Kennametal's global purchasing and supply management director Jim Cebula was used to making big orders, but in May 2000 he was facing a tall order: "Tell us where every dollar we spend goes, even in departments that don't cut purchase orders."
The $US1.6 billion Pennsylvania-based company was going through hard times as the global economy faltered. Kennametal makes its living selling metal cutting, coal mining and highway building tools and providing engineering services, but both building and road construction projects were on the wane, and car makers were slowing production. Sales were already on the decline that ultimately saw them drop 17 per cent between 1999 and 2002.
Part of Kennametal's solution had been to appoint Mark Steele as vice president and director of purchasing and supply management (PSM) to put in place a global strategic sourcing program that would reduce the company's purchasing costs by $US35 million. Yet Kennametal could only estimate its current spending, and while individual business units had data on where they were spending the most money, no such assessment was available companywide.
"It quickly became clear that we didn't have a purchasing data warehouse, a central repository for the data we needed to do the analysis to identify the best [sourcing] opportunity," Steele told InfoWorld in August 2002. His vision was to get Kennametal to a position where it could aggregate all data companywide, so that the separate business units would be able to act as one company when purchasing in various markets. He also wanted a mechanism to help enforce purchasing agreements and ensure business units only bought from Kennametal's primary contracted sources.
And so Cebula, who works under Steele, was charged with implementing systems to help Kennametal determine exactly how much each business unit spends on all supplies, and with which suppliers.
"The impetus was a challenge by our chief administrative officer to first understand where every dollar went that was spent in Kennametal - not just purchase order spend, which typically can be easily retrieved from, in our case, our ERP system SAP, but all the spend, including spending that was made by departments that typically don't cut purchase orders," Cebula says.
"So for example human resources have quite a bit of spending on employee benefits and health-care, and typically when you go to an ERP system you get spending in the manufacturing plants, but not spending at the corporate headquarters."
Cebula's job would not be easy. Kennametal has many business units and factories around the globe. It also runs five different ERP systems - including two versions of Computer Associates' Ask Manman, which derive from the late-1980s, and two even older packages specific to industrial manufacturing - and also draws on American Express purchasing card data. It runs six different databases.
"We really wanted to identify every dollar that leaves the company, so being able to get data from all those systems was critical," Cebula says.
But when Cebula started casting around for solutions, he found very few models to draw from. Neither Dunn and Bradstreet nor SAS had a workable solution to offer. So in August 2001 he turned to a New York-based supply chain consulting company named Tigris Consulting and solicited its support to build a solution. Tigris quickly put its staff of somewhere between 50 and 75 database analysts to work identifying, consolidating and normalising Kennametal's data. It was difficult and demanding work.
Cebula charged Tigris with delivering a fully functional purchasing database for three of its enterprise systems within eight weeks. Drawing on some of Kennametal's existing technology, custom-designed applications and inexpensive tools, Tigris did just that. Now Kennametal has a purchasing warehouse with strong analytical and categorisation tools, and an OLAP tool purchasing professionals can use to quickly deploy the "spend cube" spend-analysis tool regardless of the enterprise system being used.
The system - which has proved incredibly inexpensive - revolves around a Microsoft SQL Server database, Microsoft Access, and DataBeacon's eponymous "spend cube", a Web-based analysis tool. Cebula says part of the tool's effectiveness is that it is multilingual and very intuitive. The spend cube lets Steele, Cebula and local purchasing officers view the data from a range of dimensions, including by item category, supplier, office location, amount spent, time period and so on. ROI was achieved in less than three months. Kennametal refreshes the spend data every three months, since it contains historical information, and since the organisation has learned that strategic negotiations with suppliers are most effective when it can draw on current information.
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