General Motors Indirect Materials and Services

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Benchmarking. \"An ongoing investigation and learning experience that ensures that best industry practices are uncovered, analyzed, adopted and implemented.\"Robert CampXerox Corporation\"People seldom improve when they have no other model but themselves to copy.\"Oliver Goldsmith. Table of Contents.
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General Motors Indirect Materials and Services

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1. General Motors Indirect Materials and Services

3. Table of Contents I. Executive Overview II. Benchmarking Study Presentation Agenda Current Environment Best Practices Investigation Findings Recommendations Business Case Implementation

5. Introductions/Project Overview Current Environment Best Practices Investigation Findings Recommendations Business Case Implementation Indirect Material Vision Process Benchmarking

6. Indirect Materials

7. Opportunity for GM Administrative cost is 30-40% based on benchmarking data. Benchmarking data indicates 3 -10% administrative cost is attainable. GM indirect purchases (MRO) - $2 Billion Significant Potential Savings for GM

8. Functional Silos to Process Focused "Old" Paradigm to "New" Paradigm

10. Focus of the Benchmarking Team Business Processes and Practices Non-Value-Added Administrative Activities Reduced Transaction Costs People as our Most Important Resource Skilled Tradesperson is our Primary Customer Technology as an Enabler Process Driven vs. System Driven Single Supplier per Commodity Based on: Integrated Partnering Relationship Long Term Contracts Quality, Service, Price, and Technology Criteria

11. Project Study Maintenance, Repair and Operating supplies (MRO) is the industry term for non-production related materials, parts, supplies and related services. The project will include the entire procurement cycle from need identifica-tion through payment and use. The scope of our study will assess the business best practices in terms of: Customer Need Optimal Facility Layout Material Receipt, Storage and Distribution Supplier Management Procurement Method Supplier Payment Total Cost Driver Analysis (ABC) Process Measurement and Improvement Elimination of Waste

12. Expected Benefits of the Study Achieve an exceptionally high level of customer satisfaction utilizing synchronous multi-functional processes that will result in moving MRO procurement from being perceived as a ?roadblock,? to a value-added and cost effective opportunity to improve quality, reduce total cost, and integrate effective purchasing techniques. Other tangible measurements will include: Consolidated Supplier Base Standardized Parts Reduced Inventory Reduced Lead Time Variation Improved Cash Flow More Effective Use of Resources Defined Training and Communication Needs

13. Process Considerations Customer Acquisition Supplier Management Transportation Receiving Storage Internal Distribution Payment

15. GM Indirect Market

16. Skilled Trades ... Our Primary Customer Labor and Material Spending for 1993 - $4.2 Billion Skilled Trades Employment for 1993 - 70,600 This is a large organization. If viewed as a separate business, GM Maintenance would rank as the 32nd largest company in America (In terms of number of employees - Source: April 1993 Fortune 500)

19. Indirect Material Today Voice of the Customer Poor Communication Between Disciplines (Different Objectives) Fire Fighting Mode for all Stakeholders Plant Performance Measures Force Stakeholders to Violate the System Lack of Understanding of Total System Costs Incomplete Information on Supplier Shipping Documents Lack of Trust in the System Creates Hoarding Excessive Obsolete Material Lack of Planned Maintenance Creates ?Stockout? Conditions and Unlevel Requirements Unwillingness to use ?Generics? Creates Excessive Number of Line Items Part Quality Problems M & E Replacement Parts Not Available

20. Inventories are Excessive - ?Don?t Run Out? Mentality Common Code Efforts Wasted Due to ?Impurity? in the System and Lack of Knowledge Stores Activity Not Customer Oriented Too Much Floor Space Taken up by Indirect Material - Workplace Organization Required No System/Process in Place to Effectively Screen ?New? Items Excessive Walk and Wait Times Too Many Suppliers ... and They are Changing Cost Management Focus on Piece Price, Not Total System Cost Buyers Overloaded - Hurts Response Time Long Lead Times on Spot Buys High Administrative Costs for Spot Buy and MBO Purchase Orders

21. Current Pipeline Traditional Supplier Relationship

22. Best Practices Investigation

23. Benchmarking Team Key Milestones Attended Process Benchmarking Training Class Formulated the Project Statement/Scope Documented Process Flow - PM&I Developed Key Success Factors Established the Question Guide Developed Data/Information Gathering Template Attended National MRO Conference Utilized Various Benchmarking Approaches Business Intelligence Site Visit Partnering Teleconference Partnering Subject Matter Expert Interviews Internal/External Industry Investigation Investigated Activity Analysis of Transaction Costs

