Strategic Sourcing: Outsourcing delivers reliability, savings

Purchasing chemicals is a complicated exercise involving thousands of products, hundreds of primary suppliers, myriad processors and distributors; numerous environmental concerns and regulatory restrictions; and various end-user logistics, workplace health and safety, warehousing and manufacturing

operations. That's why it took an 18-member sourcing team at Rockwell Collins more than a year to complete an internal audit of chemical-buying programs—and to determine a way to get the procurement and internal delivery jobs done better, and cheaper.

Rockwell Collins was buying $5.5 million worth of chemicals from 161 suppliers for its manufacturing sites in autumn 2003 when an audit done for Greg Stolte, the director of sourcing, found that chemicals were an as-required commodity. "Chemicals were being bought when needed by users and not based on any MRP (materials requirement planning) program," he says. So, a commodity team, with members from several departments affected by chemicals purchasing decisions, initiated a strategic sourcing review of the materials. "The idea was to see if there was a need to revise contracts," says Stolte, "since purchasing wasn't automated and supply appeared disjointed."

He and other team members interviewed explain that purchasing, use and stockpile reports weren't easy to get—and supplier relationships were disorganized. At the same time, the company was becoming aware that changes in chemical safety and environmental health regulations were looming. So, it was little wonder to the team that value-stream mapping of chemicals determined that improving management of the purchasing function would cost the company less.

Stolte says a value-stream analysis found that the elimination of such nonproduction endeavors as repackaging of chemicals and handling government forms would reduce costs. So also, would such a radical process improvement as the incorporation of a chemical-sourcing system into the company's lean purchasing process. "Overall, the idea was to increase cost reductions through a mixture of changed work processes and enhanced employee productivity," Stolte says. So, after studying what the company was doing that provided value to the customer and what steps needed to be taken to insure that happened, it was decided to outsource the chemicals buy to a third party.

Enter Avchem, a Saint Charles, Mo.-based company that has programs designed to deliver such production-support materials as chemicals that meet all the end-user's certifications and inspection requirements. In October 2004, Avchem won a competitive bidding process to begin a two-year pilot chemical-sourcing management system for Rockwell Collins. Avchem now is the single source for 1,800 chemicals used by the plants at three key operating locations in Cedar Rapids, Iowa; Melbourne, Fla., and San Jose, Calif.

Stolte says the system will spend the next two years streamlining and automating the purchasing and materials management process for 1,100 chemicals regularly in use and 700 that "pop up occasionally." Implementation of the Avchem outsourcing has been approved by Rockwell Collins' top-level management and has the buy-in and support of operational leadership. So, the system will audit what chemicals are needed and used by which internal customers, develop any necessary management change needed for internal end users to be served better, and find ways to reduce future costs by 20%.

In a nutshell, Avchem is buying the necessary chemicals and handling point-of-use chemicals maintenance through a cabinet maintenance system that has automated scanning of consumption for replenishment. "One of the lessons the team learned from visiting customers of various third-party outsourcing systems were the various tools and techniques we needed to include in the request-for-bid documents," Stolte says, "so we could try to have covered as many possible contingencies as possible, even before we started the program."

So, there also is an online order/reorder system for the Rockwell Collins plants tied into the Avchem catalog for nonroutine purchases. The third-party firm is providing all hazardous materials checkpoints at receiving and storage sites, assuring that material safety data sheets (MSDS) for each product are processed properly and available for necessary personnel, barcoding all products, dispensing all fluids, solvents and oils, and replenishing materials when needed. This also involves government health and safety reporting and environmental reporting. The services supplier also is handling hazardous materials reports for regulatory compliance.