Presentation to supplyFORCE meeting
- 1. 10 years 10 years Redefining the Supply Chain Jeff Tiefermann
- 2. Agenda My background/Why Consulting? What Customers Want Why supplyFORCE is the answer Implementation success
- 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
- 14. A Cash “Black hole” MRO Supplies Power Chemicals Conveyor Industrial Fluid Power Filtration HVAC Hardware Supplies Transmission & Lubes belting • Bearing - general • Hydraulics • Air Filters • Fans • Oils • Nuts • Conveyor Parts • Welding / Supplies • Plastic &Rubber products • Bearing - special • Pneumatics • Water Filters • Valves • Greases • Bolts • Belts • Cleaning utensils • Air bearings • Clamps • Oil Filters • Compressors • Lubricants • Screws • Tape • Belts (non-conveyor) Hoses • • Media Paper • Heat Exchangers • Chemicals • Pins • Adhesives / Seals • Gearboxes • Fittings • Telltales • Coolants • Grommets • Janitorial • Brushes • Reducers • Lube Equip • Process Filters • Glycol • Packaging supplies • Couplings/Pulleys • Gages • Product filters • Spray equipment • Rings • Valves • Process filters • Absorbents • Gear Motors • Tubing • Baghouse filters • Paint • Electric Motors •Hand Tools • Belt Drive Motors •Pneumatic Tools • Brake Motors •Power Tools • Seals/Bushings Electronics & Pipes,Valves Safety Building OEM Mobile Electrical Pumps Instrumentation & Fittings Supplies Supplies Spare Parts Equipment • Circuit Boards •Electronics • Valves • Safety products • Electric Pumps •Sand • Batteries • Controllers Fittings — pipe Safety equipment • Centrifugal • Tires •Instrumentation • • •Gravel • Transformers Pumps •Process Controls • Pipe — steel • Fire equipment •Lumber • Spark Plugs • Pneumatic • Lamps Pipe — composite Respirators • Motor Oil • • Pumps •Paints • Adaptors • Pipe — plastic • Ear protection • Pump Kits •Structural Mat. • Fork Lift repair parts • Wire / Conduit • Pipe — nonferrous • Gloves •Structural Steel • Hoses • Fuses • Circuit Breakers • Plumbing • First-aid supplies •Landscaping • Switches • Strainers • Safety clothes supplies Lab Supplies • Junction Boxes • Detection devices/alarms • Relays • Hard hats • Lighting Fixtures • Safety Glasses • Cables
- 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
- 23. Sourcing Options Comparison • Manufacturers ● Pros ● Design knowledge/specialization ● Commercial expertise ● Cons ● Narrow product-line scope ● Increased supply base • Distributors ● Pro’s ● Load Consolidation ● Take offs ● Con’s ● Regional coverage • (ISS) Integrated Supplier Solution (supplyFORCE) ● Pro’s ● Breadth of supply ● Commercial expertise/Ability to engage manufacturers ● Load consolidation/Take offs ● Con’s ● International footprint
- 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
- 26. 10 years 10 years