24. Benchmarking Partner Selection Criteria Reputation Accessibility Benchmarking Experience Proximity Supply Management Distribution Inventory Management Supplier/Customer Relationship Common Interest Group Networking Process Similarity (Functionality)

25. Benchmarking Partners/ Business Intelligence Ford Chrysler W. W. Grainger Bethlehem Steel Saturn Wal-Mart NUMMI Sam?s Club John Deere EDS General Electric Delco Chassis Division Delco Electronics Corp. Saginaw Division Berry Bearing Eli Lilly Texas A&M University Minnesota Industrial Tool Texas Instruments Metalcutting Tool Mgmt. Titan Services

29. New Realities in Distribution Industry Perspective Integrated Supplier Supplier Certification Supplier City Supplier Parks Supplier Stocking Programs Partners Inventory Buy-Back Inventory Ownership Local Distributors Total Cost Barcoding EDI Purchase Cards Kanban On-Line Supplier Catalogs Point-of-Use Delivery Pull Signals On-Site Technology Long Term Contracts

30. Integrated Partnerships Trust With Expectations Open Access for Customer Requisitioning Supplier Has "Active" Role in Managing Inventory Replenish Bins Establishing Min/Max Deliver to POU Traditional Buyer Role Changes Significantly High Buyer Skills-Set Supplier Process Measurements Total Cost Replaces Price

32. Future Pipeline Integrated Supplier Relationship

36. Key Success Factors ?Right Part? ?Right Place? ?Right Time? Communication, Planning and Training Inventory Availability No Lead Time Variation

37. Customer Focused Initiatives Natural Work Group Participation Plan for Every Part Specialty Cribs On-Site Technical Support Integrated Supplier Role Role of the Commodity Manager Role of the Commodity Specialist Role of the Performance Measurement Manager Role of the Performance Measurement Specialist Process Measurements Continuous Improvement Focus

38. Role of the Natural Work Group Trades/Production Crib Representative(s) Production Control and Logistics Integrated Supplier(s) Local ABP Representatives Commodity Manager(s) and Commodity Specialist(s)

39. Categorize Parts Standardize Parts Reduce Variation Establish Min/Max Quantities Determine Crib/Storage Layout Manage/Eliminate Obsolescence Improve Customer Satisfaction Reduce Inventory Establish Measurement Criteria Communicate to Stakeholders Maintain User Catalog

40. "A Plan For Every Part"

41. Supporting our Customers Through "Specialty Cribs" (As Required)

43. Role of the Integrated Supplier

44. Benefits of Integrated Supplier Eliminate Non-Value-Added Negotiations Reduced Stockouts Reduced Search Time Right Parts Right Inventory Level Lower Inventory Quick Response Cost Savings Ideas Reduced Paperwork Quality Improvement Value Up, Supplier Base Down Get Best Manufacturing Hold Supplier to Annual Cost Savings Targets

45. Role of the Commodity Manager

46. Role of the Commodity Specialist

47. Role of the Performance Measurement Manager

48. Role of the Performance Measurement Specialist

49. MRO Process Measurements Plant Measurements Emergency Shipments Returned Material Down Time Facility Utilization Continuous Improvement

50. Continuous Improvement Indicators Inventory Turns Part Availability Inventory Accuracy % Releases % Mechanical Payments On-Time Supplier Payment Inventory Levels Inactive Parts Items in Specialty Crib > 30 Days Number of Crib Transactions % MBOs % Spot Buys

51. Business Case

52. One Time Savings Obsolescence Buy Back $ 62.9 Million Recurring Savings Cost of Capital Savings from Inventory Reduction $ 3.8 Million Reduced MRO Expenditures $100.0 Million $103.8 Million Investment to Implement MRO Vision Near Term (TRIM) $ .8 Million Long Term (SLIM) $ 10.0 Million $ 10.8 Million Total P&L Bottom Line Impact $155.9 Million ($103.8M + 62.9M - 10.8M) Other Potential Savings from Business Process Improvements ABP Workload Reduction $ 2.3 Million Total Savings ($155.9 + 2.3) $158.2 Million Indirect Material Vision Business Case Analysis

