With Supply Management, Technology Rules! [page 4]
-- Supply Chain Management Review, 5/1/2006
Page 4 of 6 -- The idea is to look at the lowest total cost to make a particular product. For instance, HP might take a cheap widebox PC made in China and break it down into its sub-costs. Planners would next locate the cheapest PC available, which would become the absolute best cost. Starting with that bottom-up approach, the challenge becomes to define an acceptable product for HP. Cost/value analytics bring together procurement as well as engineering and marketing interests. It’s a more comprehensive way to define costs, the company believes.
Line-of-Sight Management
HP is also using technology tools, especially compensation systems, to link supply management directly to corporate goals. This provides what Shoemaker calls a "direct line of sight" between HP’s objectives and procurement’s actual performance. "Our entire compensation package is a mixture of overall company results and individual performance results," he says. "It’s one aggressive step up that is raising procurement’s visibility and power."
A procurement professional can have direct impact on corporate goals by obtaining what Shoemaker calls advantaged costs, materials availability, and the right quality during allocation periods. To achieve this, they can avail themselves of tech tools that provide more of the right kind of information, at the right time, that ensure better decision making. And this, in turn, helps the company maintain its lead in competitive buying.
Indeed, better sourcing and buying by every commodity manager has the potential to improve HP corporate profits. The HP total spend of $60 billion includes $45 billion for direct materials, $10 billion for indirect, and the remainder in logistics and services procurement.
Everyone on HP’s procurement team understands the possibilities that even a 1-percent improvement in spend can create. In fact, merely a 1-percent improvement, or about $60 million, is significant. Armed with new advanced technology tools, HP buyers can keep their focus on making decisions that build profits, as well as ensure that the legendary innovation machine continues to roll.
Caterpillar:
Technology Shows a Better Way
Caterpillar, the big, yellow king of earth-moving and construction equipment, has put in place some of the quickest brains in industry to pioneer leading-edge technology applications that will redesign the way buyers work. A big part of that effort is being led by Syamala Srinivasan, manager of Caterpillar’s Information Analytics Center of Excellence.
Srinivasan likes to play with numbers. In fact, she likes them so much that she has made a career of creating innovative new solutions from the mountains of data that supply chains typically accumulate around parts and cost. Hired 16 years ago as a reliability analyst, Srinivasan describes herself as a natural entrepreneur. "I like to do things different and new," she says. "And so I always look for solutions that not only help Caterpillar but also have potential opportunities for spin-offs."
Srinivasan currently leads the information analytics group that provides consulting services for all divisions of Caterpillar. The group has wide expertise in general statistics and data mining as well as in probabilistic business simulation, discrete event simulation, and probabilistic engineering simulation. It gets involved in a lot of interesting projects such as a predictive buying initiative to help improve sales of Caterpillar truck engines. Srinivasan gives the details: "We purchased the truck engine registration database to extract the customers’ purchase history information and integrated it with the customer business information. We used pattern-recognition techniques to analyze this large database and were able to predict future buying patterns of individual customers very accurately. This information allowed the sales force to target specific potential customers."
Srinivasan reports that truck engine sales significantly improved after completion of the project. The initiative also won Caterpillar the National Grand Challenge Award from the University of Illinois, presented for breakthrough business results using state-of-the-art technologies. Continued...
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