First-tier performer
Its prowess in inventory management, warehousing and other services to OEMs moves Purchased Parts Group, Inc. to the top
By Ken Brack -- Industrial Distribution, 12/1/1999
Thanks to Purchased Parts Group, Penny Burch rarely haggles with her suppliers any more. Burch manages materials for faucet manufacturer Price Pfister, a division of Black & Decker in southern California. Since Price Pfister turned over the handling of direct production materials to PPG three years ago, Burch says the old, inefficient ways of planning for and buying components have been doused.PPG helped Price Pfister reduce its supply base from 300 to less than 100 firms. PPG handles suppliers' bids and provides small, high-volume Class C items like fasteners on consignment. It recently took over visual inspections of the larger faucet parts. And as it manages $40 million in products for Price Pfister, PPG's business is growing with other Black & Decker divisions.
Because of its expertise in small parts inventory management and success offering services like contract warehousing, ID selected Purchased Parts Group as its Excellence in Distribution award winner for firms with more than $50 million in revenue. Based in Memphis, Tenn., the $115 million firm is in the forefront managing inventory and was one of the first distributors to capitalize on making deliveries direct to assembly workstations. PPG often acts as both a tier-one and tier-two supplier to original equipment manufacturers, combining its purchasing expertise with support such as border-crossing services, sub-assembly, material flow engineering and more.
The company has 36 locations in North America and one in England, including 10 distribution centers and several facilities at customers' plants. With warehouses scattered from northern Mexico to Michigan, customers and suppliers benefit from what they call PPG's localized supply.
"Their biggest contribution was to help us go from a traditional MRP (material requirement planning) system to a visual system of material management" that involves daily bar code scanning and replenishment to the assembly line, says Burch, whose title is global commodity leader for Price Pfister. In the past, she says her company relied on estimating and sometimes inaccurate usage reports to do planning.
"They let suppliers know daily how much product is consumed and what needs to be replaced," she says. "All of the suppliers are able to perform better and at a higher level because the information they get is accurate and timely."
"Our real goal at this point is to augment our small parts inventory management core competency with the ability to handle the supply chain for our customers," says chairman Michael Turnbull. "We've identified 17 steps from the receipt of raw materials to shipment of goods. We'd like to handle most of those and if we don't, we bring in a partner."
Small parts evolution
The company now known as Purchased Parts Group adapted to change and diversified rapidly during its 23-year history. Turnbull, who had a background in banking, purchased a fastener house called Tri West Products in 1976 and it evolved into a holding company that bought other distributors. It also purchased Fastener Manufacturing, a manufacturer of small screws for the HVAC and sheet metal industries, which today accounts for about seven percent of total revenues. The manufacturing operations also include plating -- or putting protective coatings -- which provide a separate opportunity to serve customers like Firestone.
The business continued growing through acquisitions in the 1980s and early 1990s. In 1992 Purchased Parts Group, Inc. was incorporated and three years later more than a half dozen companies had been rolled into it. PPG's headquarters are in Memphis, home of the former Tennessee Bolt & Screw, which Turnbull and his partners acquired in 1986.
Early on, Turnbull and other executives focused on supplying direct materials like fasteners. He says initially it was a tough sell convincing OEMs to turn over management of all their Class C parts, which include many small components and are often a headache to track. Those items often make up as much as 50 percent of the part numbers and only five percent of assembly costs.
"At first there was a lot of resistance, the purchasing people weren't as interested then," says Turnbull. "And we realized quickly we had to get to the vice presidents of operations, the top management to sell it. In 1989 the concept began to really gel. We began to focus our effort on the concept of supplying all of these parts and delivering to the point of use. By the 1990s this led to handling virtually any parts that a manufacturer wants to use to make his widget."
The acquisition of two companies in 1994, Valued Services in Asheville, N.C., and H&W Supply Co. in Indianapolis, helped sell Turnbull and other PPG managers on the value and opportunity in delivering larger production parts. While not releasing actual results, Turnbull says the company has had revenue growth averaging 20 percent during the last six years.
Another factor helping drive PPG's growth is the autonomous service centers located near key customers. The centers are in Livonia, Mich., Exton, Pa., Indianapolis and Seymour, Ind., Louisville, Ky., Nashville, Memphis, Rockhill, S.C., Athens, Ga., San Jose and Calexico, Ca., Juarez, Mexico and Basildon, Great Britain. Dave Sekela, executive vice president of operations, says daily decisions on warehousing, delivery and other services are made at the local level, while inventory and other data at all PPG facilities are connected by a common computer network.
"We feel that having the decision making as close to the customer as possible on a day-to-day basis makes sense," says Sekela.
Contract warehousing & supplier mall
Contract warehousing and so-called supplier malls are among the fastest growing services PPG provides. While contract warehousing generally means more specified terms and space reserved for certain parts, the supplier mall involves managing more products and vendors in a first-tier relationship. With the mall, PPG essentially takes inventory on consignment -- while the manufacturer retains ownership and insurance -- and brings goods to the point of use for a fee. As part of that, PPG often helps end users narrow their supply base.
