According to Glynn, the process took around three days, even if your facility was a 20-minute drive from the central store.

"And if Pewaukee didn't have it, they'd notify an analyst or a materials person, who would then have to create a requisition," he adds.  "That request would turn into an RQ (request for quote).  Then we would go out for bids on it, the bids would come in and we'd evaluate them.  We'd take the lowest price, finally cut the order and wait the traditional amount of lead time for it to arrive.  It would then come into our central store and be shipped to the location that was looking for it."

The process took a minimum of four weeks.  A six-week wait was common.

Whether the item was in stock or needed to be ordered, the central store plan consumed time and money.

"We were doing things the same way every other utility in the country was at that time," says Glynn.

But conservative, regimental Wisconsin Electric did something radical in 1993.  It admitted its current supply chain operation was flawed and looked outside the utility world for solutions.

Within a year's time, it retooled the process and stripped its vendor base for MRO and production supplies from more than 400 down to five.

With annual savings of more than $50 million compared to the old
routine, the birth of employee and location empowerment, one-day service from request to receipt, and inventory reduction in excess of $18 million, WE now can stand for a Win for Everyone.

Creating the alliance
Wisconsin Electric's pre-1994 problems could be traced to the motto for the entire purchasing process: The cheaper, the better.

On the surface, it was a great idea.  With hundreds of suppliers, WE's central purchasing department played the field and found an attractive bid.  And, with money on the line, suppliers fought each other to provide the lowest price.

But cheapest wasn't the best.  The process (a multitude of hands and steps) gobbled up money that was saved.  Product quality, expedience of delivery, professional installation and material standardization were not major considerations in the purchasing process.  And while it addressed inventory concerns, it also created them.

"If we needed 1,000 feet of wire and dealt directly with the manufacturer, the manufacturer's minimum might be 10,000 feet," says supply chain manager Gail DeVeau.  "We'd have to get the 10,000, the project would take its 1,000 and the other 9,000 would go into inventory till death do us part."

And since service centers and power plants didn't want to be out of supplies (and have to continually go through the arduous procurement process), they frequently asked for more than they needed.

"It wasn't healthy," says DeVeau.

In late 1993, Wisconsin Electric tore up the process and started over.

At the heart of the new model would be a small band of "alliance partners," distributors and manufacturers that would be the sole source for specific goods and services.

Using its bidding experience, WE exhaustively examined candidates and came up with a core group of five that would receive its business.  The criteria for selection?  Price was part of the equation, but unlike the past, it was not the sole consideration.

"We shifted from price evaluations to total life-cycle cost," says DeVeau.  "We looked at product quality, delivery, installation, inventory reduction, support, computerized ordering ability, all aspects that drive short-term and long-term costs."

In late summer of 1994, WE awarded alliance contracts to T&A Industrial Distributors (for MRO and janitorial supplies), Border States Electric Supply (electrical hardware and connectors), Cooper Power Systems (transformers), BICC (wire and cable) and Norpac (poles).

Power to the people
Out of the new total cost purchasing model, the component that provided the most immediate and visible change was delivery.

Not only do alliance partners provide one-day or same-day service on most orders, but they deliver those supplies direct to the location that placed the order.

Did you catch those last eight words?  Yes, after decades of centralized control and centralized purchasing, WE empowered individual locations to make their own decisions and place their own orders.  Central purchasing was freed to do strategic buying and planning and manage the alliance relationship.

To make matters even easier, more than 35 percent of the company's 5,000employees received a procurement card so they could order items necessary for their job and projects.   The four-week wait was gone, as was the multi-step delivery process.

What was the initial reaction?  Not what you would think.

"There were thoughts at first that maybe we had whittled the supply base too far," says Glynn.  "We traditionally never single-sourced anything.   Now we single-sourced everything.  People were whispering, 'What if something happens to that supplier?  We're going to be without these things.  Then how are we going to get this stuff?' "

Also, some non-supply chain employees weren't comfortable with their new procurement cards and had difficulties with the record-keeping and reconciliation duties.

"There were a lot of people waiting for this to blow up in our face,"
says DeVeau.  "These were massive changes.  There was not only the perception of risk, but some very real risk.  Had we done a bad job on the alliance deals, we would have been in very bad shape.  As it turned out, we did it right."

Time created comfort, which created acceptance, which created teamwork, which created savings.

A million saved is a million earned
It didn't take long for Wisconsin Electric to see dividends from its re-engineering efforts.  In fact, money rolled in a few hours after the contracts took effect.

