George F. Parsons, C.P.M.
George F. Parsons, C.P.M., Materials Manager, Evans & Sutherland, Salt Lake City, UT 84158, 801/588-1106, Formerly Director of Manufacturing Operations & Corporate Purchasing, Cadre Technologies, Providence, RI 02903
Introduction. This paper will present the different phases of a project that dramatically changed the way Cadre Technologies distributed its software products. It will show how Purchasing skills and leadership helped a $45M software company save $1.5M in less than two years. The project grew out of a need to better control inventory costs, but as other benefits emerged to further support the idea, it became a corporate initiative and cross functional team effort.
Cadre Technologies Distribution Model. At Cadre Technologies, like many other software companies, the main direct material cost is the hard-copy technical manuals that ship with the software media. Cadre's products are sold to large military and aerospace customers where teams of engineers utilize the sophisticated development software in a UNIX client/server environment. This requires a large number of unique technical manuals for the different products sold, as well as multiple copies of those manuals for the numerous users in the network.
As the Purchasing group began to assess how Cadre might better manage its inventory, they surfaced other problems and costs associated with carrying an extensive complement of technical manuals in a rapidly changing product environment.
Several departments at Cadre had already begun to explore the concept of "On-Line Documentation" or "hypertext," an alternative to hard-copy that could ship on tape or CD-ROM. While this change to the distribution model was seen initially as a solution to the inventory problem, other benefits emerged.
Cost Analysis. It became clear to the departments associated with the production of technical documentation that we might make a major impact to Cadre's bottom line if we could marshal the appropriate technical and administrative resources for a hypertext conversion project. It was also apparent that this idea was a major paradigm shift in the way we operated. To get the approval and solid commitment from senior management required a formal cost analysis that would accurately present the costs and benefits of such a program.
Attachment A is the cost analysis presented to the executive committee. In the analysis I sought to show projected costs based on two different algorithms. One was simply an extrapolation of historical costs for manuals and freight. The other approach, somewhat of a sanity check on the first, attempted to project costs based on a customer breakdown and anticipated software release schedules. The "bottom line" demonstrates the projected cost savings, while incorporating several assumptions and costs associated with operating differently. Indeed, any major adjustment to the way a company does something, in this case the distribution of manuals, must figure that there will be some new costs. In our case, the net effect was still a projected $4M savings over 4 years.
Executive Committee Approval. A critical phase to this project was the buy-in from the executive committee. Any major program can fail if the strategic significance is diluted at the operations level by a half-hearted commitment from the top. My immediate superior, the CFO, was immediately impressed with the potential cost savings. The cost analysis received additional credibility through the participation of other members of the Finance management team. Then recruited the active support from the VP of Engineering who managed two groups critical to the success of the project. Software Engineering would be needed for "mastering" the file directories to a CD image format and for working any other technical issues that might come up in a multiple platform UNIX environment. The other group in Engineering, Technical Publications, was the primary provider who would have to perform a second step of converting their doc files to hypertext format.
The VP of Sales was another crucial advocate for the program. The sales force would have to explain the distribution of manuals on CD-ROM to the customers. Not all customers would be easily convinced, nor would all appreciate having to procure hard-copy as a separate item, when it used to be free. Here I presented all the benefits to Cadre and customer alike and gave him a "sales pitch" that his people could use in the field. I re-emphasized the cost savings and with his approval, finalized a "policy statement" (Attachment B) that became a corporate-wide document. I even recorded a voice mail to the entire sales force explaining the program and the policy.
It is not insignificant to note that this cost savings project became a rallying point for the executive committee at board meetings, where the investors wanted to know about new ways to become profitable! So the momentum grew to a fever pitch, and roadblocks became fewer as we moved forward.
Contract Negotiations. In order to ship hypertext manuals, we had to go out for bid on a "viewer license." This license would allow our customers to actually call up and view or print portions of a given manual. In essence, we had to negotiate a contract for "distribution rights" to the software that would now ship with our own software products. Once again I needed help from a variety of departments within the company. Finance, MIS and personnel within my own department, Manufacturing Operations, had to generate reports that would provide the volume basis used in the request for quote (RFQ). Numerous technical issues had to also be summarized in the RFQ. With help again from the VP of Engineering, we went through an RFQ and negotiations cycle.
