Supply base troopers

Strategic Sourcing Teams work to get Boeing a good deal

BY KIM PLUMMER KRULL

As a procurement manager for Boeing Commercial Airplanes, Dan Welliver never thought much about the inside of a military aircraft. But that changed when he became leader of a Strategic Sourcing Team assigned to help develop the interiors commodities supply base for aircraft across Boeing.

While attending an SST leaders meeting at Boeing Integrated Defense Systems in Long Beach, Calif., last year, Welliver took a tour of a C-17 Globemaster III. He noticed something the C-17 shares with Boeing commercial airplanes.

“Crew seats,” said Welliver, who explored the C-17 with SST teammate John Alfrejd. “We wondered who makes the flight deck for the C-17 and what they charge. We wondered when their contract was up and if this was an opportunity for the company to do better.”

Turns out it was such an opportunity. Asking those questions of Mark Herrera and Richard Finger, who were managing the C-17 flight deck seats procurement, eventually led to a new supplier winning the contract. This also helped IDS reduce cost significantly and maintain high customer satisfaction. Today, a common flight deck–seating supplier supports Long Beach C-17, 717 and all Puget Sound programs.

“That’s just one example that never would have happened before SSTs,” said Jim Morris, BCA vice president of Supplier Management and chairman of the Boeing Supplier Management Process Council. “These are some very committed, hard-working people who put in the hours to realize significant benefits for the company.”

SSTs look at opportunities for synergy with the supply base across the enterprise, instead of programs or sites doing business with local suppliers. Across Boeing, nearly 500 subject matter experts serve on nine commodity-based SSTs that develop a high-quality supply base. In 2003, SSTs helped Boeing save more than $1 billion—a record 3.8 percent of the total $28.6 billion the company spent on procured goods. The previous savings high was $730 million in 2000.

“Last year was a banner one,” Morris said. In addition to generating record cost savings, SSTs helped strengthen the quality and performance of the Boeing supply base, with improved on-time delivery (up to 97 percent from 88.7 percent in 2001) and quality acceptance (up to 99.9 percent from 99.3 percent in 2001).

Supply base excellence has been the goal since the SMPC, then newly formed, launched SSTs in 1999.

Before SSTs, some strategic contracting took place with some commodities. But the SMPC has recognized that Boeing, as a company that spends more than half of every dollar it makes on procured goods, must have a clear and effective overall supplier-management strategy to be a Lean enterprise in line with Vision 2016.

“When we looked at how many suppliers we have and how much we spend with them, we knew there could be great benefit in bringing together the various units to produce overall strategies to better manage our supply base,” said Bill Stowers, the former SMPC chair who retired in April as IDS vice president, Supplier Management and Procurement.

SSTs created opportunities for Boeing business units to present a single company face to suppliers no matter what program a supplier works with or where a supplier is located, Stowers said: “SSTs allow us to benefit our suppliers by building partnership-style relationships and to benefit our company by building a quality supply base.”

Building that supply base demands careful analysis. At the head of each SST are a team leader and an enterprise integrator, who work together to provide critical supply base data and analysis. Other members study their team’s specific commodity needs or focus on the suppliers of that commodity.

Communication and collaboration are the keys. Strategic Sourcing Team leaders meet regularly to discuss supplier/commodity issues and share success stories. Each SST uses a detailed system of metrics to track critical supplier information, including costs, on-time delivery, quality acceptance and more.

The SMPC uses these supply base analyses to develop strategies to enhance supplier performance and cost reductions.

One result of such meticulous tracking has been the disengagement of weaker performing suppliers and a dramatic reduction in the total number of suppliers—from nearly 30,000 in 1999 to 10,800 today. At the same time, the percentage of dollars the company spends with contractors that have earned Preferred Supplier Certification (those that provide the highest quality products delivered on time and at best value) grew from 41 percent in 2002 to 50 percent last year.

The nonproduction commodities SST 9 helped Boeing achieve these goals by working with both key contractors and customers. As part of one effort, SST 9 collaborated with large suppliers to identify value-added work that could be performed by small, diverse contractors.

