Optimizing Purchasing Processes Saves $1 Million
Situation Analysis
As an engine maker, MWM INTERNATIONAL Motores uses more than 400 different bolts in its manufacturing operations. Company leaders had surmised that finding a way to optimize the organization’s purchasing processes for engine bolts would lower costs and reduce waste. They identified an improvement project that would follow the Six Sigma define, measure, analyze, improve, and control (DMAIC) methodology.
Quality Solutions
The improvement project kicked off in August 2007 with an 11-member group called the Moving Forward team. After identifying critical to quality factors, the team used a prioritization matrix and design of experiments to better understand cause and effect relationships. The analysis revealed incorrect supplier selection to be the root cause.
Using brainstorming, benchmarking, stakeholder interviews, and process waste assessment, the team identified potential solutions. Three methods proved effective for defining a strategy and the best solutions:
- The application of game theory and economic behavior to simulate likely behavior for those involved in purchasing negotiations.
- Stakeholder analysis on the impact for each potential solution.
- Estimated impacts on organizational performance metrics as a result of eliminating or reducing process wastes.
Analysis of the effects of the solutions showed that the best corrective action was to negotiate with an existing supplier. Revising current contracts would reduce the gap between market prices and the current price paid to the supplier.
Looking at long-term preventive actions, the team developed a different approach to manage the supplier relationship to obtain the most favorable conditions. The team concluded that in the future new engine parts should be developed directly with the most competitive supplier, thus eliminating the need to renegotiate prices with current suppliers.
Results
The Moving Forward team’s improvement strategy resulted in a cost reduction of 13.6 percent of the annual purchase price for bolts, which represented a savings of nearly $1 million. In addition, quality metrics improved through an almost 90-percent reduction in process variability.
In May 2009, the team shared its success story with a worldwide audience when it participated in the final round of competition in the ASQ World Conference on Quality and Improvement Team Excellence Award process.
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