CPOs on the Rise in 2011 – Kirk Eberhart: Directing Direct (Part 2)

In our last article, Kirk Eberhart, our latest CPO on the Rise in 2011, gave us the view from the top of procurement at TMK IPSCO. Kirk reports to the Chief Supply Chain Officer, whose metrics roll directly down to the Procurement and Logistics leaders, which Kirk then passes directly down to his team. As Director of Purchasing, he is responsible for the sourcing as well as adherence to policy and procedure for the vast majority of TMK IPSCO dollars spent, which includes raw materials, capital projects, Maintenance & Operations spares and consumables, etc.

Automation, improving the quality of raw materials, and creating value are at the top priorities for Kirk and his team this year. We’ll pick it up today with one priority that most of our readers have at or near the top of their lists:

Value Creation (Part 2)

For Kirk and his procurement team, so much of the value creation opportunity is in managing and improving supplier performance and the underlying relationships. With supplier scorecarding, the team is now able to track performance quarter over quarter and year over year. It is also much better able to understand its raw material costs and compare trends period by period. The new visibility into supplier performance and inventory has allowed Kirk and his team to become more strategic in its management and general orientation.

For example, in a lean manufacturing environment, several key challenges are supply assurance, quality, and the possibility that finished goods will not be sold as quickly as desired. To combat these challenges (and armed with the new visibility discussed above), Kirk and his team began looking at tonnage of pipe that was shipped and began developing more refined models to estimate the proper on-hand inventory. As a result of this exercise, one strategy that Kirk pushed was to move more raw material inventory to the front of the mill, which created greater production flexibility and ultimately reduced the finished (and much more expensive) inventory held at the back end. Kirk and his team have also begun negotiating improved contracts with options on volume and an ability to get the spot price in the market. (Kirk notes that they are not inclined to exercise these options with strategic suppliers.)

Procurement Collaboration

“When we rewrote all of our policies, the CFO was fully-engaged and gave us the best feedback,” says Kirk when the finance-procurement relationship comes up. Since it was involved in helping steer procurement policies, finance also has a good understanding of the benefits seen from them including efficiencies, controls, and payment terms. Kirk’s team also worked with the CFO’s team to understand the financial impact of many of their different inventory strategies.

In 2010, procurement and engineering came together on a project designed to improve the level of collaboration between the two teams in the sourcing of parts. The thrust of the effort was to get the groups more involved in general and more involved on projects at a much earlier time. The project has paid off greatly as the groups have moved from “three bids and a buy” to much more robust strategic sourcing process where both groups gain a much better understanding of market pricing and the best suppliers. This has helped protect the engineering team’s budget while mitigating supply risk.

Innovation

Kirk sees opportunities for procurement-led innovation in “developing more progressive supply chains that are more tightly-linked to sales, operations, and logistics… and, where sales information bleeds into our raw material supply.” Kirk looks forward to the day when procurement is much more involved in strategic planning and a vital resource for sales and operations. If that day happens at TMK IPSCO, we’ll know who led the way.

Thank you Kirk for coming through for us (once again) and sharing your story. Kirk Eberhart, our latest CPO on the Rise in 2011.

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