Kennametal Cuts Supply Budget With TeethBy Kim S. Nash | Posted 2003-02-01 Email Print
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The $1.6 billion Pennsylvania company has spent the last three years taking knives to its $700 million budget for supplies. But first, it needed real data.
Mark Steele's wallet was on the line. Just days after he was hired in May 2000, Steele sat across a table listening to his new boss, Stan Duzy, chief administrative officer at Kennametal Inc.
To compensate, the 65-year-old company started an austerity program, including an effort later called Kennametal Lean Enterprise. The idea, as the latest annual report puts it, is "to eliminate all forms of waste [and] unnecessary complexity."
Steele, the new director of purchasing and supply management, sensed he was about to get some marching orders. He did. Duzy ordered that he cut $35 million from Kennametal's annual procurement costs of $700 million.
The goal must be reasonable, Steele figureduntil he was then told that Kennametal didn't actually know what it spent every year on supplies because there was no central database to track it. The $700 million was merely an estimate, not an actual figure calculated from any real, consolidated data.
"That is when it started to get scary," he says. "How was I going to identify the categories to work on if the data did not exist in one place?" he wondered. "[My] compensation is tied to this."
Where Does Money Go?
Ever try to document every dime you spend? It's hard enough to do at home, never mind at a company with almost 12,000 employees and 50 factories in 12 countries, plus sales or customer-service offices in another 48.
Certainly the company had procurement policies. And it had a list of preferred vendors from which employees were supposed to buy their supplieseverything from staples to PCs to tungsten for making knives that slice through steel. Plaintive memoranda on the topic were regularly sent to all offices worldwide.
But without software to analyze spending at all locations, Steele couldn't determine who was doing what or how to find $35 million worth of savings.
A factory manager in Shlomi, Israel, may be buying 25% of his office supplies from the sanctioned vendor but 75% from local shops. Back at the corporate office in Latrobe, Pa., Kennametal's category manager for office supplies just didn't know.
That was then. Now, nearly three years later, Kennametal can tell how much each facility spends on nearly all of its supplies, and with which suppliers. Managers also can cajole reluctant employees into compliance by whipping out detailed reports on their spending habits.