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How to Initiate an Effective Benchmarking Program for Purchasing

Author(s):

Lewis (Bill) Poole, CPIM
Lewis (Bill) Poole, CPIM, Eastman Kodak Company, Rochester, NY 14616, (716) 722-0543.

82nd Annual International Conference Proceedings - 1997 

Each year at budget time, the standard question asked of the Materials Management group is why do you have so many people. Our answer had been we do not have enough people, with more people we could lower total cost and manage materials better. The inevitable standoff occurs with each side feeling the other does not understand the need for Materials Management services.

We decided to be prepared to answer the famous question of Dr. W. Edwards Deming "How Do You Know?" We wanted to show management we really did know our business and thus initiated a project to benchmark planning, purchasing and scheduling services of other companies. This paper shares not only the results of the benchmarking efforts, but also will provide techniques for getting started.

GETTING STARTED. As with any successful project, putting together a process is key to achieving the desired results: Our up-front process included:

  • Reading reference material (Robert C. Camp book, Benchmarking, The Search for Industries Best Practices That Lead to Superior Performance).
  • Formation of a steering team
  • Formalizing a purpose statement that will outline the desired results (See at end of paper)
  • Deriving a list of questions you wish to have answered and ones you are willing to share the same data on with other companies (See at the end of this paper)
  • Selecting companies you would be interested in benchmarking with a focus on selecting the best in their field (It's hard to learn something from those that are not as good as you are)
  • Now that all that is done, it is time to set up visits. One of the most difficult parts of this process was making contact with potential benchmarking partners. We used numerous methods to achieve this process including:
    • When possible start with other sites within your own company
    • Making contact with people we knew at other target companies
    • Utilizing contacts of other employees of your company
    • Getting sources from consultants that service your company
    • Posting signs soliciting other companies interest at Local, Regional and National NAPM meetings
  • When all else fails, call main number of the plant you wish to visit and ask for the plant manager's office. * This will usually get you to the person you desire.

SETTING UP A VISIT. The initial steps should include providing the company you wish to benchmark a list of the questions you wish to cover . Additionally, make sure you understand the business they are in and be sure to share with them your business. On occasion we have had a visit canceled as the other company found areas where we were in direct competition. In all cases, to minimize the costs to the other company, we agreed to visit their facility while extending an open invitation for a reciprocal visit to out plant.

THE VISIT. We experimented with several approaches. Initially we would travel the morning of the visit, attempting to get to their plant by 8:00 AM with plans to stay until 5:00 PM. While this approach proved adequate, we found arriving the day before and having dinner with the other company was more beneficial. This allowed us to:

  • Build a relationship before starting the formal process the next day
  • Determine additional areas each company may wish to learn more about that was not included in the original expectations
  • This evening session frequently made us decide to alter our approach to better meet the need of the people with whom we would be meeting
  • Another key part of the visit is being prepared with the appropriate materials to complete the mission. Included should be copies of:
    • The process flow of your manufacturing process
    • Your organization chart
    • The benchmarking purpose statement
    • The data you promised to exchange

A must is to write a trip report immediately and hold a debriefing session among those in attendance. At first, we focused on answering and getting answers to the data sheets we had set outlined. We also found interesting organizational and motivational concepts that had been successfully implemented at other companies. This led us to construct a list of additional questions that we covered with the rest of our benchmarking partners.. In all cases when we asked these questions, we shared comments about questions from our company's perspective.

Finally, we found two, at most three people were sufficient on each visit. It is not important to have the same group each time, but it is imperative to have at least one person from the steering team go the along in order to provide continuity.

THE RESULTS. As discussed earlier, our goal initially was to see how our costs for planning, purchasing and scheduling services compared with other companies. In this area, we were somewhat hampered by the very integrated manufacturing chain at our site (Kodak Park, Rochester, NY) our process is basically split into three major master scheduling areas. These are:

  1. Components Manufacturing (chemicals and substrates)
  2. Film/Paper sensitizing (light sensitive emulsions on a substrate)
  3. Converting (cutting and packaging of product to sales units)

KEY OBSERVATIONS

  • In most companies the Purchasing function reported to the Materials or Logistics Manager and was on the same level as the Planning Manager (we have subsequently established the same type of organization).
  • Most companies funnel all purchase orders through the purchasing group on the way to suppliers (we have automated purchase order launching systems and once the buyer has established a price and a supplier, the materials planner can launch all orders direct with no dollar limit approval required).
  • In all but one company the materials function reports through a materials/logistic manager to the plant manager. While the personnel work quite closely with and are dedicated to production, they were not integrated into the manufacturing department. This allows a focus on maintaining functional excellence in the planning and purchasing discipline.
  • Most companies did not have non-exempt employees except for clerks and secretaries. (We are still reviewing that issue. Approximately 50% of our personnel are Non-exempt buyers and planners.)
  • In most cases, the finished goods demand and supply planning function is the domain of manufacturing, including management of finished good inventories. Forecasting, however, remains the function of the business unit, brand manager or product manager. (We subsequently followed this model and reduced the total headcount.)

By February 1994, we had completed visitations to 12 other companies. As we promised for when we initially engaged our benchmarking partners we planned a meeting at our plant to review all of our findings. Our thought in doing this was to create a "networking" atmosphere that will allow us to build from the new relationships we had made. In addition to sharing data, we asked each of the companies to share with others something that was especially impressive in our meeting with them. This allowed for not only a learning experience, but also an R+ for the company doing such an excellent job.