The result: In 2003, Boeing exceeded its supplier diversity goals and increased the percentage of supplier contracts with small businesses to 43 percent, with small disadvantaged businesses to 16 percent, and with small, woman-owned businesses to 11 percent. Also that year, SST 9 also worked closely with internal customers to develop and execute procurement strategies for nonproduction commodities. Cost savings grew to several hundred million dollars.

“The upfront planning with our customers to develop procurement plans that take into account our supplier management goals is key to our success,” said Marcus Garrett, Boeing Shared Services Group manager of Supplier Management and Procurement and leader of SST 9. “Last year’s outstanding results would not have been possible without significant customer involvement and diligent effort by procurement agents in the procurement process.”

In addition to cost reduction, SSTs work to foster partnership-style relationships with contractors. One SST initiative focused on a basic link between Boeing and every supplier: the contract.

Michael Mills, a BCA procurement agent and member of the electro/hydra/mechanical SST 2, led the development of a standard set of terms and conditions to be used each time Boeing writes a contract with Moog Inc., a Torrance, Calif., manufacturer of precision control components and systems and one of 13 companies to receive a Supplier of the Year Award from Boeing on March 31.

At any time, Moog could have been negotiating with several Boeing sites, Mills said. The SST’s goal was to work out general provisions that remain constant for every Moog contract, giving Boeing an immediate starting point and saving a significant amount of time.

Mills consulted with each Boeing program that had ever contracted with Moog. He worked closely with the Boeing Law Department as well as the manufacturer to hammer out mutually acceptable provisions on standard contract issues like warranty, termination and insurance.

Specifics such as price and delivery are still addressed individually. But with many basic terms and conditions in place, the negotiation process is cut by as much as a third for every Moog contract through 2008.

“Along with saving both Boeing and Moog time, this creates a very positive, connected feeling between the two companies,” Mills said.

The aerospace commodities SST 6 has been part of a major effort to harmonize costs across the enterprise ever since a pilot project of the SMPC and the Engineering Process Council discovered that Boeing was being charged widely dissimilar prices for many similar—and even identical—products.

Known as the Product Standards Cost Reduction Initiative, the effort focuses on analysis of standard aerospace parts and materials. A cross-functional team of Boeing engineers and procurement agents reviews contract bids, compares suppliers’ price quotes and searches for price anomalies among technically similar or identical parts. One example: A Delta rocket program in Huntington Beach, Calif., got a bid for 10,000 contacts at $4.25 each. In Mesa, Ariz., however, a similar part cost a helicopter program 10 cents each.

“We knew a minor modification would drive the price up a little, but not as high as the bid,” said IDS Procurement Agent Christina McDaniel, who leads the PSCRI with IDS systems engineer James W. Burgess. By incorporating the technical data into the price analysis, the PSCRI helped the Huntington Beach buyer go back to the supplier better equipped to negotiate a reasonable price.

In 2003, the PSCRI team reviewed standard parts in some 49 contracts. The team analyzed approximately 50,000 part numbers and discovered about 6,000 price anomalies. The team’s guiding philosophy of “similar prices for similar parts” contributed to an estimated $35.1 million in saved costs.

As the PSCRI team expands its focus to include the commodities of SST 2 and SST 4 (purchased outside production/outside manufacturing), related cost savings are expected to hit an estimated $45 million in 2004.

Strategic Sourcing Team members also are working on a new tool to stratify, or rank, all of Boeing’s 10,000-plus suppliers. This “super supplier grid” measures each contractor’s strategic importance, and uses performance data for ontime delivery and quality acceptance.

With a little more fine tuning, Morris said, the grid clearly will pinpoint those suppliers that Boeing should do more business with and those ripe for disengagement.

“It’s going to be a great tool,” he said.

In light of the many impressive strategic sourcing accomplishments, Boeing people may be surprised to learn that most SST members tackle these efforts in addition to their regular jobs. But SST participants agree that their work on behalf of supplier excellence is time well spent.

“Meeting with other leaders gives you insight about strategies being used elsewhere in the company so you can consider them for your own area of focus,” SSG’s Garrett said.

“Working on an SST definitely takes a lot of time, but it’s worth it,” agreed Welliver. “It’s a good opportunity for employees to grow in their understanding of the entire enterprise.” And, he said, SSTs are an opportunity to help generate results that are strategically important to something of great interest to everyone throughout Boeing—the bottom line.