T & T Materials and Eastman Kodak:
A Picture Perfect Match
Metal Center News - The Magazine of the Metal Distribution Industry. The following article appeared in the May 1997 issue - Written by Kevin Nolan.
TandT-Materials, a small distributor, has established an on-site inventory management program with Eastman Kodak Company., The largest manufacturer in Rochester, N.Y. Though supplier and customer are still working out the kinks in the system it has proved to be mutually beneficial; in an exclusive interview, the representatives of TandT-Materials and Eastman Kodak explain why.
The city of Rochester, N.Y., and Eastman Kodak Company. are just about one and the same. Roughly since the inventor George Eastman built his factory there in 1880, Rochester has been recognized as a world leader in the production of photographic equipment; Kodak employs over 33,000 people in this city of about 230,000.
Though Kodak's sales have been relatively flat (1st quarter was off 8%) , the company is still a relatively bright spot in western New York-a region where large manufacturers have been leaving steadily for a number of years. "Years ago, Buffalo was a heavy-industry town," recalls James Terhune, president of TandT-Materials, a small independent distributor in Rochester, some 78 miles east of Buffalo. A lot of that business has gone by the wayside, and steel mills have left. "In Buffalo, the economy has turned more to the service end. The high-paying manufacturing firms are not growing; they've stabilized." But, he adds, Rochester is a lot better off-as far as the manufacturing base is concerned than Buffalo or Syracuse (another west/central New York metro area). Kodak is the number one employer here, and its outsourcing keeps a lot of machine shops thriving."
So, naturally, Kodak is a highly-desired customer for local metal suppliers and fabricators. The manufacturer requires a steady flow of quality metals-carbon steel, stainless, aluminum, copper, among others. And, Kodak's preferred suppliers play an important role in its manufacturing operations.
Because Kodak is a demanding end user, local and national distributors wishing to do business with the company must be able to truck high-quality, zero-defect material to its facilities on a just-in-time basis-without exception. "They're really sticklers," says Jim Terhune, vice president/ sales of TandT-Materials
TandT-Materials should know: though independent, it operates from inside the Kodak Equipment Manufacturing Div.'s.sprawling Elmgrove Road plant, less than 100 ft. from Kodak's Advanced Sheet Metal Manufacturing group (ASMM), which receives 90% of its raw material through the distributor. According to William Hochadel, buyer, material procurement at Kodak, the distributor is involved in a material- and inventory-management program with the manufacturer that takes the supplier relationship "to the next level."
"You know, there's JIT and now JIT 11; what we're doing is JIT III," Terhune suggests, as a way to describe the distributor's program. "In some cases, we have material ready and waiting before the order comes because we know it [will be need]. We were 100% on-time for the past quarter; that's not with just one or two items. We're talking hundreds of items. [Further], we ensure that material can be used when it goes to Kodak's floor. So, we open the bundle, and make sure the gauge, width, length, and tolerance are right When Kodak gets a [delivery], they know they've got an item they can use."
TandT-Materials occupies just 4,200 sq. ft., in a fenced-in area in the Kodak facility, dubbed "the vault" by employees, but its services are considered vital to ASMM, which manufactures housings for Kodak's photo processing equipment, copiers, and other pieces of specialized equipment.
For Kodak, notes Hochadel, the two-year-old, in-house arrangement with TandT-Materials has yielded "hundreds of thousands of dollars "; in cost savings. The manufacturer has been able to reduce its inventory and cycle times; it now gets nearly 100% on-time delivery and quality assured material for ASMM, which, in reality, is a large job shop.
Detailing one of the barometers used to show how well the program is working, Hochadel cites the following: "In January 1995, we were sitting on $1 million worth of inventory. We're down about 60% of that right now. So, inventories and liabilities have been reduced. We've also been able to show that our cycle times are down; Kodak has mandated that the core manufacturing groups' suppliers be able to respond within 20 days." But TandT-Materials goes well beyond that it is able to respond in minutes, Terhune says.
