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If you are not familiar with ImagePoint's name, you certainly know the names that its signs proclaim: Ford, Nissan, Honda, McDonald's, Taco Bell, Shell, SunTrust and CVS are just a few of the companies that have entrusted their image to ImagePoint. Headquartered in the heart of Knoxville, Tenn., ImagePoint was born in 1944 as Plasti-Line, a pioneer in the emerging plastics industry. It changed its name in 2003 to more closely reflect its broadening range of image-related services, including sign installation and maintenance, lease administration, project management and re-image general contracting. As chief information officer, responsible for all corporate systems and processes, Steve Hammond has his hands on every aspect of the business. He was recently involved in a corporate initiative to improve supplier relationships and reduce the cost of direct materials used at ImagePoint's three U.S. plants.
Q: How did you travel the path from mechanical engineer to chief information officer and, as CIO, what is your responsibility for the supply chain?
Hammond: I worked for several years in engineering design and helped bring in computer-assisted design (CAD) and computer-assisted manufacturing (CAM) to a company I worked for in Cleveland, Ohio. Then I went to work as a systems engineer for the vendor who sold us our CAD/CAM system and that is where I really got the computer bug. I also was working at that time on my MBA. All of the positions I have held since earning my graduate degree have all been in information systems. I've had IS positions with three different companies ranging in size from about $200m annually to well over $1bn.
At any organization, continuous improvement areas, like the supply chain, always involve information systems. And here at ImagePoint, I also have responsibility for process improvement. So I have resources dedicated to improving processes like supply-chain or customer service in many areas of the company. Plus, we have addressed some issues within our supply chain through our strategic planning process. A couple of years ago, the company recognized that we needed solutions that were better able to meet the market and business pressures on our supply chain. We put together a team that included folks from continuous improvement, IS and our purchasing group. This team went out and mapped the processes to identify the kind of process and systems solutions that were needed and then they investigated software options. Rather than what we often saw in the past, which was that a department would just hand something over to IS and say, 'this is what we need, go get it,' Information Services and Continuous Improvement worked closely with the purchasing team in an integrated effort.
Q: What are some of the "pain points" in ImagePoint's supply chain?
Hammond: Well, customers want to reduce costs and we are certainly mindful that they have other sourcing options. Many of our competitors are regional and they don't really take on the big projects like rolling out a new sign program for hundreds of dealerships, but in other areas they are very competitive and have really been very nimble and good at reducing their costs.
So we are very aware of the need to keep our costs in line and a couple of years ago we started looking at our entire supply chain to see if there were opportunities to help us do that. The problem is that we have a very diverse customer base and a wide breadth of solutions. We handle image-related work for more than 20,000 facilities annually, but everything we make is engineered-to-order, or custom built-from the menu boards that are used at fast food restaurants when they change selections to the huge pylon-mounted signs that are 50 feet high and fully illuminated. So our complexity is compounded by the fact that we have a high number of low-volume builds. That means we can't just stock a lot of raw materials because we have a different mix of the materials we need from week to week. Even if we know we are going to build 100 or more signs for a company, those generally are rolled out over a period of time. And every install location has local standards and regulations that we have to follow, which causes us to modify the design to overcome those restrictions. So, because we can't afford to pre-buy and keep everything on hand like a safety stock, one of our goals was to reduce the time it takes to get raw materials to our plants.
Q: So you wanted to become more strategic with your sourcing?
Hammond: Yes, definitely. We have a large number of raw material items, which makes order management and inventory practices very key. And we really didn't have a lot of leverage with our supply chain, due to a couple of things. One, we didn't have a standard list of components that were used across all of our sign families until we began an ongoing project to move us more in that direction. And we didn't really have standard business or purchasing practices across all the plants. Each plant purchased independently and we lacked good cross-plant visibility. So, at times, we were making poor purchasing decisions.
The other driver was that our purchasing departments were focused nearly 100 percent on administrative activities in support of production. And since the requirements for production change so rapidly, their work was mostly expediting, faxing and following up on where materials were and when they were coming in. They had very little time to spend on the more strategic area-to really go out and work with suppliers to negotiate better contracts. They were bogged down with clerical activity.
Because of that, a major objective of this project was to minimize that clerical effort by automating as much as possible. This would free up our people to work on creating a more strategic relationship with suppliers. If we could accomplish those two things, we believed that would lead to a reduction in our direct materials costs, because we would be able to focus more resources on how to achieve strategic cost reductions.
Q: What technology did you use?