After selecting a vendor, I discovered that it was in the best interest of Cadre and our vendor of choice to implement this program in Q2 of '93. This would be in conjunction with the newest release of Cadre's core product, "Teamwork, version 5.0." If we were to delay implementation until the next major release, which would occur in '94, that might mean a re-bid, since the technology was changing rapidly and new vendors would emerge in '94. This was also an issue for Technical Publications, who were using an authoring tool compatible with the selected vendor's viewer product. A re-bid in '94 might mean a file conversion to a different authoring tool to achieve compatibility with the viewer software. As a result of this sense of urgency, we received an aggressive schedule commitment from Technical Publications and obtained a very competitive price from the vendor.
The administration of software royalties was a potential stumbling block to concluding the negotiations. We agreed on a fixed annual fee arrangement rather than a royalty based contract in order to avoid the headaches that come with discrete tracking of every shipment.
Implementation. The final phase of this project was the implementation phase. It involved the coordination of numerous milestones with Engineering, Technical Publications, Manufacturing and Purchasing. As stated earlier, this project would be concurrent with a major software release, Teamwork 5.0.
Technical publications had the daunting task of converting all manuals to a hypertext format in addition to the normal changes to the manuals that are associated with a new software revision. This meant that there would be too distinct versions of the documentation, one for hard-copy distribution and another for CD-ROM. We still intended to make hard-copy available primarily as a price list option.
The process of creating hyper-links in document files is a topic worthy of another discussion, but suffice it to say that it involves creating navigational or "hyper-links" between pages and chapters so that a user might "click" on a highlighted word or phrase and be able to switch to a different page. This is comparable to the context sensitive help screens most of us have in our Windows applications or HTML (hypertext markup language) pages found when using an Internet browser such as Netscape. This hyper-link creation activity literally consumed the Technical Publications department over several months as they moved into heretofore uncharted waters. Purchasing assisted this phase by coordinating the delivery of product tapes and consulting time from the vendor. The Purchasing Supervisor worked hand in hand with the Technical Publications Manager to ensure that the large volume buys of hard-copy manuals would be avoided for FCS (First Customer Ship) of Teamwork 5.0 software.
In parallel, we had to test the nuances of distributing software and manuals on CD-ROM. This was a first for Cadre, in that software itself had shipped on tape cartridge in the past. Here we were merging software and manuals onto CD-ROM rather than tape and hard-copy. Purchasing submitted a second RFQ for the CD-ROM manufacturing and after a thorough review with Engineering, concluded that we would be able to work directly with a factory such as SONY or 3M rather than a an integrated service provider. There would be technical issues and first article testing to coordinate with Engineering, but as we learned the process, it proved to be fairly straightforward and saved Cadre the cost and time of the middleman.
An Engineering led software project team continued to meet on the normal milestones associated with the release of Teamwork 5.0, but Purchasing became a more vital cog in that meeting due to their management of a separate set of milestones for CD-ROM and on-line documentation. Eventually Engineering delivered a beta version cartridge tape of the product and documentation that was delivered to 3M for CD-ROM mastering and a series of first article tests. The testing was accomplished with no process problems, and when the final CD-ROM version of software and manuals was delivered by 3M to Cadre, it was cause for celebration.
Victory! Celebrating the Win. A recognition process is sometimes overlooked at the end of a project such as this. Cadre had fortunately the recent underpinnings of a TQM program that allowed for the presentation of plaques and awards at the company meeting which followed. In addition, Purchasing hosted an awards luncheon for Technical Publications and Engineering as a way to show appreciation for their efforts. But the recognition and celebrating didn't stop there. Over the next several months it became clear that the savings from the program had actually exceeded expectations. (Attachment C). The executive committee was quick to present this accomplishment at a subsequent board meeting and I began to get calls from other software companies interested in the program. I hosted a workshop at the Software Manufacturing Association's Annual East Coast Meeting in November of 1993, which in turn fostered field visits from several companies.
Conclusion. In summary, the Purchasing professional can call on a host of skills used in their everyday activities to achieve major "home run" cost savings for their company. Cost analysis, contract negotiations, and project leadership were just some of the skills used to help Cadre Technologies save over $1.5M in less than two years. (Attachments to this paper are not available in text-only version.)