Getting the most out of suppliers

by Paul V. Arnold

When plant manager Paul Hill traveled to Japan in the 1980s, he was particularly struck by the relationship between manufacturing facilities and their suppliers.

He noted how common it was for a plant to be surrounded by the companies that provided its raw materials and MRO products.

"The plant didn't move inside a ring of its suppliers," he says.  "The suppliers built next to the plant."

A tighter bond with suppliers.  Reduced inventory.  Minute delivery costs.   A supercharged version of just in time.  A dozen years ago, Hill wondered if such an arrangement was possible with the suppliers of his Tenneco Automotive plant.

This wasn't Japan; this was Arkansas!

It's now 1999, and looking at the neighborhood around Hill's plant in Paragould, you realize, maybe you can make sushi out of catfish.

In recent years, several key suppliers have moved businesses to Paragould.  Two of them, a rubber company and a packaging company, set up shop adjacent to the Tenneco plant.   A bearings producer and a tool maker are located a block away.

Motion Industries, the plant's main supplier of lubricants and pneumatic and hydraulic equipment, as well as a large percentage of MRO supplies, created a branch in Jonesboro, a mere 20 miles away.  Hill and his staff are still working to get Motion and other suppliers closer.

"We constantly push that," says Jackie Hamilton, non-production store room supervisor.  "Wesco, our electrical supplier, is out of Memphis (90 miles away).   Hopefully next year, they're going to move a branch to Jonesboro.  We want them even closer.  We want them in Paragould."

(Similar relationships are also taking shape at other Tenneco plants in the United States.)

What's the incentive for suppliers?

"They get our business," says Hamilton.  "Our goal is to get a long-term commitment from our suppliers."

And if they refuse?  Well, the supplier base is reduced 10 percent each year.   Four years ago, 100 suppliers accounted for 80 percent of the dollar volume of purchased material at Paragould.  Today, 54 suppliers account for that amount.

Success and savings
"Our prices are more reasonable since we've gotten these companies around us," says Hill.  "We have the lowest MRO crib levels in the company.  We have the lowest-cost supplies in the company."

Non-production inventory dropped 30 percent since 1992, from a high of $3.3 million to the current level of $2.3 million.

The plant, corporation and suppliers invented unique ways to decrease inventory.

In one instance, a kaizen event addressed levels in Paragould's MRO crib.

"We, more or less, took an assault force of a team and tried to uncover the issues that caused us to carry too much inventory," says Bill McGinn, the plant's kaizen events coordinator.  "We evaluated what we had, what was obsolete, what we could get rid of and put in realistic minimum and maximum levels."

The event created more than $200,000 in savings.

Other Tenneco plants have created systems where suppliers deliver one day's worth of supplies each day.

"We do this with productive goods, and even MRO," says Robert Harlow, senior vice president of supply chain management.  "Take steel, for instance.   We'll have overnight delivery of steel, so that we will generally only have one day's worth of steel in our plants.  We have this arrangement with many suppliers.   What we are forcing them to do is carry less inventory, because now they ship to us on a daily basis rather than build up inventory and ship to us on a weekly basis or two-week basis."

The idea has reduced total inventory 5 percent.

Tenneco receives other benefits from its relationship with suppliers.  Suppliers hold spots on investigation teams at the plant and corporate levels and work to spot inefficiencies and waste.  Suppliers also are pressed to find ways to reduce the net delivered cost of their products 2 percent each year.

This article appeared in the April/May 1999 issue of MRO Today magazine.  Copyright 1999.

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