Hammond: We looked at several tools, with the primary two being i2 Technologies and SupplyWorks. We found that SupplyWorks was the best solution for us because of the way it addressed the automation of materials order execution. We already had an MRP system that we ran each night to get suggested orders and we just needed to streamline the process, to eliminate the clerical effort.
Q: How is the system working?
Hammond: One of the things we felt extremely good about with SupplyWorks was a function called Min/Max. We estimated that about 25 percent of our purchase orders could be done automatically, without user intervention, using this function. The way it works is we set an inventory level for some of our "C" class materials, like nuts and bolts. Once the inventory reaches the set minimum level, SupplyWorks automatically sends the purchase order for the amount that will bring it back to our maximum level. So the whole process of re-stocking that kind of material can be automated. To date, we have just over 11 percent of that 25 percent automated, so we are about halfway to our goal, and that is after only six months with the system.
Q: Has purchasing been centralized or is it still localized at the plant level?
Hammond: It's a mixture. We are now doing some cross-plant commodity buying and certainly are working in a more strategic way. Another notable item about SupplyWorks is that we access the software in an ASP model so we don't have to install any software. All of the users at our corporate location, our plants, as well as our suppliers, can get access to the software with just a browser.
What we do is send transactions to them in nearly real time. We run our MRP at night and it looks at sales orders and suggests recommendations as to what we need to purchase. All of that gets fed over to the SupplyWorks system, so when the purchasing folks get to work in the morning, they just go to the browser, open up their session and all of those suggested purchase orders are in the system. They can just point and click which ones they want to execute and the system creates a purchase order. In the past, they would have had to print the purchase order, fax it and wait for confirmation. But with SupplyWorks, they can either e-mail it or automatically fax it to the supplier. And the confirmation back from the supplier then gets fed right back to the system. So, if I am a buyer, I can just go through my screen and see which orders have been acknowledged and what delivery dates have been committed to.
In the past what sometimes happened is that we would fax an order and then get busy and not wait for the confirmation. Then, when the material didn't show up, we would call the supplier and he would have no record of the fax. So, we had just lost all of that lead-time. Now we have eliminated those kinds of "oopses."
Another thing is that since we now have cross-plant visibility, and as we get more and more standard components, we are able to relocate parts from one plant to another. If one location has run out or soon will run out of a component, and that inventory is sitting in another location, instead of creating a purchase order, we can move it. So better visibility will help save us from unnecessary purchases.
We definitely have been able to eliminate a lot of clerical work and to realign resources so that we can be more strategically driven instead of just tactically driven. Our goal of 5 percent reduction in raw materials cost was made last year. One hundred percent of that reduction is not due to the software-a lot of it had to do with our negotiation tactics. But having the information that came out of SupplyWorks about how much we were spending with different vendors played a fairly large role in those negotiations. We were able to leverage our buying power much better.
The data has also helped us rationalize our supply base. We now have more supplier performance data, so that helps us in negotiations and helps us choose the best suppliers -those that are most responsive to the type of changes that happen here.
Q: What are the next steps?
Hammond: We will finish adding to the Min/Max program the full 25 percent of purchase orders that can be automatically created. This year, we are shooting for another 5 percent reduction in direct material spend. And another goal we have is to really become partners with our suppliers. So our purchasing team is going to work with our top suppliers to get them online with SupplyWorks, so they can have visibility into our demand going out as far as we want to tell them. Then, if we have a large signage program and we are going to need X amount of widgets over the next 12 months, we can cut a blanket order and have them release against that monthly or weekly, depending on lead time. They will be able to have complete visibility to our demand and to review how they are performing, etc., so it will be more of a collaborative relationship. We already are doing this with a few large suppliers, but we want to get a lot more suppliers online.
Q: Have you figured your payback on this system?
Hammond: The $1.5m we saved this year on direct spend has already paid for our investment. Our payback period was six months.
Q: What's the most important thing you have learned from this project?
Hammond: The right software surely is a key component to success, but you also have to have focus and buy-in from the end-users. We had folks from purchasing and materials involved in the selection of a system and in the actual rollout.
I guess the other thing would be in the thinking that goes into choosing a vendor. We knew going in that SupplyWorks was only a couple of years old, so there was a little bit of risk there. Also, at that time they had only a few users. But we felt that, if there were any issues, they would respond to it much quicker, and that proved to be true. The only issue we had was that one of our internal query screens ran a little long and took too long to load. We called them and they rewrote the query overnight and had the system updated for us the next morning. They also were very good at working with our IS people to interface the application with our ERP system. That was pretty much a non-issue. It has been very easy to send data back and forth and keep things in sync.
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