Coke finds MRO is the real thing

It’s information. It’s involvement. It’s indirect materials. Coca-Cola Enterprises got its arms around its MRO spend through a centralized procurement strategy and the input of a commodity council.

by Paul V. Arnold

Twenty years ago, a gallon of unleaded gas cost $1.20. A postage stamp was 20 cents. You could buy your kid a pack of baseball cards for 50 cents. And, a can of Coca-Cola from a vending machine cost 50 cents.

Today, that gallon of gas is $1.56 (a 30 percent rise). Stamps are 37 cents (an 85 percent jump). The average pack of baseball cards is $3 (up 500 percent). But you can still get a can of Coke from a vending machine for 50 cents.

This was the conundrum faced a few years back by Coca-Cola Enterprises (CCE), the world’s largest Coca-Cola bottler.

“This is not a high-margin business,” says Gregg Waterman, CCE’s corporate procurement manager for MRO materials from 2001 to 2003. “The price of our products hasn’t changed much since the 1980s. The only way we could maintain a competitive edge was by increasing operating efficiencies or reducing waste and cost. We had to find where the opportunities existed.”

In the past, the solution may have been to purchase expensive manufacturing equipment or to restructure the production lines.

“We realized we needed to think differently and look at areas where we could take cost out,” says Waterman.

MRO/indirect procurement turned out to be the easy choice.

“The company was doing a good job on direct materials, but in doing the homework it was apparent that we weren’t doing anything on the indirect side,” says Waterman. “This huge spend was not being managed. We didn’t even know how much money we were really spending. Needless to say, it was a huge opportunity.”

After benchmarking procurement practices at 22 Fortune 100 companies, CCE built an initiative from scratch. It moved to a centralized procurement model, utilized local representatives in a “commodity council” to make key supply decisions and used technology to enable the whole process.

From fizz to fizzle
Change was a necessity for CCE, but it was far from easy.

CCE, headquartered in Atlanta, was established in 1986 through the acquisition and rollup of individual Coca-Cola bottling plants. Altering the habits of 64 North American sites, all of which embraced independence and autonomy, proved difficult.

These plants wanted to help the company. They saw the wisdom early on in corporate’s plan to take a strategic, unified approach in order to maximize the $7 billion direct materials spend. But when MRO (later calculated at $2 billion per annum) was left unaddressed, plants fell back to a silo strategy.

Each location had its own rules and procedures for procuring MRO products. Buying authority varied. At some plants, most anyone could buy what was needed. At others, a maintenance manager or director of operations handled purchases. The basic rules were to make three or four calls and find the best price.

Transactions were cumbersome, paper-based and involved countless suppliers. Data wasn’t captured to track consumption and spend trends at the local, let alone corporate-wide, level.

The pause that refreshes
When CCE decided to go after MRO in 2000, it felt the best solutions would come from unconventional thinking.

Perhaps that’s why the humble first step involved contacting plants and their suppliers to find out what the company was buying and how much it was spending. (This led to the $2 billion figure.)

It also took the tack of placing procurement leadership in the hands of employees without pure purchasing backgrounds. Ed Sutter, a regional vice president of operations, became the chief procurement officer. Waterman, whose past plant titles included quality supervisor, maintenance manager, production manager and operations manager, became the corporate procurement manager for MRO. (In January, CCE named Waterman a procurement manager for its European group.)

“The strategy was to bring people in who were subject matter experts,” says Waterman. “These weren’t necessarily seasoned procurement people. These were people who understood the game plan and the potential impact.”

This game plan would include a shift from the serve-yourself, local MRO procurement model to a for-the-good-of-all, centralized model. As CCE had done with capital goods, the MRO plan sought to professionally manage the category at the corporate level in order to control and leverage the overall spend. But with MRO, it would also involve representatives from the local plants who would team up to make key corporate supply decisions. The makeup of this commodity council would support the “subject matter expert” philosophy.

Sutter and Waterman handpicked 11 people for an MRO commodity council: six maintenance managers (one from each CCE North American region), three corporate procurement personnel, one corporate engineer and one finance representative.

“We wanted people knowledgeable enough and involved enough on MRO matters to provide the local perspective and stand up for the region’s unique needs,” says Waterman. “We got people who were established, well-known within their region — not simply a ‘plant hero’ — and had credibility.”

To get local flavor, the six maintenance managers communicate regularly with the local plants via e-mail and personal visits and serve as the conduit for information and feedback on the council’s work.

Coke adds life
Consistency, efficiency and cost savings were main ambitions of CCE’s centralized strategy and its MRO commodity council. Supplier rationalization was one of the results.

“In examining whom the individual plants bought MRO products from, we were shocked by the sheer number of suppliers on the list,” says Waterman. “We didn’t think that many companies existed, let alone did business with us.”

To address this, corporate procurement developed a scorecard that council members use to rate and select only the best suppliers. Top suppliers get the business; the others are, in large part, shut out. Maintenance representatives get feedback from their local constituents to help rate suppliers.

CCE wasn’t out to simply pick the lowest-cost suppliers. Scorecard attributes include: financial strength, quality, electronic readiness, delivery, price, product availability, incumbent supplier status, purchasing ease and value-added offerings. While each attribute is weighted differently, price is second to value-added offerings and is closely followed by quality and purchasing ease.