In the case of Price Pfister, which has an assembly plant and polishing plant in Mexicali, Mexico, PPG provides about half of its direct materials from a nearby warehouse. In the past Burch had to coordinate hundreds of suppliers shipping from all over the world, and "now we pull our product through PPG to one big warehouse a mile away." She says the "localization of supply" PPG provides is modeled after Dell computer's supplier system. The bottom line for Price Pfister is that PPG is expected to save it eight to 10 percent in material costs next year.
"We basically outsourced our entire material management process to PPG," says Burch. "They introduced us to the concept of line pulls based on consumption, stocking to the lines rather than to some sort of fictitious budget."
PPG also set up visual inspection systems, supplier agreements and electronically notifies vendors each day what's needed in stock and when to ship.
Sekela says PPG's work with Price Pfister demonstrates a unique combination of the supplier mall and other services that other distributors do not provide together.
"Whether it's (parts) inspection, re-expediting or taking over the purchasing function of the customers, we think we're a little bit unique in the combination we provide," he says.
Turnbull concedes some OEMs are initially reluctant to try the supplier mall, similar to reservations they had about outsourcing the handling of Class C items. However, he says end users are usually won over when they see the economies gained as suppliers ship to one location and PPG takes care of problems early on.
Suppliers also benefit from contract warehousing and malls when it means a multi-year commitment by OEMs to buy their parts.
Kevin Koch, director of sales at Semblex Corp. in Elmhurst, Ill., says PPG's focus on reducing material costs has not meant getting beat up on price. PPG is one of only a few distributors that give Semblex a nearly 20-week average lead time -- compared to eight or so for many others -- and inventory turns for both companies are great, he says.
"They've taken the stereotypical supplier-customer relationship to really a partnership," says Koch. "It makes both people work a little bit harder ...we know we work a little harder for these guys because they're honest. We know the end users well, we can make modifications for [them]."
PPG and Semblex reps examine assembly problems together, contribute ideas for new part designs and total cost reduction programs. For example, the two companies teamed together to modify some cross-threaded machine screws that caused some problems at a Johnson Controls plant, a major PPG customer.
"If operators have problems, they'll have us come out and take a look at it," says Koch. "A lot of people won't do that."
Expectations met
OEMs like York International Corp., a manufacturer of air conditioning equipment, credit PPG with customizing services to match individual plant requirements. PPG manages small parts bins for York facilities including one plant in England, and the company says it is considering partnering with PPG at other European locations.
Jim Mooers, director of supply chain management for York, says PPG's "distribution capabilities, customer service and demonstrated ability to perform were key elements in our sourcing decision. Services include point-of-use bin stocking, consolidated monthly billings and international logistic services. We intend to leverage this relationship and maximize the resultant savings by integrating PPG into our manufacturing facilities -- worldwide."
Last January, Morgan Corp. turned to PPG to supply the hundreds of fasteners it uses to build truck bodies at six U.S. plants. The distributor was "in the right place at the right time" when Morgan looked for a new supplier to handle its inventory, says purchasing agent Ben Potter.
The rest is no coincidence: each day a PPG employee scans the part bins, downloads orders, returns with the goods, checks with the receiving dock and more. PPG provides one combined invoice at the end of each month. By the year's end the firm will be managing fasteners at all Morgan plants, and has committed to adding warehouses in Texas and Wisconsin to serve Morgan and other customers. Rubber bumpers have also been added to the list of commodities. Potter says PPG's commitment to add locations in those two states cemented the partnership.
Potter says Morgan saves the equivalent of about one full-time employee at each plant that PPG serves, "and that's just with fasteners." He expects the savings to grow as PPG takes on other components.
"They've definitely met expectation levels," he says. "It's probably been one of the smoothest transition levels that I've ever experienced."
In another case, Lance Jones, purchasing manager at Rotary Lift in Madison, Ind., says the automobile lift maker cut its spending on direct materials by 35 percent during the past five years while working with PPG. The contract scope grew from bin stocking to also include procuring and preparing kits of components. Jones says the increase in PPG's corporate buying power and the increase in volume it does with Rotary Lift go hand in hand.
"The relationship has grown as we've grown. We've enjoyed success and they've also been a part of it," says Jones. "We don't even consider making hardware kits ourselves anymore. We tell them what it consists of, the cost and they put it together."
Compared to other distributors, Jones also credits PPG with being responsive to component design changes. He says that by managing its inventory well, PPG helps reduce the time it takes to implement changes.
While much is going well, in 2000 PPG will focus on lowering its own costs. Turnbull says that includes improving internal controls on inventory and the firm will also consider a full hub-and-spoke network. Sekela notes some of PPG's 12 service centers have already been downsized to become more efficient.
Sekela suggests that many OEMs have been so busy during boom times that they have not investigated ways to outsource their direct materials handling. "We believe our formula will withstand whatever the next economic downturn is," he says.
"This company continues to evolve and will never stand still as long as I'm involved with it," says Turnbull, who is 52. "We are not resting on our laurels here."
COMPANY SNAPSHOT
Purchased Parts Group, Inc.
Headquarters: Memphis, Tenn.
Principal: Michael L. Turnbull,
Chairman
1998 Sales: $110 million
Locations: 37
Employees: 400
Product categories: Fasteners and other Class C production components like wire ties, clips, stampings and plastic parts; also larger Class B parts
Web site:
www.purchasedparts.com
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