When Purchasing Practices ...Is it Time for the C-suite to Step In?

What happens when the scale of balance between purchasing and operations tips too far in one direction?

Management 101 tells us that creative tensions between an enterprise's purchasing and operations departments can yield terrific business efficiencies. While one views the sourcing of goods with an eye peeled for component cost savings, the other primarily seeks the higher-end equipment, services and materials that can best support plant productivity.

The diverse perspectives make for buys that are both cost conscious and of sufficient quality product to satisfy operations' critical needs. But what happens when the scale of balance tips too far in one direction?

That seems the case in today's manufacturing arena where years of belt tightening has given purchasing unprecedented latitude for decision making, often at the expense of productivity, reliability and even best business practices.

High value manufacturers and distributors of rotating equipment, for example, are being mandated by purchasing to participate in deflationary vendor activities. These include bid packaging and lowering prices even as suppliers' cost for utilities, materials and human resources steadily rise. Under bid packaging demands, long-trusted suppliers are asked to submit bids that incorporate a package of extras, such as firm pricing for extended periods, special payment terms and inventory commitments.

More, such demands are being presented to suppliers as "opportunities," with the implication being that even the most reliable, time-proven suppliers are valued no more than a new competitor who may present an initially lower price.

The squeeze is on to a degree that something will soon have to give. A sampling of casualties includes the free engineering and inventory services end users typically enjoy when purchasing from high value suppliers, good will between suppliers and end users, and an unchecked deterioration of plant reliability.

It may be time for the C-suite to step in. During on-site operations reviews, for example, a C-level exec might inquire if the plant is getting the service levels it needs to meet productivity targets. Certain metrics can serve as early warning signals that current purchasing practices are putting undue pressure on plant operations.

A short list of metrics:

-Unplanned mechanical downtime is higher than historical levels.
-There are more frequent equipment breakdowns in repair cycles.
-The plant is experiencing delays in receiving parts.
-Storeroom inventories are increasing.
-Fewer suppliers' technical specialists are visiting the facility.

By watching for these early warning signs, top management can not only identify issues but also justify an assessment, or clarification, of objectives with purchasing and operations managers during the next monthly or quarterly business review meeting. Do the managers clearly understand their respective goals and how they ultimately contribute to profitability? Is purchasing assigning sufficient priority to productivity needs? Is operations effectively justifying its needs for quality components and services to purchasing?

Diverse opinions will clearly arise, but one helpful mediation tactic will have all parties acknowledge that procurement's cost reduction goals can often be achieved, indeed, exceeded, through productivity gains. Those higher-end products and services that are being shunned for bargain buys can yield huge dividends by lowering maintenance costs, reducing replacement component costs and perhaps most importantly, virtually eliminating expensive recurring equipment failures.

Productivity is the Name of the Game
The cost of equipment downtime varies among industries. In the heavy equipment papermaking and steelmaking sectors, costs range upwards of $25,000 for a single hour of lost production. Food, chemical and most other processing sectors likewise suffer stinging production losses when conveyors and mixers come to an unexpected halt. Processing is interrupted. Human resources are brought into play and calls are made for replacement components, which may or may not be readily available from bargain suppliers. How long will it be before that machine is once again producing your quality widgets for shipment to market and return on your capital investments? The best practice is to ensure that unplanned equipment interruptions don't happen to begin with. And that warrants paying a small premium for the components and services that come only from high value suppliers.

Root Cause Failure Analysis
Of the many technical and logistics services available from high value manufacturers and distributors, perhaps none is more valuable than Root Cause Failure Analysis (RCFA). This expert analytical procedure, currently provided at no cost to manufacturer's customers in good standing, employs engineering specialists who examine equipment components for wear marks or patterns that point to specific causes of recurring equipment failure. For example, equally spaced axial dents on a bearing's outer raceway might demonstrate that improper impact procedures had been employed during the course of bearing installation. Blue discolorations reveal proximity to excessive heat. Or the analytical process might track a poorly functioning conveyor to something as simple as a "soft foot" that can be repaired with shims...or to a vibration challenge that mandates a new bearing arrangement.

Often, a high value component manufacturer will work closely with its authorized distributor to solve an end user's problem via RCFA. Authorized distributors are specialists that have successfully completed several months of training and met a battery of quality requirements established by the manufacturer. Their close relationship with a manufacturer often enables them to facilitate on-site inspection by a manufacturer's engineers of costly recurring machinery problems, followed by an RCFA.

In one recent case at a large east coast power plant, for example, an authorized distributor notified its supplier of rotating equipment technology that the plant's 3500 HO vertical cooling tower feed motor was experiencing high temperature and excessive vibrations. An RCFA revealed that the lubricating oil was too light to handle the normal temperatures and provide adequate film thickness to the bearing flange area. The analysis also found that the bearing housing's load springs were not engaging when the bearing load dropped. Both conditions were easily rectified, saving the power plant large potential fines associated with power outages.

That is one small example of expert services coming into play from an authorized distributor and its high value component supplier. But it illustrates clearly how end users who source from high value suppliers, with productivity uppermost in mind, realize saving that can dwarf fractional reductions on component costs.

Bill Moore is sr. VP Channel Management, SKF USA Inc.

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