Supplier Consolidation Reengineering

MIT Reengineering's Supplier Consolidation Effort

Why?

To reduce the cost of acquiring commodity goods and services and improve the quality of service to the MIT community.

What?

The product areas selected for further investigation and partnership arrangements included: temporary help, office supplies, laboratory supplies, bottled gases, furniture, publishing services, and desktop devices. In addition, Supplier Consolidation studied travel services and photocopying.

The MIT Electronic Catalog, ECAT, is another project started under the auspices of the Supplier Consolidation team. See the ECAT homepage for details on this Web-based system for ordering routine goods and services from MIT partner companies.

How?

Analyze MIT's buying patterns across product groups.
Consolidate the number of suppliers with whom MIT does business by establishing partnerships with distributors who have relationships with many suppliers. The largest distributors compete most effectively in today's marketplace.
Obtain lower prices on the same or better quality goods and services through the partnerships.
Remove the margins that internal MIT suppliers charged departments, labs, and centers in order to support their operations.
Measure partner performance and consumer buying patterns to continually reduce pricing.
Create change through incentives and not mandates.
Change the process but not the ability for MIT consumers to purchase any brand.
Maintain or improve current service levels (e.g., delivery time, customer support).
Make it easier to order goods and services (e.g., less paperwork, electronic commerce).
Continue to pay attention to the Institute's principles of doing business with minority- and women-owned businesses and with companies located in Cambridge.

Some background

The team used strategies such as standardizing processes for acquiring goods and services, negotiating volume discounts, and renegotiating existing contracts. They found that with 14,000-plus suppliers, MIT had more providers than personnel. Approximately half of those 14,000 vendors were involved in one transation only, largely because of the specialized -- often unique -- needs of Institute researchers. But that still left several thousand vendors who were providing standard goods and services to MIT. A more coordinated purchasing approach would offer both savings and better service to the Institute.

Purchases of under $500 represented only three percent of MIT's business but 80 percent of the paperwork required. A team objective was to design ways to minimize that paperwork, such as making one monthly payment for all transactions with each of the partner companies.

The example of temporary help

Before reengineering, MIT used more than 30 agencies for temporary secretarial and clerical services. There was no unified way to monitor pricing, use, or performance. In 1994, the Institute spent about $1.7 million for these services. Supplier Consolidation's recommendation was to select a primary agency that would coordinate and support all of the Institute's needs for these services.

The team had determined that the process of supplier consolidation works best when the service or commodity is a large annual expense -- usually greater than $1 million a year -- and there are many firms that can supply the service. Temporary services met those criteria, and therefore was one of the first projects of the Supplier Consolidation team.

After evaluating proposals from a number of firms, the team recommended that Sterling/Olsten Staffing Services be MIT's primary supplier and work as a partner with the Institute in meeting temporary help needs. Sterling/Olsten subcontracted with Skill Bureau, Office Specialists, and Adia Personnel Services to help them in providing temporary services to MIT. This meant that workers from those three additional agencies would be available to MIT offices through the partnership.

The arrangement with Sterling gives MIT consistent quality and availability, price uniformity and competitive rates, and better overall reporting capacity. The partnership arrangement also helped to create a pool of MIT-knowledgeable temporary employees. In addition, Sterling/Olsten agreed to coordinate billing and to provide management reports with the detailed information needed for financial control and planning.

Articles

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