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A Better Way to Buy

A Better Way to Buy

Cebula says the spend cube has helped all of Kennametal's purchasing and supply management organisations work to the same standards and use the same language. Better still, he says, the entire system imposes a minimal burden on the organisation's IT infrastructure, since Tigris hosts the system under an ASP model. "It means that Tigris runs this system on its computer, and all Kennametal has to provide is a desktop computer that has access to the Internet. That's not a big ask, so our IT department really has little or nothing to do with this application," Cebula says.

Now purchasing officers can easily extract information on the company spend, because the Tigris tool consolidates the spend data from the different systems into a single Excel program to give what Cebula calls "spending visibility". They are also using the Tigris data to conduct online reverse auctions on tool steels and forgings and castings, and plan to extend this to additional auctions for other commodities. The buying team has already used the data to win $US800,000 in savings on a renegotiated telecommunications contract, and a further $US600,000 through weeding out off-contract purchases.

In addition, the system is allowing buyers to develop supplier management and supplier rating systems.

Spend Cube Impacts

Cebula says the spend cube impacts the financial organisation, the informational organisation (which has had its burden considerably reduced by the ASP arrangement), and Kennametal's interpersonal relationships. Although the spend cube is just one of many activities the organisation undertakes to generate global cost reductions, it has led to significant identification of opportunities for savings and helped the company to prioritise resources. It has made a significant contribution to the $US40 million the organisation slashed from its costs over the past three years.

"For example, we did not realise across our executive team how much we spent on pharmaceutical benefits and health- care," Cebula says. "And this is something that typically was not negotiated. So just recently we did an Internet auction on our pharmaceutical benefits program and generated bid day savings of over a million dollars. That's not bad on $US9.5 million of annual spend.

"And even though our human resources department felt they were doing a very good job at $US9.5 million (although in their words it could have been $US12 or $US15 million), the reality is that when we competed the business in an Internet auction, the lowest benchmark price was a million below what we were paying."

Kennametal's primary technology purchasing tool has now become Internet-based auctions, and it prioritises those efforts based on the information from the spend cube. "Last year, in fiscal year 2003, we had cumulative savings of $US1.6 million, on a spend of $US10.4 million, and then in fiscal year 2004, which started July 1, 2003, we've already exceeded that in terms of savings and volume," he says.

Perils and Pitfalls

Cebula says he learned some important lessons along the way to spend management nirvana. He says the organisation initially underestimated the value of such spend information, and so was not prepared to share and train large numbers of people in order to gain more value. "For example, we were able to train our financial controllers who now use the tool to help them forecast their budgets for the following year. We've only learned to do that recently from a tool, a system, that has global information."

Now Cebula spends a lot of his time sharing his experiences with other companies. "For example, just last Friday I was in New York city for a strategic spend management conference that was put on by The Conference Board, and maybe 75 companies were represented," he says. "They are very interested in our work.

"There are other software packages on the market that offer spend management solutions; however, I don't think they are as effective as the one we have developed."

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