Border States Electric Supply purchased $2 million of inventory.  T&A Industrial Distributors bought excess MRO products and sent them to customers in need of the items.  Inventory reduction had begun.

"In 1993, we had as much as $123 million worth of inventory company-wide," says DeVeau.  "We are currently at $105 million and are continually reducing that figure."

According to DeVeau and Glynn, inventory hit record levels because:
-- buying wasn't optimized;
-- WE didn't have a true relationship with its suppliers; and
-- there was a hoarding mentality at the satellite locations.

WE went over the problem with a fine-toothed comb.  In late 1994, it assembled a team to examine all 110,000 stock numbers in its central and localized inventory and review utility and stocking levels for every single item.  If it was obsolete, it was sold or scrapped.  If levels for certain SKUs were out of whack, the excess was sold.

"You say to yourself, 'Why do I need a 20-year supply of anything?' " says DeVeau.

The project took months to complete, but WE reduced more than $3 million from inventory and developed a better understanding of its inventory and of proper minimum/maximum levels.  The reviews continue today, as does the redeployment of inventory.

"We are presently going to Pewaukee on a weekly basis and reviewing the remaining inventory," says Debra Smitka, systems sales manager for T&A.  "We are helping them junk it or sell it."

In 1997, T&A took $42,000 worth of old inventory off WE's hands.

Managing their time
Because of its deal with T&A, WE also removed all tools from its central inventory.  If a tool is needed, an order is placed and it arrives, in most cases, on the next delivery day.  That marked the beginning of vendor-managed inventory.

"VMI is used for nearly all of our service centers," says DeVeau.   "The suppliers hold the new inventory until we need it and we only pay for it at the time of consumption."

It has saved money and time.  A WE study from November 1995 to March 1996 showed VMI saved storeroom employees an average of 1.5 hours a week.  Employees used that time to perform tasks such as:
-- providing increased support for project and service center crews;
-- managing company-held inventory (conducting counts, and setting and analyzing min/max levels);
-- inventory reduction (identifying, packaging and shipping excess or obsolete stock, and optimizing the utilization/sharing of inventory between locations);
-- performing safety audits; and
-- participating on cross-functional sourcing teams.

Teams allow employees in an array of job capacities to examine an issue or function of the company.  They target inefficiencies, address needs and plan projects.  Alliance members have spots on the teams, including T&A on the tool selection committee and Border States on the engineering committee.

Cha-ching!
Successes worked their way up the supply chain.  While procurement cards reduced administrative costs and created ease of purchase, the purchasing department prospered on a broader level with computerized ordering.

WE began using direct-order-entry on a limited scale in June 1992.  But in August 1994, T&A established a system for ordering MRO supplies.  The other alliance partners followed.

Direct-order-entry evolved into electronic data interchange (EDI), which in the future will evolve into Internet buying.

Currently, more than 90 percent of MRO orders are processed electronically.  Overall, 65 percent of transactions are done with EDI.

The savings?  Around $500,000 over the past four years on MRO orders and "a lot more than $500,000" for non-MRO orders.

The direct link has also reinforced express service on orders.

Passing one heck of a test
With supplies single-sourced and inventory levels sharply reduced, many wondered if WE would be able to effectively respond in the event of a massive power outage.  In May 1998, doubters got the final piece of proof that the system worked.

After 2 a.m. on Sunday, May 31, southern Wisconsin was hit by one of the worst storms in its history.  Winds exceeding 100 mph battered the area and contributed to damage in excess of $45 million.

More than 2,000 power lines and 700 poles were down or damaged, triggering an outage affecting more than 170,000 WE customers (nearly 20 percent of its customer base).

The outage was nearly 2 1/2 times greater than the previous worst outage.  In 1976, an ice storm knocked out power to 76,000 customers.  It took 10 days to restore power to all.  Following the '98 storm, it took just 4 1/2 days to finish the job.

Alliance partners were on call 24 hours a day during the crisis, providing up to four months' worth of supplies in 100 hours.

They used trucks and vans, as well as employee vehicles, to deliver to job sites.  They also networked with manufacturers and key contacts to obtain materials.  WE never faced a material shortage during the crisis.

"Some areas in the Midwest hit by the storm took up to two weeks to recover," says DeVeau.  "A number of utility companies weren't placing their orders until the second or third day after the storm.  On Sunday, on the key items, we had already given notice to our suppliers.  In some cases, they were buying up the available supply in the nation."

It was indeed a Win for Everyone.

This article appeared in the February/March 1999 issue of MRO Today magazine.  Copyright 1999.

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