Using Best Practices To Improve Your Purchasing And Supply Management
Ernie Renner, Director, Best Manufacturing Practices Center Of Excellence, College Park, MD 20740 800/789-4267.
82nd Annual International Conference Proceedings - 1997
The Challenge. Throughout the government, industry and academic communities, there exists a vast accumulation of purchasing and supply management knowledge and experience the greatest in the world. The challenge: sharing the best of what we have learned so that everyone can benefit from it. The rewards: companies with the ability to compete on a global scale higher quality products and services more efficient and productive use of our industrial infrastructure and our financial and intellectual resources.
Best Manufacturing Practices (BMP) is the fulcrum -- the critical point where a little effort gets multiplied many times to grow into a powerful force for progress. The objective of the BMP program is simple: to identify best practices, to document them and then to encourage industry and government to share information about these best practices. The process of doing this is through on-site surveys by a team of experts. This process embraces the measurement, analysis and comparison of one organization's policies, practices, procedures, services and organization against those of others, including competitors.
The Opportunity. In response to an opportunity and challenge, BMP started eleven years ago in the U.S. Navy Product Integrity Office. The opportunity: the Navy realized that a strong defense program depended on a strong industrial base, and that sharing the extensive know-how of the national defense program could benefit non-defense industries. The challenge: reduced defense spending and increased global competition were calls to action either win together or lose alone. BMP was established as a result, and quickly became a generator of results. Measured by return on investment, BMP has paid for itself hundreds of times over. While uncovering today's very best practices, BMP promotes excellence in industry, government and education. In addition, BMP serves as a free source of benchmarking and expert assistance to help U.S. industry become more competitive. Toward that objective, BMP helps companies achieve both incremental improvements and major breakthroughs while avoiding costly mistakes.
The Results. BMP identifies and researches these best practices by conducting comprehensive voluntary surveys of organizations. These surveys do not originate at BMP - instead, they are initiated by organizations requesting a survey, and participation is entirely voluntary and free. In fact, BMP has conducted more than 92 on-site surveys identifying more than 3,000 practices in areas such as design, test, production, facilities, logistics and management. BMP teams of experts work hand-in-hand with the requesting company or organization to examine existing practices, uncover best practices, and identify areas for even better systems/practices. Those findings are then documented and categorized. The final survey report, which details the findings, serves as the starting point for the best of BMP's work: sharing the knowledge.
Survey reports of best practices are distributed both electronically and in hard copy to thousands of representatives from government, industry and academia throughout the country at no cost to the recipient. In addition, BMP also shares these best practices through several interactive services including BMPnet, CD-ROM, Internet (FTP) and a World Wide Web Home Page.
Texas Instruments credits BMP for contributing to its winning the Malcolm Baldrige Award; a turbine blade manufacturer realized a 500% improvement in productivity while saving $4 million; and another manufacturer was able to avoid a shutdown. There are more than 100 practices specifically related to purchasing and supply from companies such as Tandem Computers, RJR, Dayton Parts, and Mason & Hanger.
Tandem Computers. The promise to ship within the quarter while maintaining low inventories demands responsive and flexible suppliers. The company's purchasing and procurement strategies reflect this philosophy.
The Purchasing Department procures approximately $250 million worth of materials annually to support the Tandem Systems Group's one billion dollar revenue. Strategies are aimed at supplier responsiveness, flexibility, and performance. This became more evident during the company's growth maturation in 1991 and led to a rethinking and identification of supplier strategies to ensure Tandem was on target.
Additional strategies included: allowing suppliers to build to form, fit, and function; encouraging suppliers to work with each other through dual-sourcing and with Tandem designers; and avoiding a captive-customer situation by being less than 30% of any particular supplier's customer.
Supplier improvement efforts have contributed to reducing material inventories from 303 days in 1982 to 67 days in 1991; Tandem has never failed to ship within the quarter.
Several important factors developed to support Tandem's purchasing and procurement strategies include the Key Supplier Program, the Preferred Suppliers Program, and Supplier Certification Program. Key Supplier Program: significant suppliers to Tandem, representing 22 suppliers that account for 80% of the total supply, are qualified based on their financial stability, technology contribution, quality, continuous improvement, pricing, and delivery performance. Preferred Suppliers Program: suppliers capable of refining Tandem design, performance manufacturing, and assist in getting Tandem products to market faster is pursued depending on the required technical expertise. These partnerships help leverage the research and development required for both supplier and customer. Supplier Certification Program: suppliers that pass the certification process do not have their material retested and inspected by Tandem. The material can be taken directly to the production floor. This certification process begins with a 1-year trial period that is based on an initial contract award followed by a 3-month to 6-month certification period. Since program initiation, six of the 22 key suppliers for Tandem have been certified.
RJR. Prior to 1992, RJR's Quality Assurance system personnel recorded and maintained records of reject quantities and incidences of dock rejections and factory complaints. This data had several drawbacks, including the following: it did not provide sufficient differentiation between suppliers to make fair comparisons of supplier performance, and in particular was not sensitive to supplier industry-wide norms; all critical RJR requirements for making an accurate assessment of a supplier's performance were not identified; and supplier performance assessment was not adequate in identifying significant areas needing improvement nor was it effectively used in dealing with suppliers to improve performance. To effect a change, RJR established a team composed of representatives from Quality Assurance and Purchasing to review the informational database and develop a new approach. This multi-functional team developed a PC-based spreadsheet program to capture the real, essential information on rejects and allow for easy retrieval of this information. A manual was also developed to assist company Quality Assurance personnel to better understand the supplier evaluation process and prepare supplier performance evaluations. The team approach significantly improved the relationship between Purchasing and Quality Assurance relative to handling supplier performance. Various functional entities within the company were able to supply information to help with more accurate assessments of supplier performance.
RJR learned that preparing a thorough supplier evaluation provided several challenges. Suppliers did not agree with subjective assessments, particularly where perceptions were the basis for comments. A more objective system was essential. Suppliers were, however, interested in maintaining acceptable performance, as measured by whatever system RJR had in place, and therefore were very receptive to the new feedback. Although time-consuming to execute, thorough supplier evaluation was an important aspect to the overall success in this large, quality-product driven manufacturing organization. These evaluations provided benefits such as added emphasis on material control; maintenance of a focus on non-conforming materials; provision for a database that includes service and cost factors; combined input from Purchasing, Quality Assurance, and other concerned entities from within the company; provision for quantitativeness that prevented purely subjective evaluations; more effectively allowed differentiation between suppliers; and most importantly, clearly identified areas needing improvement.
This system was put in place in January 1992 and was used with some suppliers during 1992, and with all suppliers by 1993.
Dayton Parts. Dayton Parts, Inc. (DPI) realized in 1993 that the quantity of steel sold as scrap was excessive relative to the total raw steel consumed, but that it could be a controllable cost. To investigate the problem and develop solutions, a Material Utilization Task Team was formed with membership drawn from both shop floor and management departments. To minimize scrap, the team developed an information base to direct raw steel length purchasing decisions.
While the team knew the total scrap sold, initially it only had assumptions regarding the relative amounts of scrap steel (off fall) produced by the two major lines -- multi-leaf springs and taper springs. To correct this lack of accurate information, the team spent its first three months gathering data relative to the off fall that resulted from the production of each part number and the length of the raw steel from which each part was produced. The result of the data analysis indicated that while the overall off fall was approximately 3%, the total for taper spring operations was more than 6%. This data also revealed that 51% of the total off fall was from 21% of the production. The data indicated that the majority of the off fall resulted from less than optimum raw steel lengths, usually 22 feet for all cross sections.
DPI may produce as many as 5,000 different spring designs in a year, mostly in relatively small batches. Buying precut spring blanks direct from steel mills is therefore not feasible since the quantity of each length required is well below the minimum for such special cuts. The mills can supply stock cut to any length if at least five tons are requested in each length (for a given cross section) at no extra cost. Since the team's analysis indicated that off fall can be minimized by optimizing the purchased lengths, the decision was made to base purchase lengths on part number requirements. This optimization resulted in specifying two purchased lengths for a number of cross sections, and three for a few. To ensure these changes were understood by manufacturing personnel, the bill of materials were changed to reflect the new (and additional) steel lengths. Likewise, the routing instructions were amended to provide shearing instructions for optimal steel utilization.
Modification of its raw steel purchasing procedures to optimize utilization has resulted in more than $42 thousand in savings for the company since the team was formed, and has brought the off fall of taper spring production to well below 3%. This is doubly important since the taper spring line represents the growth market for Dayton Parts.
Mason & Hanger. Inventory practices were successfully improved by Mason & Hanger (M&H), Silas Mason Co., Inc. with the implementation of an Office Supply Ordering System. By centralizing and streamlining its office supply ordering system, M&H was able to alleviate accumulated inventory, release capital, eliminate the need for large amounts of valuable space, and avoid extensive monitoring and inventory control resources. The previous office supply ordering practice required each department to requisition and issue supplies, and involved many steps, resources, and time. Requisitions were sent to the warehouse, and transportation and labor were required for distribution. A clerk would input information into the inventory system, requisitions were again initiated for inventory replenishment, and a buyer would issue purchase orders to the vendors. A material checker would then receive and stock material awaiting next issue.
Implemented in April 1994, the new Office Supply Ordering System was designed for one vendor to take the entire order. Only one purchase order is negotiated and issued each year, and each department forwards orders directly to the vendor. Orders placed by Monday noon are delivered by the vendor each Wednesday morning to eight centralized locations. The delivery invoice is checked by the requestor, and a copy is forwarded to accounts payable. Accounting then debits each department for the items it orders, and vendor payments are made monthly. The new system has reduced invoices from 140 to 12 per year 90%. Only one purchase order is negotiated per year instead of the 84 individual purchase orders issued in 1993. Stored inventory is no longer required. Material checker and clerical time, purchasing time to negotiate and issue purchase orders, and accounts payable transactions have been reduced or eliminated. Dollars tied up in office supply inventories have been virtually eliminated.
The BMP Mission. The mission is to share best practices used in industry, government, and academia and work together to strengthen U.S. Industrial Base competitiveness. The BMP Program will help industry compete in the 21st century by providing the tools to solve management and manufacturing problems and issues. The program offers automated tools and data, publications, seminars and workshops, and an electronic network for accessing experts and information. BMP resources provide an action oriented approach that reduces the time and cost of benchmarking and problem solving.
BMPnet is BMP's own electronic on-line service. It can be accessed via the Internet or through a PC-modem connection. Once on the BMPnet, users can access data from all existing surveys and abstracts; use e-mail and bulletin boards to retrieve information; and access BMP's special interest groups (SIGs) designed to speed the transfer of technology and information on a specific industry or issue. Users can also access BMP's Program Managers WorkStation (PMWS) a software package designed to help manage a program from design through production. PMWS helps identify risks, notes areas for improvement, and provides access to the BMP database to highlight possible courses of action.
With more than 5,000 hits per day and growing, the BMP World Wide Website (http://www.bmpcoe.org) is becoming a major distribution center for manufacturing, quality, and benchmarking information. The website hosts survey reports from more than 80 organizations including McDonnell Douglas, Lockheed Martin, Hughes Aircraft, Department of Energy, and NASA, as well as data from small companies and Army, Navy and Air Force installations. This information can be intelligently searched by using a fuzzy logic-based search engine. More than 2,000 abstracts are available to browse, download, or print. In addition, technical documentation and guidelines developed by the BMP program are available, such as producibility measurement, design reliability, soldering, electro-optics, and plastic encapsulated microcircuits.
Connection to nearly 50 other related technology transfer centers and the six BMP Satellite Centers can be accessed from the site. Also available are training videos in Windows (AVI) format that talk about the BMP program, PMWS, and transition from design to production templates. The website links to an FTP server that allows any or all of the PMWS tools and the BMPnet communication software to be downloaded. BMP runs a 24-hour a day technical support line, (301)403-8179, to aid the user in finding information in the BMP database, running and configuring PMWS, or finding answers to specific technical questions from the experts in the field. The support staff can also be reached via e-mail on the website.