After the initial 12 visits we decided we had sufficient data around cost of services and determined we would focus on engaging companies that could help us with the following key causes:

  • An analysis of the master scheduling function with emphasis on their roles and responsibilities, job description and selection of the individual(s).
  • An understanding of how companies work with vendors to provide invariant materials. It was evident several companies focused a good deal of effort in this area and were very successful at improving the purchased value in a very positive (win/win) manner.
  • Learning how other companies approached requests for price increases. A very positive way we saw was working with suppliers to improve their process/cost to minimize or avoid such requests.

In summary, we feel we met and exceeded all of the goals we had set at the start of the process. We have now engaged 20 companies in this process. We chose outstanding companies, companies we felt we could learn from and utilize these findings as part of our continuous improvement process.


BENCHMARKING PURPOSE STATEMENT

PURPOSE:

  • To benchmark other companies planning/scheduling and materials purchasing planning staff

IN A WAY THAT:

  • Allows a comparison of planning system
  • Compares ratio of personnel to dollar volume and CAT numbers sold
  • Reviews asset levels and management policy
  • Outlines positions on MRPII and World Class Purchasing
  • Reviews cost of services
  • Compares training method and content
  • Addresses current and future planning/scheduling and purchasing issues

SO THAT:
Both Eastman Kodak and other companies can compare their overall scheduling, planning and material purchasing functions and formulate ways to make them more effective

BENCHMARKING CHECKLIST

GENERAL DESCRIPTORS OF MANUFACTURING PROCESS

  1. WHICH DRAWING BEST DESCRIBES YOUR PROCESS
    (drawings are not available in the text-only version of this paper)
  2. WHAT TYPE OF MANUFACTURING STRATEGY DO YOU EMPLOY (% EACH)
    ASSEMBLE TO ORDER: ________%
    MAKE TO STOCK: ________%
    MAKE TO ORDER: ________%
    OTHER (PROJECT): ________%
  3. IS YOUR MANUFACTURING AREA
    __ PROCESS
    __ BATCH
    __ ASSEMBLY
    __ OTHER (DESCRIBE)

  4. IS YOUR MANUFACTURING ORGANIZED BY
    __ FLOW (BUSINESS/PRODUCT)
    __ FUNCTION
    __ OTHER (DESCRIBE)

  5. IS YOUR MATERIAL PURCHASING
    __ CENTRALIZED
    __ LOCAL
    __ HYBRID (LOCAL AREAS PLACE ORDERS AGAINST CENTRAL CONTRACTS)
    __ OTHER

  6. IS YOUR PLANNING
    __ CENTRALIZED
    __ LOCAL
    __ OTHER

  7. DO YOUR PLANNERS AND BUYERS REPORT TO THE SAME
    __ MANAGER
    __ SUPERVISOR
  8. DO YOU HAVE A CORE TECHNOLOGY GROUP FOR PURCHASING IMPROVEMENT ?
    YES________
    NO_________
  9. DO YOU DO THE FOLLOWING?
    _____ MASTER SCHEDULING (MPS)
    _____ MATERIALS REQUIREMENT PLANNING (MRP)
    _____ JUST-IN-TIME (JIT)
    _____ DISTRIBUTION REQUIREMENTS PLANNING (DRP)
    _____ FINAL ASSEMBLY SCHEDULING (FAS)
    _____ KANBAN
    _____ VENDOR MANAGED INVENTORY (VMI)


MATERIALS
TERMS
YOUR BUSINESS PRODUCT BILL M$
% PRODUCT BILL THAT IS MATL COST %
CATALOGUE ITEMS (FINISHED GOODS) # ITEMS
NUMBER OF SPECIALS (STOCK VS. NON STOCK ) # ITEMS
FINISHED GOODS INVENTORIES DAYS SUPPLY
SINGLE OR MULTI-ECHELON STOCKING OF FINISHED GOODS

RAW MATERIALS (EXCL PACKAGING) # ITEMS
RAW MATERIALS (EXCL PACKAGING) DAYS SUPPLY
PRE-FINISHED GOODS INVENTORIES # ITEMS
PRE-FINISHED GOODS INVENTORIES DAYS SUPPLY
PACKAGING COMPONENTS # ITEMS
PACKAGING COMPONENTS DAYS SUPPLY
SUPPLIER LEAD TIME DAYS
COST OF PURCHASING AS A % OF TOTAL $ SPEND DAYS

PURCHASING AND PLANNING SYSTEMS
ARE YOUR SYSTEMS?
_____ PURCHASED
_____ CUSTOMIZED BY YOUR OWN COMPANY
_____ DEVELOPED INTERNALLY

PURCHASING AND PLANNING SYSTEMS -
WHAT TYPE OF SYSTEMS DO YOU USE ?
_____ DRP
_____ AMAPS
_____ P.C. BASED
_____ EDI
_____ 4TH SHIFT
_____ OTHER
_____ ERP

ARE YOUR SYSTEMS LINKED ?
_____ YES
_____ NO
_____ PARTIALLY

DO YOU HAVE A SINGLE OR MULTIPLE DATA BASES
_____ SINGLE
_____ MULTIPLE

PERSONNEL


PLANNERS (#)
Supervision ___________
Exempt (Planners) ___________
Non-Exempt (Planners) ___________
Non-Exempt (Clerical/Secretarial) ___________
PURCHASING (#)
Supervision __________
Exempt (Buyers) __________
Non-Exempt (Buyers) __________
Non-Exempt (Clerical/Secretarial) __________
STAFF (#)
Systems Support __________
Process Improvement __________
Training __________
Other __________

OTHER
DOES YOUR COMPANY REQUIRE PROFESSIONAL CERTIFICATION FOR:
BUYERS * ________
PLANNERS * ________

TRAINING (FORMAL)
TYPE OF
____________________________________________________
____________________________________________________

% TIME BUDGETED __________________

* IF YES, BY WHAT ORGANIZATION


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