Council members meet quarterly in person at a selected local plant to rate and select suppliers for a given MRO product category. They also discuss progress and feedback from previously made category selections. While the council selects suppliers, they do not handle the subsequent contract negotiations. Corporate procurement takes it from there.

Teaching the world to sing
For a given MRO product category, an individual plant now has less than five supply choices (in many cases, one) instead of 30, 40 or more.

In most cases, top suppliers for a commodity category (for example, OEM replacements and spares, power transmission and bearings, or general MRO) cover multiple CCE plants. This allows CCE to truly leverage its size and buying power.

Supplier rationalization did lead to some early challenges of “you’re getting rid of my favorite supplier” or “you’re taking away my purchasing power.” Communication allayed those fears.

Sutter and chief financial officer Pat Mannelly spent several weeks visiting facilities and outlining the benefits brought about by the changes. Brian Bussell, VP of operations for CCE’s North American group, challenged the plants to quickly get on board, support the process and find new opportunities. Council members also made the rounds.

“I’m there to let them know I’m looking out for their best interests,” says Paul Newton, a maintenance manager at CCE’s Richmond, British Columbia, plant, who represents the Canadian region on the council. “Service is critical to these people, so I let them all know that’s at the top of the list. We also are helping them eliminate wasted time and get them good prices.”

Waterman says time management was a delicate subject.

“For maintenance clerks and toolroom people, it was a measure of pride when people came to them saying, ‘I need this. Can you help me?’” he says. “They would make three or four phone calls, find the best price and get it. They got a lot of satisfaction from that. They were ‘heroes’. The message we tried to convey was that they could still add tremendous value to the plant and the company without having to shop around for everything.”

Better time management sold Willie Anderson, a parts coordinator at CCE’s plant in Dallas.

“We really didn’t need to be shopping all over the place,” he says. “I’m buying the same things over and over again. In having preferred suppliers, there’s no need to reshop. I don’t have to reinvent the wheel.”

Tech is it
Technology greases the wheels and creates efficiencies that weren’t available in the days of totally localized procurement.

As you recall, plants historically did not capture purchase and consumption information. That began to change when CCE standardized on Maximo asset management software for its plants.

Maximo helps CCE plants better manage assets, work and materials. Key performance indicators, reporting and analytic capabilities let plant personnel track maintenance activities and identify areas that require improvement.

“This upgrade enabled us to have better reporting locally and nationally,” says Don Barber, a regional maintenance manager based in Dallas. “As time goes on, we will have historical data that tracks our overall effectiveness.”

Electronic-based procurement, or SAP’s EBP, is another technology-based solution.

While decisions on preferred suppliers are made at the corporate level, purchases with those suppliers remain at the local plant level. EBP takes away the pains of the past.

“They would write the purchase order, issue it by calling or faxing it in, attach a bill of lading, attach the invoice, and it would be stamped and coded with the proper account,” says Waterman. “It then went through an approval process of signatures and was sent to be processed for payment.”

Today, buyers such as Anderson purchase needed supplies by logging on to EBP and selecting an e-catalog of one of the preferred suppliers. Some of the catalogs are housed on a CCE intranet. Others require a punch-out to a CCE area inside a supplier’s Web site. These catalogs provide CCE pricing and point-and-click/shopping-cart ease.

“The CCE employee makes the purchase. Once they receive the goods, the person goes into the system, acknowledges it received, and the payment is automatically processed,” says Waterman.

Divisional procurement managers train local plants on using EBP and monitor their compliance.

“EBP usage is growing,” he says. “In the future, everything will be purchased in this manner.”

While plants are growing out of their autonomous past, a competitive nature still exists. CCE uses that to further the EBP cause.

“We have report cards that tell us who is participating,” says Waterman. “In our culture, nobody likes being at the bottom of the list. They like to be at the top. So, whatever you measure and publish, that’s what people focus on.”

New Coke
By shifting to a centralized procurement strategy, using commodity councils in the decision-making process and enabling the process with technology, CCE is getting its arms around its MRO spend and seeing a nice return on the investment.

While CCE does not divulge specific cost-savings figures, and stresses that savings are a byproduct of the initiative (not the sole driver), Waterman admits, “When we do anything, we are disappointed if we get anything less than a 20 percent savings.”

CCE is proud of its work and sees a wealth of opportunities that will keep the program fresh. Waterman says future projects include:

• More vendor reduction: “There are still too many in our vendor base. It remains a very long list.”

• Product and/or brand standardization: “We are heading there. With historical data, you can make very strategic decisions. We might be buying 100 different versions of pens or brooms. If we standardize on two, meet everyone’s needs and save some money, why wouldn’t we do that?”

• Spare parts inventory: “Since we’re still coming out of our independent past, it’s hard to get a good feel as to what parts are at each location. We are looking at a Maximo upgrade where we will standardize our parts-numbering process, and clean up and establish one database of parts. We may not have to buy a needed part if another plant has an extra one.”

Whatever lies ahead, Waterman says the initiative won’t fizzle out.

“There’s plenty left to do. I know we’ll have to go back and make harder decisions,” he says.

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