53. Reduced MRO Expenditures (After Adjustment for Economics and Volume) 1993 MRO Expenditures $2.2 Billion After Implementation of MRO Vision $2.1 Billion Savings (5% reduction factor) $100 Million Obsolescence Buy Back Program (not used in 2 years) Current on hand $419.3 Million Factor for Critical Parts @ 50%* $209.6 Million Actual Obsolescence $209.6 Million Potential Savings From Supplier Buy Back* $62.9 Million Indirect Material Vision Business Case

54. Cost of Capital Savings from Inventory Reduction Obsolescence Buy-Back @ 109 Plants* $ 62.9 Million POTENTIAL SAVINGS @ 6% COST OF CAPITAL $3.8 Million ABP Workload Reduction Current APAs (3-4/location) 378 Less 10%* (38) APA MRO SAVINGS (38 APAs @ $60,000/yr.) $2.3 Million Indirect Material Vision Business Case

55. Near Term (TRIM) Implementation Team and Training Rollout (6 people @ $60,000) $ .4 Million Train the Trainers (3 people @ $60,000) $ .2 Million Training Instructional Design and Material $ .2 Million Total Required $ .8 Million Long Term (SLIM) Includes the following: Information Technology Enhancements DIP Bar Code ASN Simplification Equipment Bar Code Readers Bar Code Scanners Electronic Catalog Total Estimated $10.0 Million Indirect Material Vision Business Case

56. Implementation

57. Trim/Slim Indirect Vision Transitional Reduction of Indirect Materials Strategic Leverage of Indirect Materials

58. Indirect Material Vision Phased Implementation Approach Selection of National Suppliers with Strong Local Presence (Preferred) Issuance of Long Term Supply Contracts Integrate Suppliers into Process Selection of Dedicated Freight Partner Sharing of Risk and Reward Opportunities Scheduled Deliveries Implementation Plan for Every Part Supplier Involved in Managing Inventory Supplier Provides Technical Expertise and Training Natural Work Group Empowerment Utilization of Electronic/Automatic Pull Triggers for Replenishment Utilization of Central Crib "Pizza Run" Deliveries to Point of Use Employ Supplier Evaluation Criteria for Performance Measurement Commodity Managers/Specialists and Suppliers Manage the Commodities Acquisition Time Becomes Level, Eliminating Lead Time Variation Total Cost Replaces Piece Price

61. Goals by Year

62. "Leapfrog" Strategy

63. Benefits Increase Customer Focus Reduce Floor Space Allocated to Storage Inventory Level Reduction Systems Cost Reduction OLIMPIC DACOR SMIMS (Potential to Eliminate) IMPAC Reduce Down Time Reduce Wait Time Improve Technical Expertise Eliminate Variation Reduce Lead Time Reduce Set-Up Time Improve Inventory Turns ABP Workload Reduction Reduce Cost of Acquisition Approval MBO Receipt Spot Buy Release Follow-Up Smaller Supplier Base Reduce Search Time Reduce Paperwork Reduce Obsolescence Facilitate Emergency Buys Standardize Parts Simplify Receiving Process Uncontrolled Inventory Eliminated

65. Team Selection Criteria The Implementation team should be an expanded version of the Benchmarking Team for the most successful implementation. The team should consist of six (6) people for effectiveness. During the selection process, management should choose individuals that meet the following criteria: Ability to view the process from a NAO perspective vs. a proprietary perspective Have expertise in the subject area Understand the objectives and outcome expected from the implementation Will live with the results

69. Acquisition Business Process Financial Steering Committee Worldwide Purchasing Production Control and Logistics Manufacturing - Planned Maintenance Information Technology Councils

70. Define Common Processes and Practices to Implement Change Select Initial Sites for Implementation Based on Initial Results, Define a Common Implementation Methodology Document the Implementation Activities and Tasks Understand and Experiment with Lessons Learned Modify Implementation Methodology for Continuous Improvement Communicate to and Instruct all Customers, Stakeholders, and Commodity Specialists/Managers Use the Implementation Tools and Techniques and Reuse Them... Monitor the Output Recalibrate from Lessons Learned and Process Benchmarking

71. Select Implementation Team (Expanded Benchmarking Team) Develop Communication Plan for Stakeholders/Customers Integrate ABP into Vision's Framework Vision's Framework Includes: Integrated Supplier Relationship Commodities Management Freight Partner Bar Coding (Receipt to Payment) Purchase Card (Request to Payment) EDI Technology ABP Implementation, Validation, Continuous Improvement


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