The long haul

This Milwaukee-area company believes that for integrated supply to pay off for manufacturers, suppliers must demonstrate measurable, long-term cost savings.

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Many manufacturing companies that participate in integrated supply or other onsite managed inventory programs soon lose interest in those efforts. According to Rick Star, president of Engman-Taylor Company (ETCO) based in Menomonee Falls, Wis., published data indicates that the typical integrated supply program lasts just 18 months before the company either decides to change suppliers or to scrap the program. Why?  After 18 months, integrators that focus on lowering administrative and purchasing costs fail to produce additional cost savings that have any measurable impact on the company’s bottom line.

Engman-Taylor has a number of programs with manufacturers that are several years old, including programs at multiple Harley-Davidson Motor Company locations, plus manufacturing sites of Giddings & Lewis, Haldex Hydraulics and Mercury Marine. The reason for ETCO’s longevity at accounts is its ability to generate cost savings for customers over the long haul, Star says. Engman-Taylor maintains the business by generating consistent, documented results.

“We focus on sustainable cost savings. Our programs are designed to reduce our customers’ costs not just in the short term but in the long term,” he says. 

ETCO’s program is built around what Star calls the cost circles philosophy, where each major cost ETCO impacts is represented by interlocking 

circles. The administrative cost circle includes the cost of overhead to source, quote, order, receive and inventory products. The price cost circle reflects the actual purchase price of products, and the manufacturing cost circle includes any activities that improve productivity on the plant floor.

“If we hit any one of those areas, we get a small impact. If we hit two, we get more impact. But we get the maximum impact if we hit all three. We think we’re very unique in the marketplace with our ability to hit all three of them,” Star says.

Most integrators tend to focus their efforts on streamlining transaction processes, leveraging purchasing volume and similar administrative tasks. Once those costs are reduced or eliminated, cost savings start to decrease. 

“In an Engman-Taylor program, because we supplement all that administrative activity with a major focus on manufacturing, the cost savings will be relatively constant over time. What shifts over time is the type of cost savings. In the first couple of years, you hit the low-hanging fruit associated with administrative activities. In the later years, the focus is almost entirely on manufacturing,” he says.

Manufacturing expertise
When Engman-Taylor signs an integrated supply agreement with a new customer, a team visits the facility to perform a cost-reduction study. Using objective data provided by the customer and observational data gathered by team members who survey the customer’s manufacturing floor, ETCO identifies major cost-savings opportunities. In one case, the team identified $2.7 million in potential cost savings in the first year of a program. Depending on the size of the account, team members either remain onsite full time or split time between a handful of customer locations. Their job is to become intimately familiar with a company’s manufacturing processes and uncover cost savings opportunities.

“The more our people understand the manufacturing systems and philosophies of the customer, it’s going to expand opportunities for manufacturing savings,” says Dale Boschke, director of integrated supply services.

In order to keep them focused on their objective, application engineers are paid a percentage of the cost savings they’re able to achieve. In some cases, they might earn up to $10,000 in annual incentive pay, says Boschke.

“So, the opportunity to generate cost savings is very important to these people,” he says.

Applications engineers function as an extension of the customer’s manufacturing, tooling, design and engineering departments. Like sleuths in search of clues, engineers constantly watch for bottlenecks in the production process that may reveal cost-savings opportunities.

“One of the primary areas we look at first is high-dollar consumption items. Those are the first areas we attack to see if we can find ways to find cost savings,” says Pat Baptist, site manager at a Mercury Marine plant in Fond du Lac, Wis.

A recent project at that facility involved changing an end mill used in one production process. By shortening the flute length, changing coatings and making other adjustments, Baptist and machining specialist Bob Real reduced the plant’s annual end mill consumption from $72,000 to about $35,000.

Report cards
ETCO uses a variety of reporting tools to document savings. In a typical integrated supply account, the company may generate four or five reports using a proprietary software package called CODEX. For example, price variance reports demonstrate the price a customer pays for a product today compared to the price it paid to a previous supplier. Other common reports demonstrate savings in freight, inventory and delivery costs.

Project reports that detail manufacturing savings typically yield the greatest dollar benefit. At one Harley-Davidson facility, for example, ETCO proposed changing a metalworking operation to extend tool life. By switching to a new cutter with greater cutting capacity, the company reduced manufacturing costs in one milling operation from nearly $53,000 annually to less than $34,000. A detailed, three-page cost-reduction analysis report, signed by the customer, provides all the needed data to justify the change.

Engineers typically present the cost savings reports at monthly site review meetings and also include them in a value-added service log maintained for each customer. The logs are valuable written records of activity that resulted in documented savings.

Engman-Taylor employees frequently participate on continuous improvement teams at Harley-Davidson and ETCO is one of just three companies nationwide designated as a Harley-Davidson Indirect Materials Alliance (HIMA) member.

“What really drives us at Harley-Davidson is trying to decrease the cost per unit,” says Ivars Roberts, an application engineer. “Any way that we can decrease cycle time or decrease tooling costs gets calculated into their formulas for cost per unit. Harley is on an agenda to decrease its cost per unit, so that’s where we’re proving ourselves with better technology.”

Supplier honor roll
ETCO keeps tabs on the supplier companies that generate the most savings and urges application engineers to work closely with those manufacturers. Each year, the company hosts more than 100 supplier representatives at an annual supplier day event, where ETCO presents its Honor Roll of Supplier Savings, recognizing companies that generated the most savings in the past year.

This year’s top spot went to Sandvik Coromant, Engman-Taylor’s largest supplier, which worked with the ETCO team to generate nearly $2 million in savings. The other top suppliers included cutting tool makers Komet ($466,716 saved) and Walter ($420,723 saved), grinding wheel and metalworking fluid supplier Milacron ($155,957 saved), and Winco ($84,341 saved), a manufacturer of precision solid carbide and superabrasive machining tools.

ETCO’s Honor Roll is fast becoming a prestigious award suppliers strive to win.

Engman-Taylor’s message to suppliers is simple: Give us products that work faster, last longer, work better or cost less.

“If a supplier’s product does just one of those things, and they document what’s going on, they’re going to generate savings. Those are the types of suppliers we want to work closely with,” Star says.

Working in conjunction with suppliers, ETCO team members continually investigate new technologies that look promising. It’s a never-ending job.

“Just because you make a recommendation or replace a tool for better performance or better cost savings today doesn’t mean that cost goes away forever,” says Maurice Ralston, an application engineer assigned to the Haldex Hydraulics account. “One of my major roles at Haldex is testing tools. I’m constantly bringing in new tools and testing them against what we’re running.”

Service, not sales
Like every industrial distributor, sales results are important to Star. But he believes that Engman-Taylor won’t succeed by buying products in bulk quantity and then undercutting the marketplace on price. The company’s success is a byproduct of the service it provides customers.

“We try to sell by illustrating the value of both the products we’re selling and the people who apply those products,” he says. “That value is best illustrated through documented cost savings. If we provide the right services, the sales will follow.”

As long as Engman-Taylor can continue to provide cost-cutting services that customers value, Star believes the company will prosper for the long haul.

This article originally appeared in the January 2003 issue of Progressive Distributor. Copyright 2003.

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