New Data, New Deal

By Kim S. Nash  |  Posted 2003-02-01 Print this article Print

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.

New Data, New Deal

After it is cleansed, the data is downloaded to the DataBeacon "spend cube," so named for the ability to view the data from several dimensions—by item category, supplier, office location, amount spent, time period and so on. The knowledge helps Steele and Cebula save money in two ways.

First, once Kennametal was able to see what it was spending in different categories across the company, it started to negotiate global deals with some suppliers, rather than let each location fend for itself.

Telecommunications service was an early target. "Tigris said, 'We think you're spending more than you realize. There's negotiating leverage you have that you didn't exploit,'" Steele recalls.

Although a contract had been signed less than 12 months before, Kennametal went back to its telecommunications provider with fresh data and aggressive demands for a better deal. It saved $800,000, which more than paid for the work of Tigris, Steele says.

Likewise, in abrasives, which are grinding wheels used to sharpen cutting tools, Kennametal has saved $500,000.

Second, managers have more power to get employers to comply with preferred-vendor agreements. Compliance is crucial. If Kennametal has negotiated a 10% discount for tungsten or titanium from a specific company, it does no good if no one buys from that company.

In the past, when managers called factories to check on compliance, they had no real ammunition other than a complaint from a supplier that so-and-so was not buying from it. "The factory would then buy some of their stuff from the vendor but not all of it, in hopes we'd go away," Steele says. "I don't mean to imply that factory managers don't want to do what's right, but we all prefer independence over direction," he adds diplomatically.

Now, though, the manager can run a report and cite names and numbers showing just what percentage of buys followed the rules. "When you're being managed with facts, you're more inclined to comply than if you're being managed by anecdote from a vendor," he says. "Resistance is broken down pretty quickly when you have good data."

Most of the savings are reflected in lower operating costs for Kennametal. But cost reductions also contribute to how competitive the company can be in pricing its products, Steele says.

Kennametal will have to be plenty competitive. It lost $212 million in 2002, the company's first losing year since its $4 million of red ink for 1994.

That $35 million mandate? It was met last November, six months ahead of schedule. Steele not only got his bonuses, he was promoted. Last month, he was made general manager of Kennametal's 300-employee electronics division.

Senior Writer
Kim has covered the business of technology for 14 years, doing investigative work and writing about legal issues in the industry, including Microsoft Corp.'s antitrust trial. She has won numerous awards and has a B.S. degree in journalism from Boston University.

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