While Kodak's purchasing power earns it quantity discounts on material, the company does not pay for it until it leaves the vault area; TandT-Materials holds material and feeds it to ASMM as needed. "We show positive earnings on material in the long run." Hochadel continues. "And TandT-Materials makes some money it. Plus, we cut our lead time down to zero days"
In addition, the program allows Hochadel and his staff to concentrate more intently on other purchasing activities. "Before, our buyer/planner, Doug Dewar, would spend, on average, almost 10 hours a week placing non-contract-type buys with suppliers. That would encompass 'phone tagging', some negotiating around costs and delivery days; then going through and doing the order entry for the purchase, and [finally] filing it, Hochadel explains. "Now, he doesn't spend an hour a week, which has freed him up to do all the great things that we've been able to accomplish around inventory reductions. and cycle time reductions," as well as finding alternative ways to use excess material.
For Hochadel, the TandT-Materials program has also meant more professional responsibility. "I went from just being a buyer for Advance Sheet Metal Manufacturing; now I've got the Stamping and Spring area. And I'm also part o Commodity Management,"
ASMM'S STORY
During the early 1990;s, while Terhune was busy trying to build up his metals business Kodak had established an on-site, inventory management program with one of the nation's largest metal distributors, reports Hochadel. But, the program was unsatisfactory.
He explains: " We had to do things here to support Advanced Sheet Metal Manufacturing. Even though ifs not a profit center-it's- a cost center-you want to run at zero variance, and you don't want to lose money. To help ASMM, we wanted to reduce inventories and cycle times.
"So, we put a program in place with TandT-Materials predecessor, and allotted it 2,40 0 sq. ft. of plant space. They put in an employee they had hired from the Rochester area. He came in everyday, and managed the inventory, picked orders, and delivered them out to the floor. That gentleman\-tleman left after six months, and they put in another gentleman, who was from out of the Rochester area. If the weather was bad, he'd be late. If the gentleman didn't show up, we had to supply the backup." These personnel problems, in part, caused Kodak to reconsider the way it was doing business with this supplier, he concludes.
Hochadel knew of a local metal company-TandT-Materials-that might be able to help the supplier serve Kodak better. More to the point he knew its vice president Terhune, who had been doing business with Kodak as a representative for a number of steel companies, since the early 1980s. "We talked to that first supplier about having TandT-Materials manage their material on site," Hochadel says. "That didn't go over big at all."
So, come contract time, to make a long story short we opted to change the way we were doing business. Instead of having one supplier doing everything for us, we realized the benefits of having various suppliers supporting us with their expertise." In other words, instead of this one in-house supplier supplying metal foe ASMM, Kodak chose several metals distributors, based on their strengths in the market-place. For example, the manufacturer chose Edgcomb Metals Co. to supply stainless and aluminum sheet; Wayne Steel for cold-rolled sheet and blanks; Marmon/Keystone for tubing; and Rigidized Metals for textured metals.
But Kodak still needed someone to manage the vault where all this consigned material would be received, quality, checked, stored, and distributed. So, Hochadel and S.C. Kohli, ASMM's manager, turned to TandT-Materials "Everything was happening simultaneously," says Hochadel. "Jim (Terhune] and I had kept up a dialogue," which ultimately brought Hochadel and Kohli to the conclusion that TandT-Materials could bring certain benefits to the table. As a local company, TandT-Materials knew intimately the local metal market and it represented reputable metal distributors, such as Central Steel & Wire. And TandT-Materials had the human resources to back up the program, this includes a separate temporary personnel business owned by Terhune.
Kodak weighed the cost of having its own employee-managed vault area, Hochadel says, but decided it was more fiscally prudent to give TandT-Materials the job. 'We opted to keep the services of the vault for consigned and sales-type items. It was a considerable savings there. And, although I don't think TandT-Materials is making a heck of a lot money on it hopefully [Terhune] will be able to subsidize the margins or profits around [increased] sales volume [in the near future]."
