William G. Cafiero
William G. Cafiero, Sr. Consultant: GE Information Services, Dallas, TX 75240, 972-788-8241
Overview. In today's competitive business environment forward looking companies are continually evaluating ways to become more productive and to lower their costs. One area of significant opportunity for most businesses is the purchasing process. This process includes all the steps from identifying requirements and potential suppliers, through the final payment for the goods or services purchased. In GE's case, considerable thought has been given to the process of purchasing indirect and MRO materials and services.
In 1995 GE began development of a computer tool to assist buyers in the management of the RFQ process. This tool is part of the GE Trading Process Network suite of services and is called TPN Post (e.g. it is used to "post" RFQ data to selected suppliers). What is TPN Post? In its simplest form it is a tool that enables GE to communicate electronically with its potential suppliers, in an easy to use, cost effective fashion, to manage the entire RFQ and supplier negotiation process. It uses up-to-date RFQ management software, for GE and its suppliers, connected via a low cost, very secure, internet communications link. The complete service includes consulting services to assure that GE maximizes the potential of the service, along with dedicated customer service functions to support both GE and its suppliers.
The objective in using TPN Post is to automate as many of the non-value added tasks in purchasing as possible, while providing a streamlined and structured method to locate, communicate and negotiate with suppliers. In summary, TPN Post offers GE opportunities to improve the purchasing process by:
By using TPN Post the scarce purchasing resources that GE has available can focus on true value added purchasing activities, rather than spending time on the low value added transaction handling parts of the process.
GE Lighting Case Study. GE Lighting is continuously improving its products and customer service, in an effort to strengthen its market leadership position in the US. Worldwide, more than 400 new products were introduced last year, with an emphasis on quality and customer value.
Improved customer service and satisfaction around the world is an ongoing priority at GE Lighting. The "Satisfaction Guaranteed" program was designed to increase product placement in retail outlets and provide a strong incentive for customers to buy GE compact fluorescents.
GE Lighting is reinvesting in the business to improve competitiveness, quality, service, and cost. Customer satisfaction levels are growing, partly due to a $100 million investment made in 1994 to expand production capacity and improve manufacturing processes.
Corporate Goals. GE Lighting is studying several methods to increase its competitiveness. One technique GE Lighting is implementing allows suppliers to place bids electronically. The initial and primary focus has been on the MRO side of the lamp manufacturing function to purchase replacement manufacturing parts more efficiently. However, packaging is involved on a limited basis for box designs, cartons, and shrink wrap, and some direct materials, (e.g., chemicals and glass) are being purchased via the new system as well.
In North America, there are 26 lamp plants. All purchasing is done centrally, and long-term contracts were let for many commodity items. Purchases are made from approximately 80 suppliers - 55 of whom are considered to be qualified suppliers by GE Lighting. GE Lighting maintains a "performance book" on each of the 55 qualified suppliers. Other suppliers include local suppliers and specialty item suppliers. These suppliers create specialty items that are designed by GE and manufactured to GE drawings to support the MRO process (maintaining the lamp manufacturing equipment). Approximately 5,100 quotes were let in 1995, with 2 buying agents supporting the effort. Many thousands of items are purchased by GE Lighting to support the lamp manufacturing MRO process.
The impetus for using the TPN Post system is multi-fold, focusing on achieving cost savings and increasing productivity. Specifically, GE Lighting anticipates that the new system will allow it to:
Actions. The lamp machine parts to maintain the machines generally are purchased in small quantities, although there are thousands upon thousands of them - with a price tag of approximately $20 million/year. Machine parts are contained in 1.5 million drawings - all of which have been in paper format. GE Lighting is actively rasterizing (digitize and store drawings as an electronic image) them. Currently, 110,000 drawings are in the system - and by the end of 1996, 500,000 will be rasterized (GE Lighting is only storing drawings for the equipment that is operating in the plants).
In the past, the purchasing system was manual. At the end of the day, electronic requisitions from each plant were batched to headquarters. When an item hits the minimum level in the inventory control system, a requisition is automatically spit out. In some cases, an established vendor held a contract to supply the part and automatic ordering occurred. At headquarters a request for retrieving the drawing from the vault was prepared. After the drawing was pulled and reviewed, a decision was made - by one of the 2 buying agents - as to whom to solicit a quote from (a producibility review). Then a bid package was then manually prepared (including the drawing). This process took anywhere from 7 to 14 days.
The TPN Post system integrates the requisition, print rasterization, and electronic bidding systems. The steps are as follows:
Figure 1 below shows the complete process. (Figure is not available in text-only version.)
There are several safeguards built into the system. For example:
Implementation. During a three-day period, the 55 qualified suppliers and selected others attend a 1/2 day training session where they are introduced to the new way in which GE Lighting will purchase products, equipment requirements, and the TPN Post system itself. They also receive software to practice with the system. The sessions will be held continuously until all suppliers are trained. Incumbent suppliers will use the manual purchasing system until they are trained.
In general, suppliers have responded favorably to the new system because they will see RFQs faster. It will also help them to gain business with other businesses - within and outside of GE - as they become part of a supplier data base.
GE Lighting is in the process of integrating the new system with its EDI and purchasing systems. (The latter systems are already integrated).
Outcomes. The system's perceived benefits are many: