Many a manufacturer agonizes over antiquated paper processes, how to get the best from their purchasing departments, and how can they use the Internet in a meaningful way. Many a manager knows that once you throw the switch ON to eBusiness, your department will never be the same for better or for worse.
Gardner Denver, a growing US manufacturer of reciprocating, rotary and vane compressors and blowers for various industrial applications and pumps was beginning to feel the strain of dealing with a colossal network of contractors or suppliers, from whom it purchases parts and custom manufacturing services.
Indeed, Gardner Denver works with 1000 core suppliers, and over 10,000 production suppliers. Those numbers would cause brain swell in any procurement department. In late 1999, Gardner Denver’s purchasing department received a mandate: Make the Internet work for you. And the work began.
‘In a company that continues to grow, transition, and inherit hundreds of suppliers, we had to develop commodity management strategies and more favorable strategic contracts,’ stated Mark Lauterbach, Director of Corporate Purchasing at Gardner Denver.
‘First, we wanted to leverage our purchases and expenditures better. Second, we needed to create a mechanism that would yield a greater understanding of dollars spent. For instance, iron casting would be our largest expenditure at $27M a year and we wanted a way to break that buy down. And thirdly, we had to utilize that understanding – segments, spending, size, volume, complexity, product groupings – to negotiate the very best price.’
‘A lot of products overlap, but not suppliers. We are trying to best fit a part to a manufacturing process, then channel business to the best-in-class suppliers.’
The eSourcing solution had to be cost effective and very adaptable. ‘We looked at products from Ariba, Abbreviate, and other big names in the business, and found prices ranging from $600,000 to millions. How could you quantify an ROI that is years down the road? The value equation is cost versus benefits. Not to mention the implementation time for most of these products was quite long. None of those vendors really seemed to understand our business.’
According to Lauterbach, ‘We first met with ManufacturingQuote (Smyrna, GA) at a trade show, and looked at their ASP solution MfgQuote ProBuyer. A lot of competitors only focused on the transactional side of the process and produce efficiency tools. ManufacturingQuote clearly was the choice for upfront eSourcing, not transactional executions.’
Using MfgQuote ProBuyer, Lauterbach and team worked very closely with ManufacturingQuote to customize the online procurement toolsets and create a benchmark private marketplace.
They also wanted the capability to plug-into ManufacturingQuote’s established public marketplace known as the MfgQuote Network. The MfgQuote Network connects buyers and suppliers of more than 100 manufacturing disciplines such as CNC machining, moldmaking, casting and rapid prototyping. The network has over 4000 members, and has hosted over $128 million dollars in RFQs for custom fabricated components.
The MfgQuote ProBuyer solution was designed for mid-market corporations whose annual ‘buy’ is significantly comprised of custom manufactured, made-to-order and engineered components. Its Collaborative Procurement Management (CPM) System is a sophisticated toolset that gives buyers of manufacturing services the ability to manage and track the procurement process online.
In preparation for eSourcing, Gardner Denver also needed to transition from paper to electronic documents, and implemented an in-house Document Management System (DMS) that enabled the purchasing department to have secure, online access to materials required for an RFQ, including documents, prints and specifications.
‘Within three months, we had a working system and 60 suppliers participating in our private marketplace. We were ready to ‘source’ within our private supply chain or a global network of suppliers,’ said Lauterbach.
According to Lauterbach, the company typically has about 15 new products each year in their blower, compressor and pump business, not to mention the existing products they must support. They also introduce roughly 1,500 new engineering packages a year.
‘MfgQuote ProBuyer is flexible enough to support all of these facets. Our system has been up and running for almost one year. We did a fair amount of customization with ManufacturingQuote. Their software was really adaptable and we quickly implemented features such as customized payment terms, analytical tools, NDA (Non-disclosure agreements), a way to feed analysis data directly into Excel, and other desired items particular to GardnerDenver.
‘MfgQuote’s Job-bot technology for Suppliers is very good, but our Suppliers are not required to use it. Instead we had ManufacturingQuote create a commodity code structure, so we could setup groupings of suppliers. We have established 93 commodity codes to date. They gave us an effective way to setup a hierarchy, a way to add and subtract suppliers from our system,’ stated Lauterbach.
Driving Compliance through the Purchasing Department Gardner Denver has seven buyers in their purchasing department: 4 commodity buyers that are assigned to verticals and product development, 2 senior buyers working on tactical buys, and one senior buyer dedicated to engineering packaging business.
‘In the past, I had seven buyers who had seven different ways to approach the RFQ process. We sorely needed a consistent methodology. Today, everyone uses identical RFQ procedures, management and analysis tools. When someone is out of the office, it is very easy for another buyer to step in when there is a consistent framework in place,’ said Lauterbach.
‘MfgQuote ProBuyer provided the infrastructure to drive compliance throughout our purchasing department. We needed databases to ascertain what we were spending. And we needed a tool that would augment our strategies and accelerate the bidding business. The easiest way to evolve the department was through eSourcing and electronic tools to automate the bid-to-award process.’
The purchasing department recorded a 72% reduction in the bid-to-award cycle using eProcurement tools.
‘The difference was striking. Now that all our procurement data is online, we can also use target pricing, which is a huge benefit to us and our suppliers,’ declares Lauterbach. And sometimes the benefits of automation and technology are not instantly perceptible.
‘One benefit of our eSourcing system was in the area of buyer performance, and it was not apparent in the early stages of the project,’ concedes Lauterbach. ‘A great reward was the ability to monitor buyer performance, not at the end of the job, but upstream so you would have time to react. Getting performance metrics on suppliers was indispensable.’
‘If I targeted a 10% decrease in iron casting purchasing, I needed to know if we were really making this happen. In the past, we could only monitor the progress once the job was done. Now I can do this on the fly, far upstream in the process, so I can make the necessary adjustments. And along the way, you may unearth some best practices used by one or two purchasers during this process.’
Lauterbach recalls that going to a DMS system for online procurement did change the way the purchasers work.
‘One point that we did not anticipate was the administration issues that surfaced from transitioning to digital formats. To get the RFQ process going in a paper environment, you may need 10 copies of a drawing that were generated by another department. You then put together 10 bid packages, then send them by mail. This process would take 3 or 4 days to get the RFQ to the supplier.’
‘With our PDM system in place, it would take let’s say two minutes to access the part and print information. However, if you have 50 bidding suppliers, you now have a 100 minute process. Although our document management group was reduced, we found that our administration time was increased. But even with this productivity offset, our time savings was very significant.’
Finding new suppliers via the public marketplace has also saved time and money. Gardner Denver has located additional contractors from the MfgQuote Network and integrated them into their private marketplace.
‘When I attend conferences and other events attended by my peers, I hear a lot of people talking about using the Internet for procurement, but very few are truly doing it,’ concludes Lauterbach.
‘If I could provide a piece of advice to other purchasing managers it would be do something and do it soon. Implementation should be in small steps so your company and suppliers can get their arms around the process. Companies just need to find a starting place. We started with strategic eSourcing and implemented tools to make it happen.’
In any project, ‘the lack of speed kills,’ remarked Lauterbach. ‘Within three months, we worked closely with MfgQuote and had morphed their software into a viable tool for Gardner Denver. Large, elaborate systems with even larger price tags were just not feasible. Speed and adaptability are the keys to a successful implementation.’