When approached with the idea of managing the vault Terhune and Eimer were willing, but were not sure their company had the expertise to establish such a program, the executives admit. So, in a manner of speaking, they went "back to school: ": they utilized the services of a group of graduate students from the Simon School of Business at the University of Rochester. In need of a final project to complete their MBA studies, the students assisted TandT-Materials in setting up an inventory management program. (The University of Rochester's Simon School, which was listed ahead of Yale and Vanderbilt in Business Week's 1996 Top 25 business schools, according to a poll of recruiters and graduates, is considered one of the nation's top academic institutions; companies and executives polled rank Simon School graduates as being particularly strong in operations.
"We had a number of meetings with the student group over the course of a few months, where we explained Kodak's material management concept and our ideas on it" Terhune says. "It was their thesis to graduate; they needed the credit So, it benefited them, and it benefited us. One of the things they did for us was to set up the database for logging incoming/outgoing orders using MS-Office software. We're still using it"
DISTRIBUTOR LIAISON
Though Kodak still places its orders with its preferred vendors (Edgcomb, Marmon/Keystone, Wayne Steel, etc.), its material management is now performed by TandT-Materials In effect the distributor is a liaison between the end user (Kodak's ASMM department) and its service center suppliers.
Though, on the surface, the arrangement appears to be a conflicting situation, executives say all confidentiality issues have been addressed and fears allayed. "There was some discussion early on because, essentially, we're in the same business as the vendors. We're a distribtor too," says Terhune. "When Kodak first approached us with managing their inventory for their suppliers, well, those suppliers weren't real happy because they thought about the conflicting interests. But we've been doing it for a while now, and there's a trust factor that has been built up. Plus they've got a contract with Kodak. We're treating them as a vendor, and we pass along accurate information. "We're keeping good track of their inventory, and they're happy with us."
"There's trust" continues Terhune. "But it's more than that I see myself as an extension of Kodak. If a supplier is doing a good job, there is no reason for them to leave. If, at some point they 'fall down: Kodak will be looking for another source, and if I can help Kodak in their search, then I will. I think the vendors understand that My goals are to have Kodak at 100% on-time delivery, 100% quality; [to see] that Kodak gets what they want when they want it And, we're going to keep pushing until we do it We're spending a lot of money to make sure that happens."
Though all suppliers have contractual business with Kodak, Hochadel explains, TandT-Materials is permitted to replace them in situations where they fail to meet their delivery obligations. " If we need material, say by Thursday next week, and, for whatever reason a supplier comes back and says,"tl I'm not even going to have material in from the mill until Friday. What am I going to do?" Well he's going to lose part of a sale. And, TandT-Materials , with its contacts, is going to have material to me before Wednesday." Besides, he says "If a recommended supplier cannot help us , I do not want my Kodak purchasing people going out making five or six phone calls, and tying up their valuable time. We have other things to deal with. We make one more phone call to TandT-Materials. And they start making the phone calls, and source the material for us."
Other then procuring metal on a spot basis, TandT-Materials, in a pinch, assists Kodak when it experiences quality lapse from a supplier. Hochadel cites a recent shipment it received on a Friday afternoon from a reputable stainless steel bar supplier, in which the quality of the material was somewhat questionable. Kodak, which operates Monday through Friday did not-and really could not because of time constraints-want to to disqualify the entire lot. "But, we're not in the sorting business," Hochadel says. "Kodak will not entertain that"
Not long ago, Kodak would simply have sent the material back to the supplier, Hochadel says. "But, when you're working in a true ]IT-type environment you can't really afford to send material back. Also, to send it back, not only is an administrative nightmare, ifs costly. And who pays for it in the long run? We will, eventually," he answers, when considering total supply chain economics. "So, if I can try to help minimize my supplier's cost, we try to do that because it's the right thing to do. This material had to be sorted. So, we made the vendor an offer to have TandT-Materials sort it. Jim's people sorted the material on the weekend, and charged the supplier. It saved us a lot of money and time. And, we didn't jeopardize delivery to our customer because we were able to have material by Monday morning."
