The specialty chemical manufacturer spent 90 percent of its purchasing dollars ($800 million a year) on raw materials and gave the category practically all its buying attention.

“It was a shining example of efficiency,” says Michael Fernandez, Witco’s purchasing manager for its southern United States plants.

Maintenance, repair, operations and production materials received the Cinderella treatment.  MRO was the unappreciated stepchild.

“MRO sat on the side, untouched,” says Fernandez.  “Nobody paid any attention to it.”

Witco, however, was paying.

“We spent $40 million a year on MRO and got no bang for our buck,” says Fernandez.  “We were wasting money and opportunities.”

For MRO goods across the company’s 11 U.S. plants, there was:
• no standardized purchasing practices and procedures
• no standardized products
• no strategic alliances
• no consistency in prices
• thousands of suppliers
• countless purchase orders
• countless invoices

“Each facility did whatever it wanted. We bought from everybody,” says Fernandez.  “The entire process was manual, and there was no history available.  We could tell how much we spent with a supplier, but not what was purchased.”

MRO needed a champion, a Fairy Godmother. It needed to bring structure and notice to this area.

“He said, ‘This is one area where we don’t do a good job,’” says Fernandez.  “He was right. In any company, there is a lot of money to be saved on MRO.  You can achieve a higher percentage of savings than with raw materials.  Over the years, we got our raw materials suppliers down as far as we could.”

Davis envisioned vendor reduction, consigned inventory, integrated supply and a comprehensive software solution.  But before implementing any of those, Witco started with the basics — understanding its supply chain.

“It’s a real challenge,” says Don Glenn, a supply chain integration manager based at Witco’s plant in Taft, La.  “When you understand the total supply chain and analyze who does what, what people’s roles are vs. their supply chain responsibilities, that’s when you start identifying areas where you can improve.  Things become clearer.”

As part of the initiative, plants mapped entire MRO procurement processes.  Redundant or unnecessary steps became targets and an optimal process was sketched.

For these facilities, Witco chose Ferguson Enterprises as the sole supplier for all MRO products, including mill; safety; electrical; pipe, valves and fittings; fasteners; and power transmission.

“It was a total failure,” says Fernandez.

According to Fernandez, five issues scuttled the program:
1) the integrator’s lack of knowledge on products not related to its core competency;
2) the loss of communication with suppliers for technical advice;
3) higher material costs;
4) longer deliveries; and, 
5) improper substitutions.

“They bought from whomever they wanted,” he says.  “We lost all contact with our suppliers.”

Issues 3 and 4 were intertwined with consolidated delivery.

“One of their suppliers was next door to us, but he’d drive 30 miles to deliver to the integrator, who then consolidated it with other stuff and brought it to the plant,” he says.  “It never made sense. So we scrapped the idea (in 1996).”

Learning from mistakes
Some companies swear off integrated supply when it fails. Witco saw failure as a learning experience and tried again.

“Bruce told us the only way we’re going to find what works is to keep it at,” says Fernandez. “We learned the vertical approach (one supplier bringing in all product groups) didn’t work for us.”

Davis put Fernandez in charge of finding a new integrated supply solution not only for Taft, Gretna, Harahan and Memphis, but also for its seven other U.S. sites.

The end result, rolled out in late 1996, took a “horizontal” approach, with one supplier for each of five key product groups and a team handling a sixth group.

For 10 of the 11 sites, Affiliated Distributors members handle the main groupings.  The lineup has Briggs-Weaver (mill supplies for nine sites), Drago Supply Co. (mill supplies for one site), Red Man Pipe and Supply (PVF), Warren Electric (electrical), Quality Bolt and Screw (fasteners) and Boise Cascade (office supplies).  Briggs-Weaver and Drago handle non-specialty safety products for their sites and Vallen Safety supplies specialty items.

Using that core group for multiple sites allows Witco to standardize products, buy more effectively and drive costs down.

“(The safety setup) gives us the best of both worlds,” says Taft safety manager Ron Gros.

Witco saves money by adding “commodity” type safety products (eyewear, gloves, hard hats, suits, etc.) to general mill supplies.  It gets peace of mind by having Vallen handle specialized, highly technical products (escape packs, breathing lines, monitoring equipment).

The Sistersville, W.Va., site uses members of the International Supply Consortium, since A-D does not have a presence in that area.

If an item falls outside these distributors’ offerings, Fernandez uses traditional sourcing methods.

“We do have some secondary suppliers,” he says.  “We tell our integrators, ‘If you can’t supply it, just tell us.’ We’ll get it.”

Fernandez says the new plan provides eight main pluses:
1) suppliers deal with their core competency;
2) lower prices due to pre-negotiated markups;
3) direct communication with suppliers;
4) scheduled deliveries;
5) savings incentives;
6) on-time delivery incentives;
7) vendor-managed inventory;
8) consigned inventory.

“Working off a cost-plus arrangement (Item 2), we saw our prices drop 15 percent,” he adds.  “You have a lot of unknowns with a discount arrangement.  We learned that.  You get 20 percent off list price, but you don’t know how much margin is in that list price.”

Regarding items 5 and 6, Witco expects suppliers to provide 5 percent cost savings and 95 percent on-time delivery each year.  If a supplier surpasses both levels, it receives 25 percent of the cost savings that occur after the initial 5 percent.  If a supplier fails to meet the standards, it pays a penalty.

Making history
Eliminating the manual purchasing systems was also key.  In 1997, Witco took the first step by implementing Affiliated Distributors’ A-D Edge software.

For the first time, the company saw not only how much it spent with suppliers, but what it actually bought.  It also started to give the company a true history of MRO product usage.  The software was a temporary solution.

In the spring of 1998, Witco began full-scale installation of SAP integrated business software.  It will complete the massive undertaking in late September and go live with the system on Oct. 1.

“SAP will cover everything — purchasing, accounting, production, assets, building materials, maintenance,” says Fernandez.

With SAP, Witco plans to utilize electronic data interchange (EDI) for 80 percent of purchases.  It currently does not use EDI.

EDI usage could save big money by reducing the cost of processing a purchase order.  It currently costs $70.76 to process such an order.  A reduction of even $11 would save Witco more than $1 million a year.

By embracing MRO, Witco spends less and gets noticed.

“Before, we benchmarked everyone,” says Fernandez.  “Now, people call us and ask about our concept.”

This article appeared in the August/September 1999 issue of MRO Today magazine.  Copyright 1999.

For more info on Witco, see "0.2 turns per year"