The BMP program also sponsors presentations, seminars, and workshops to allow industry and government manufacturing, design, and management experts to review accomplishments and lessons learned, exchange information, and consider future actions needed to solve industry-wide challenges.
BMP Center Of Excellence. BMP's growth and increasing reach did not stop there! In 1993, BMP took a big step forward with the creation of the Best Manufacturing Practices Center of Excellence (BMPCOE). The BMPCOE was created under direction from the U.S. Congress, recognizing the contributions already made by BMP. The BMPCOE was formed by three partners: the Office of Naval Research, the Department of Commerce's National Institute of Standards and Technology, and the University of Maryland at College Park.
The BMPCOE also reflects the growth BMP sees in the road ahead. BMP is constantly looking for companies, government agencies and educational institutions with which to develop strong partnerships to further expedite the spread of information and knowledge. These partnerships will serve not only to expand BMP's reach, but will also expand the contribution it can make toward its goal of a stronger, more competitive, and more globally-minded U.S. industrial base.
The Four Steps Of A BMP Survey:
The Request. A BMP survey - whether of a small firm, large company, or government agency - begins when BMPCOE receives a request for a survey. The request should be submitted in writing from the person authorized to make such a request, and addressed to: Director, Best Manufacturing Practices Program, 4321 Hartwick Road, Suite 400, College Park, MD 20740.
Questions about scheduling a survey or other arrangements may be addressed by calling the BMPCOE at (800) 789-4267 or (301) 403-8100; or by faxing queries before the survey request is made to (301) 403-8180.
The Pre-Survey. After a request is received and a mutually acceptable date for the BMP survey is agreed upon, BMP conducts a pre-survey visit. The BMP representative chairing the survey and the individuals leading the survey teams in areas such as design and test, production and facilities, and logistics and management, meet their counterparts in the company to structure the survey. The company is asked to identify nonproprietary areas of excellence, and if the company desires, areas where it may be experiencing difficulty. In all BMP surveys, the company decides what it wants to show.
The pre-survey visit serves three purposes: the survey candidate company and the BMP program prepare a mutually agreed upon agenda of what is going to be surveyed; the company or facility being surveyed can focus on what will be most beneficial to itself and the survey team; and information presented during the pre-survey allows the BMP survey chairman to assemble a balanced combination of appropriate technical experts such as representatives from Department of Defense agencies, NASA, the Departments of Commerce and Energy, and academia.
The Survey. The actual BMP survey is the next step. Covering about three and a half days, the survey is structured around briefings by company representatives to the BMP survey team. These simple, direct presentations may be complemented, if appropriate, with a visit to the factory floor. However, the team wishes to avoid any disruptions of the facility's daily operations.
At the end of the survey, the surveyed company receives a verbal summary of the findings and copies of abstracts of the best practices documented.
The company has final approval on documented information in the BMP survey report. The information is generically written, enabling each company or government facility to decide on a case-by-case basis whether it will reveal specific details of a process or technique in response to an inquiry generated by a BMP survey report.
Report Publication. Distribution of the approved survey report and its entry into BMP's computerized database and website represent the final step in the BMP survey process. The database and website are structured to provide users with abstracts or full survey reports; responses to queries on a wide variety of subjects including equipment associated with best practices; and points of contact at the companies and government facilities surveyed to obtain additional information. All of these actions come down to one thing results. Organizations may participate at any or all levels of the BMP program. They may tap into the best practices database through the BMPnet, use the Program Manager's WorkStation software tools, or request a survey at their organization. With each passing year, the list of success stories grows. What it all comes down to is: BMP has made a difference.
For more information, contact the Best Manufacturing Practices Center of Excellence, 4321 Hartwick Road, Suite 400, College Park, MD 20740, (800) 789-4BMP.