Lewis (Bill) Poole, CPIM
Lewis (Bill) Poole, CPIM, Materials Manager, Eastman Kodak Co., Rochester, NY, 716/722-0543
Excellence in planning has frequently been measured by achieving MRPII Class "A" certification. Achieving excellence in Materials Management requires integrating both "Class A" planning and purchasing functions. Companies that are successful in doing this are the companies that will ultimately be World Class. This paper will share the steps necessary to attain this status by development of a world class purchasing organization.
Purchasing's traditional role had been:
Those actions have typically led to a focus on the price of material, not the actual value of the material.
Selection of vendors can be a time-consuming task in today's work environment. This activity is usually characterized by:
Much of today's buyers time is spent:
Price negotiation has frequently been viewed as the key measure of success of a buyer. While certainly and important aspect, this method seldom leads to the optimum value for their company. today's focus tends to be very short term in nature, utilizing very tactical techniques such as:
I am sure all of this sounds familiar in describing many of America's current purchasing departments
In the truly integrated materials management function there is a major opportunity to transform buyers to the role of strategic managers of material cost (value). The keys to such a metamorphoses will be achieved through the following:
As in most situations, the best performers are also the best trained. An aggressive training program for buyers should include the following broad based programs.
Another key to having successful buyers is their educational background. World class purchasing organizations will need not just college educated personnel, but more importantly individuals that have skillsets in the areas they are responsible for. An example is chemical buyers should have degrees in Chemistry, or Chemical Engineering. There is a world of difference between being able to pronounce complex chemical names and understanding the production processes. Packaging buyers might well be those who have a packaging engineering degree. In all cases, an MBA should be expected to solidify the technical and business skills needed to best manage the business.
Commodity strategies are table stakes for an effective purchasing organization. These serve the purpose of providing a written understanding of any commodity; they also are a key parameter in allowing a smooth transition as buyers change responsibilities. In some research I have conducted, I have found few companies have commodity strategies. A good commodity strategy contains the following:
By compiling these key items, buyers will be able to manage their commodities rather than being managed by others.
Armed with these basics the next key item for any buyer is to determine where their items fall in the overall market. This understanding will allow the buyer to maximize the use of their time. Commodities can best be isolated into four quandrants. The strategic management is determined by the sector the commodity falls in.
The late Dr. W. Edwards Deming in his seminars repeatedly asked the question "How do you know ?" The best way I answer this is to have an aggressive benchmarking program for both your planning and purchasing endeavors. It is amazing how much one can learn from others; this is also an excellent process to find potential improvements in your operation. To be effective you should benchmark companies, or other locations in your own company, that excel in the materials management profession. A number of items need to be evaluated to understand how effective your operation really is and what improvement opportunities exist. Data points to examine include:
Having participated in a number of these ventures, I can assure you they can be quite rewarding in showing the path to quantum improvement.
Most successful companies feature active quality programs with their suppliers. These are aimed at getting suppliers to, at a minimum, attaining product control for their manufacturing processes. For key materials process control with high CPK'S are a must. To avoid starting and stopping of activities this program should be focused on suppliers that you plan to do business with over the long haul. To maximize efforts they should follow an ABC approach, working on the commodities most critical to you operation; those with the most potential for cost reduction. The need to expand the relationships well beyond the salesman and buyer is also critical. You need to include the planner and manufacturing personnel from both companies in order to gain maximum results,. This will allow the supplier to provide suggestions of improvement opportunities that may not have been apparent to manufacturing. It will also allow the planner to make supplier quality and on time delivery reliability. as the quality improves, waste savings will be experienced; incoming inspection can be eliminated. A well run quality program should also mean savings for the supplier as well as more business in addition to lower manufacturing costs.
Not all companies are in a position to drive such quality efforts without significant training. In many cases your company needs to be prepared to provide the training to assure success. In some cases this might require going into a plant and changing the layout of the manufacturing flow. Other times is might require assisting in eliminating setups to allow smaller batch sizes. In still other cases efforts might be directed at teaching shop floor people how to create and read run charts to monitor the process. Such assistance should be kept to a minimum; preferably they will be reserved for sole source suppliers.
The last two topics on our list tie together. These are managing the supplier selection process and achieving best value in the procurement function. This is truly where the integration of the planning and purchasing function comes together. For years the purchase price of the material has been the measurement of a successful buyer. While not to be ignored, this is only one part of the equation. In fact there are numerous others that should be included.
These are not "soft costs"; they are measurable and should be included in your selection of suppliers to make sure you are really getting the best value for your company.
The world class companies will be successful only when they are able to integrate the functions of planning and purchasing. This will culminate in a truly world class materials management operation; for remember "If you are not the lead dog in the race, the scenery will always be the same."