05 October 2009

A collaborative supplier evaluation project reinvigorated the supply chain at US home improvement chain Masco. Cheryl Phillips and Steven Melnyk explain how it was achieved

Today's firms - and their supply chains - are being asked to do more. Not only are they expected to be more efficient, but also to come up with new solutions for a more demanding market. To meet these demands, the purchasing group at manufacturer Masco created the Supplier Collaborative Cost Reduction Evaluation (Score). This collaborative process with selected suppliers has allowed Masco to focus on processes to meet objectives set by management.

AT HOME WITH MASCO Masco Corporation, which has its headquarters in Taylor, Michigan, is one of the world's largest manufacturers of brand-name products for home improvement and new home construction markets. Masco has about 40,000 employees, more than 100 manufacturing facilities and in 2008 it had global sales of $9.6 billion (£5.8 billion). Prior to implementing Score, problem-solving at Masco relied on "silo management". That is, each group in the supply chain addressed its own internal problems without any assistance from outsiders. Masco viewed suppliers primarily as a source of product, service and capacity. The emphasis was on cost and quality. There were kaizen and "value engineering" supplier improvement programmes in place; however, they did not have a formal supplier process in place to engage the other critical capabilities offered by suppliers - their expertise.

The silo approach had flaws. First, it failed to recognise that, in many cases, suppliers were experts and incredible sources of knowledge. Frequently Masco found itself dealing with suppliers who were "best in class", but didn't tap into this knowledge base. Second, silo management ignored the fact that actions taken in isolation by the suppliers could adversely affect the buying organisation as a whole (and vice-versa). Lastly, this form of problem-solving was long, complicated and ultimately unsatisfying. Your supplier provides a solution; you find out that it does not work for you; you complain; the supplier responds and so on. The purchasing group soon recognised that a different approach was needed - and that approach was Score.

SETTING THE SCORE Masco's supply chain group launched Score in 2002. This process was designed to achieve certain outcomes. Namely, it had to be:

1 A formal process (that was repeatable and operated independently of the individuals involved). 2 Measurable in objective, quantitative terms that were meaningful to the parties involved. 3 Aligned with Masco's strategic objectives. 4 Sufficiently flexible to allow the participants to change the application in response to the evolving needs of both the user and the supplier. 5 Simple to understand, apply and measure.

Score is a process for evaluating the application of a commodity, product or service in manufacturing. Score is strategic rather than tactical in that it seeks to help the firm to differentiate itself in the marketplace by continuously delivering better value to its customers.

These improvements take place through one or more of the following options: process elimination; process improvement; reformulation; improved and more effective capacity utilisation; standardisation; waste elimination/recycling; new product development; collaborative engineering; and, pursuing new initiatives and opportunities as they emerge (such as sustainability). At the heart of the Score process is the Score project, the vehicle by which the objectives and goals of this process are achieved. The Score project is itself the result of a structured process that has been developed at Masco. Its principles include:

1 Use your purchasing professionals as a resource. 2 Consider suppliers with whom you do significant business. 3 Consider suppliers who have technical experience with your materials and processes, especially in non-competing industries. 4 Meet to discuss opportunities with candidates. 5 Look for win-win situations: opportunities where both you and your supplier can benefit. 6 Allow your suppliers to honestly evaluate your operations, based on their experience and suggest targets and metrics.

Masco's purchasing management championed this project as a pilot with a cross-functional team representing the manufacturing organisation and a strategic supplier, AkzoNobel. The first step was to launch a pilot to validate the approach and its value. The results exceeded both the organisation's and suppliers' expectations and generated momentum to continue the programme.

Through the pilot results, the process gained support from our operations' executives and as a result the process, since 2002, has been launched across the organisation with several strategic suppliers and is now a component of Masco's leadership programme with Michigan State University. Through the first five years of the programme with AkzoNobel alone, Masco has implemented savings of more than $5 million and we exceeded our initial goal by 41 per cent. While there are no direct costs to implement Score, there are costs of allocating personnel to the project and time on the plant floor. The return on the investment of personnel and time to implement Score continue to validate the process. Ultimately, what makes it attractive is that it is self-funding.

Score is a dynamic process. Through continuous evaluation of our procedures, in collaboration with our strategic suppliers, we deliver better value to our customers and differentiate our product in the marketplace.

With a greater understanding of and interaction between materials, processes, and people, Masco and its strategic suppliers can leverage their combined knowledge and ideas to ensure their competitive market positions in the years ahead. This procedure, developed by Masco, can be readily applied to other types of organisations. The key to success with Score is to develop a process that makes the desired outcome inevitable.

Five steps to success: Understanding the score - reduction of costs/increase of revenue

The Score process has five stages:

1 Identify and flag critical strategic suppliers. These suppliers provide you with goods and services that are essential to your organisation. They are the vendors on whom you depend for sourcing on an ongoing basis. In most cases, these are few in number (less than 15 per cent of the total supply base) but their impact is significant. They are suppliers that can become disruption points - a disruption (a strike, a fire, the supplier leaving the market, a flood) can cause a significant and long-term negative impact on your organisation's performance and its ability to serve the customers' needs.

2 Secure the commitment of the various parties to a collaborative effort. This commitment includes both the buying organisation and the suppliers. Both have to be willing to work together on an on-going basis, not just when there is a problem. This collaboration is needed if we are to identify, anticipate, and mitigate potential problems. Consequently, Score is proactive rather than reactive. Underlying this collaboration is a need for mutual respect, trust, and openness. This latter aspect is critical because Score requires bilateral openness. That is, just like we, as buyers, can go into our suppliers' plants to assess and understand the suppliers' processes and capabilities, the supplier is also extended the courtesy to come into our own manufacturing plants.

3 Take a broad-based view of opportunities for improvement. While we often focus on cost and cost savings, the goal of the Score process is to generate improvements either through reduction in total costs or increases in total revenue. The latter occurs when a supplier helps us identify a better way of using the supplier's inputs - a way that makes the product more attractive to the customer (thus increasing total sales). When evaluating costs and revenue, a total cost perspective must be used.

4 Continuously evaluate all areas of operations. This focus forces the participants to look at areas such as shipping and receiving, incoming inspection, and disposal. It also forces the partners to look at all stages of the product life cycle (from design to disposal and increasingly from "cradle to cradle").

5 Document all benefits (and costs) generated. This means that performance metrics play a critical role. All benefits are quantitatively documented and audited to ensure that there is agreement between the claimed and actual benefits. This last step is critical in developing and maintaining the credibility of the process - especially with top management.

Cheryl Phillips is director - purchasing projects of Masco Corporation, and Steven Melnyk is professor of operations and supply chain management in the Department of Supply Chain Management at the Eli Broad Graduate School of Graduate Management, Michigan State University

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