 2507 1250
Mary Titus/Dorothy Casa 1459 700
Scott Follmer 2266 2266
12204 8785
Impact to overstaffed numbers
Original # of Pos 24176
s/F Impact 8785 NOTE: Reductions are a
New annual amount 15391 result of P2P improvements
Number of Pos a clerk can handle 2500
and supplyFORCE
How many clerks should we have 6
improvements
Number of freed-up resources: 24 FTEs
How many people do you want?
Where do you need them?
19. Purchasing Organization “As Is”
64 FTEs
$664 million spend
$10,400,000 per FTE
Purchasing Organization Phase II
30 FTEs (Late 2009)
$664 million spend “ad ded”!
le
$22,000,000 per FTE iona l peop
dit
Twelve ad
20. The Quote Process - Example
●
Random selection of 50 “behind the wall” parts
●
Suppliers targeted:
●
supplyFORCE, Grainger, Graybar
●
Requested quotation turn-around time: 24 hours
21. The Quote Process-Specification Findings
• 19 out of 50 (38%) of the items had specification issues
• Categories included:
●
Packaging issues (pack vs. 1 bulb)
●
Unclear Spec Sheet
●
Unrecorded Substitutions
●
Manufacturer does not make this spec
●
“Had to price with can” (i.e. does not match
specification sheet)
●
“Unclear spec – quote with dimmer”
22. The Quote Process - Financial Results
Piece price savings:18%
Weighted volume savings: 12%
Estimated annual dollar volume:
$10-11,000,000
24. Keys to Success
Steering committee (high level)
High Level Commitment
Tracking metrics
Finance tie-in to verify results
Dedicated resources
Align internal departments
25. Laying down roots
Become the Customers IT department
(forecasting, data reporting)
Become the keeper of the Customer’s
data
Keep everything easy for the customer
Provide the sell (show the progress)
Constantly differentiate
Never underestimate politics