Collaborative supplier relationships spell success

The proof is in the productivity, which began rising dramatically when PCI abandoned conventional supply chain management strategies.

For many molding operations, relationships maintained with suppliers can border on the adversarial, or at the very least, are based solely on price. While this scenario may seem to be the only answer, Plastic Components Inc. (PCI) took a fresh approach three years ago that defied conventional wisdom, fairly confident that the change would be a positive one.

After implementing this alternative tactic for managing suppliers and tracking results for the past five years, PCI now has extensive, quantifiable evidence that it has produced significant bottom-line benefits. In fact, PCI could not be a highly automated, low-cost molder without strong links to suppliers such as PolyOne (Avon Lake, OH) and IQMS (Paso Robles, CA).

It’s not about the pennies per pound

For the first 14 years of our existence, PCI purchased resin based on a competitive bidding process, often pitting one supplier against another to gain the advantage of a few pennies per pound. Suppliers would submit a price quote, and PCI would buy from the one that had the cheapest price. Period.

It became clear that this tactical arrangement didn’t address our overall system costs, or our operating efficiencies. We made a decision to switch to a more strategic approach, telling our major distributors that we weren’t going to play the price game any longer. Instead, we asked each of them to submit a proposal that spelled out how they would improve our inventory turns, what kind of support they would offer in terms of both processing and design help, and finally, how they would ensure that we purchased material at a competitive price.

In essence, we asked for a proposal that would put PCI in a position to win business using our existing manufacturing model combined with the services each supplier could provide. Ensuring that we would never be at a competitive disadvantage due to the material prices we pay was a final requirement.

The proposal that won our business came from PolyOne Distribution. It showed how inventory could be managed for more frequent turns, and detailed the type and scope of technical support PCI could expect. It also included a pledge to consistently provide competitive pricing.

Collaboration based on trust

Although we don’t benchmark pricing or solicit competitive bids, we don’t doubt that the price we get from PolyOne is competitive. That level of trust is possible because of the relationship we’ve developed and the collaborative nature of the agreement.

Let’s take a look at the alternative, a low-trust supplier position in which a molder sets up a competitive bidding situation between material suppliers. The intent is to get one of the suppliers to cut the price by a few cents per pound, and it usually works. However, the low price may require the molder to purchase larger quantities than it needs, so the first downside will be lower inventory turns.

If this process continues, molders can end up with a warehouse full of material purchased at what they thought was a good price, only to find out that resin prices have dropped, wiping out their “savings.”

Instead, using a single-supplier strategy, PCI receives resin deliveries from PolyOne each morning, which helps us to be a lean molder that turns inventory about 24 times a year, vs. the industry average of eight times. Because PCI obtains the resin by 8 a.m., we can be molding parts by 10 a.m., and can then ship product as early as the next day.

Wendy Jepson, vendor relations manager at PCI, has engaged PolyOne’s technical staff in the development of new parts as well as problem solving on our production floor. In addition, members of the PolyOne team have hosted several “lunch and learn” programs regarding topics such as polymer families, material selection, and understanding data sheets. These onsite seminars allowed key PCI employees from various departments to expand their knowledge base.

PCI values the time commitment from PolyOne as monthly business review meetings take place to effectively communicate ongoing needs. We review pricing, negotiate, and forecast information for the raw materials we purchase from PolyOne. This allows PCI to stay on top of shifts in customer orders and minimize or increase the amount of certain materials on the floor based on upcoming customer requests. Constant communication, two to three times per week, may include material quotes, business issues, market trends, or customer followups. This is a genuine example of how a business partnership prospers.

Further, the collaborative nature of the relationship enables PCI to improve efficiency and consolidate resin buys. We currently purchase more than 59 different materials from PolyOne, but two years ago, the number of different grades stood at 73. PolyOne worked with us and our OEM customers to help consolidate resins and streamline our purchasing.

Value in higher inventory turns

In 2008, PolyOne shipped pellets to PCI more than 137 times at a 97.3% on-time delivery rate, with an average order size of 4000-6000 lb. This material had a yearly inventory turn of 42 vs. our aggregate rate of 23 turns.

There is value in being able to turn material that effectively. We use our IQMS scheduling system (see "Single software strategy boosts efficiency," below) to load our production schedules 24, 48, and 72 hours in advance based on the daily delivery schedule.

On an annual basis, PCI molds about 120 different resins, yet the percentage of our warehouse devoted to materials storage is less than 20%. People who visit our plant cannot believe that we carry as little raw material inventory as we do.

That’s a direct result of our strategy. After instituting the single-supplier relationship with PolyOne, we were able to cut our materials inventory space requirements in half. Now, we devote the space we used to reserve for excess materials storage to tool maintenance and repair. We used to outsource this function, but are now able to perform it in-house for added savings.

This kind of relationship requires a level of strategic thought that many molders don’t investigate. The idea is worth entertaining, however. It’s clear that less space spent on inventory can be used for more productive efforts. This is the kind of value proposition that resonates with molders who are looking at the big picture.

Single software strategy boosts efficiency

PCI’s software supplier IQMS understands that customers are its greatest assets and that partnerships are critical to the success of its single-source system. Much as we did with our material suppliers, we invited software vendors to submit proposals that showed how their system would make our operation more efficient, profitable, and able to leverage information across the entire organization. IQMS responded with a proposal based on its EnterpriseIQ ERP system, and won PCI’s trust and confidence.

Today, our operation benefits from the product’s capabilities and built-in features for requirements such as family tooling and unlimited UOM conversion. We found the system went beyond the norm to bridge the gap between the shop floor and management. Information gathered from shop floor machines is fed directly to the scheduling module, and it updates various aspects of the system accordingly. This helps PCI to make smart decisions faster, decreasing downtime and minimizing excess labor and overhead.

By using a single system, we are able to push information immediately across the entire supply chain, and it also flows seamlessly between departments for better communication and less data entry. With EnterpriseIQ, PCI has eliminated traditional separate islands of information so that all employees work off the same knowledge base.

Author Tom Duffey is CEO and president of Plastic Components Inc. (Germantown, WI). Duffey is also president and a member of the board of directors of MAPP (Manufacturers Assn. for Plastics Processors).