Regarding this situation, Terhune states: "It wasn't like we made any money on it," adding that it was done simply to service Kodak.
"There was only one bar out of hundreds that was bad," adds Hochadel.
"But, that's quality expectation," counters Terhune, matter-of-factly.
TandT-Materials also procures items that are not metal-related. For instance, in the past, the distributor has delivered catalog items-encyclopedias and bearings-to Kodak. "We've bought some weird things," says Terhune. "But, that's part of the package."
"We'll do whatever it takes to get the job done. I mean, whatever it takes," states Terhune, in explaining his company's service philosophy. "We don't look at ourselves as in the metal business only. We're in the service business. Whatever they want us to do, we'll do. They've called us on the weekend to pick something up; to make deliveries to their engineers. Well do whatever it takes to get the job done. I think that makes us a little special." Adds Terhune, ''We're just not picking up a piece of metal and delivering it and saying, 'Okay, I'm done.' Ifs value-added. Other companies have the facilities to shear metal or slit a coil to tight tolerances. We don't have the fabrication processes to add value. But, I think, we add value through the service end of it."
This type of arrangement seems to be ideal for a niche player like TandT-Materials. Small service centers may be better suited to manage accounts where the supplier is required to spend a lot of time with one customer, this may have been another reason why TandT-Materials predecessor-a giant distribution chain-did not or could not effectively service Kodak.
"I think when you're small, you have to be willing to do things that other people aren't," adds Terhune. "The larger coast-to-coast service centers wouldn't take an order unless it was worth X amount of dollars. We take orders for $10. Not often, though. But, Kodak doesn't want us to tell them. " No, that order's to small". Terhune says he now accepts orders at TandT-Materials that he would have walked away from when he worked at a large service center earlier in his career.
Additionally, TandT-Materials buys finished parts for Kodak. " We contract with a local fabricator to make a finished product for Kodak, and we inventory that. At times we'll also have to get some exotic metals- titanium, nickel alloys. Again, large service centers are pretty conservative. They're not willing to sell other than what they have in inventory, which makes sense when you're that size.
THE KEY: COMMUNICATION
Besides the fact that Kodak is nonunion, there are three things that allow it's program with TandT-Materials to work effectively, states Hochadel. They are: good communications, forecasting, and product availability (which is related to forecasting).
Still, forecasting is not a foolproof method to enable a supplier to meet Kodak's actual needs. " A forecast isn't usually much better than the paper it's been printed on." Hochadel declares. And it's not ASMM's strong suit, he says, because material used by the department wind up in too many different items for buyers to get a good grasp of what demand will be. " Take 36 in. by 48 in. by .006 in. commercial cold rolled, for example. It makes up about 1,200 different parts here. I'm not stamping out refrigerator doors or automobile fenders," the Kodak buyer continue."Were making all kinds of things here. Not only for internal customers, but for external customers."
Because product availability is vital to ASMM's performance, Kodak advocates that each supplier builds a past history file, and be able to predict,to some degree, the manufacture's future demand. In this way, Hochadel says, suppliers, will be to look at demand, and say, " Geez Kodak keeps forcasting that they're going to use 20,000 lb. this item a month, and in reality they keep using 30,000 lb."
He continues " The third thing, which is probably the biggest key, is communication. We;We've got to talk back and forth. For example, if you're going to do preventive maintenance on some of our equipment, we need to let the supplier know - TandT-Materials or Edgecomb or whoever. If there's going to be a blip in material requirements because Johnson & Johnson wants a couple of extra blood analyzers, or if there is a change in specifications, we need to let the suppliers know.
Forecasting means vendor and customer working together. But, there is a definite line of responsibility, Hochale notes, " Kodak gives the forecast to the supplier." It's up to the supplier to make sure that there's always material available. It's TandT-Materials responsibility to let those suppliers know on a daily basis that we've consumed material, and, based on the agreement with different suppliers,they'll replenish it accordingly."
Suppliers, Hochadel notes, are mindful of the "the caveat that if they don't have the material to replenish , TandT-Materials has the authority and my blessing to go out and do what they've got to do to get the material in."
"They don't want to fall down, if they want to keep the business," Terhune concludes.
CHECKING INVENTORY
Inspecting material for correct counts and quality assurance are also prime functions of TandT-Materials. "That's the reason we're here: to distribute quality material accurately and keep track of information," says Terhune. "Everything that we bring into the vault is entered into the computer. Whenever anything is taken out, it's deleted" Activity is faxed to suppliers daily, he adds. This way, vendors can also keep track of inventory. " We also do monthly audits-just to compare their numbers with ours." And the distributor performs random counts of incoming material.
TandT-Materials' standard operating procedure directs its employees to inspect material for quality and specifications.Incoming quality is important in a JIT environment, Hochadel notes. And Kodak's CEO, George Fisher, is pushing for high quality product go " out the door". For that to happen, he says, quality material must come " in the door."
Reducing Kodak's supplier base to keep a tight rein on product quality is a goal of the distributor "TandT-Materials probably took 26 suppliers out of the loop for me last year," says Hochadel. " Now they've got to go an try to reduce that and work with the best suppliers to get the bet material and best capabilities. So Jim's got some work to do there."
In the meantime, TandT-Materials hopes to build its business incrementally with more volume from Kodak. Presently, Hochadel is trying to get the authorization for TandT-Materials to expand its vault space. The distributor is not profiting greatly from its present arrangement, Terhune says, but he expects that to change shortly. TandT-Materials sales to Kodak were up about $300,000 last year,and Terhune hopes TandT-Materials will soon be able to supply other departments within Kodak.
Though the arrangement between the two companies may seem one-sided in Kodak's favor, there are benefits for TandT-Materials, principally it has little overhead. Kodak does not charge TandT-Materials for use of the vault area. "It would just be extra administrative work," explains Hochadel. " And all you're doing is transferring dollars around. If I were to start charging Jimmy for floor space, what's he going to do? He's going to put it back in my contract. We're trying to take the cost out of the system here."
In addition, Kodak allow TandT-Materials to service other accounts from its space within Kodak, " I don't think other companies would allow that", states Terhune. "This, I think, is a true alliance. If I had to open my books, I would. They know it's there and available. We're in it for the long term; we think we can grow and continue to save Kodak money." Kodak accounts for about 75% of TandT-Materials business, with the remaining going to other large miscellaneous accounts, Terhune says. " The bulk of the items that we're involved in are sheet, with some bar and tube. But, it's 90% sheet. We're hoping to expand that into other product areas as well."
A longer-term goal of TandT-Materials is to establish programs, similar to the one at Kodak, at other large manufacturers . Presently, it has a program set up with a heavy equipment manufacturer in the Rochester area. " But there's only one [TandT-Materials] person there, and we just assist them in placing orders, " explains Terhune. Nevertheless, the company is confident that other companies will be interested in using its program. "We've spent a lot of money on getting our standard operating procedure written up. We're at the that we can take it elsewhere. There are a number of manufacturers that are doing well in upstate New York. And, I could see where we could easily assist them in saving some money with a program like this." The company is also looking to establish inventory management programs with manufacturers in the Southeast, he says.
Meanwhile, Kodak and TandT-Materials will continue to improve on their program in Rochester. "We're all kind of working with this whole concept, and trying to get our arms around it," Hochadel observes. "But, Kodak looks at this program as the right thing to do."
However, the large manufacturers are are known to alter their strategies every few years or so; if Kodak decides to move its material management back in-house, then TandT-Materials would be left out in the cold. And, the distributors executives are fully aware of this.
" I think anybody that's aligned themselves as heavily as we have with one customer needs to be concerned about it, " says Terhune. " Would it hurt it hurt us? Yes, it would. Would we stop as a result of it? No." Terhune says TandT-Materials would simply establish its program elsewhere. Besides, Terhune owns other businesses, and could concentrate on them, instead. We are not risk-adverse, Terhune observes. "We've gone out on the limb many times, we take calculated risks and it seems to work."