Electronic Eyes

By Mark Roberti  |  Posted 11-01-2001 Print Email

Electronic Eyes

MIN also gives Emerson the ability to second-guess suppliers and boost billing accuracy. Example: Before MIN, Emerson's accounting staff had no way to know whether suppliers were giving divisions the contract rate for goods sold. In one case, Emerson Motor Co. was overbilled $328,000 on $50.7 million in purchases—and that's no small change. Now that MIN is being used to help accountants spot overpayments, suppliers are getting a tougher once-over. Peters expects such monitoring via MIN could lead to an average cost savings of $3.5 million companywide per year.

Emerson is going to need those kinds of savings. Facing its harshest economic climate since the 1970s, the company is suffering from a recent move into telecom products, which now make up some 25 percent of the company's revenue. The move backfired during the past year, as the telecom sector imploded and demand for products shriveled. Orders at several of Emerson's other businesses, such as industrial automation equipment and appliances and tools, were already slowing at the time of the Sept. 11 terrorist attacks on New York and the Pentagon, and the attacks only exacerbated that decline. On Oct. 15, Emerson announced that for the first time in 43 years, it won't reap a growth in annual profits this year. Says Robert Friedman , an industrial equipment analyst for Standard & Poor's: "The telecom market may recover somewhat from Sept. 11, but Emerson's other industrial businesses definitely are vulnerable to the economic downturn, which is probably going to accelerate now."

As a result, Emerson is slowing some of its technology initiatives—but not MIN, which it believes will help it weather the storm through cost-cutting. In the past year, Emerson has rolled out its MIN network to roughly three fourths of its 380 factories, and completion is slated for March.

How has Emerson been able to realize such savings so far when so many other companies have faltered? Data quality. Emerson executives point to early decisions three years ago to get the company's computers talking the same language—standardizing data across Emerson's 125 computer systems in 60 divisions and 380 factories, a step that purchasing experts say too many companies don't bother with before they attempt to cut purchasing costs via the Web.

For many of Emerson's suppliers, the arrival of the Internet to their old-line businesses is jarring and not altogether welcome. Indeed, part of the goal of MIN, says Peters, is to shave Emerson's supplier roster from 30,000 down to as few as 3,000 over the next few years. In the past, he says, suppliers took advantage of the lack of transparency from one division to the next. Now, Emerson can use MIN to rate suppliers on quality, price and track record. "Suppliers have been counting on the fact that most companies don't have that kind of information at their disposal," says Eric Carlson, Emerson's director of strategic planning. Jose Morales, a source expert at A.T. Kearney Inc., predicts Emerson's sourcing reforms will only help to fuel an industrywide supplier shakeout already under way. "Suppliers who have their financials, supply chain and total-cost models well documented and understood" will have an advantage over those who don't, Morales says. "The ones who are less sophisticated will probably be bought out or go out of business."

Not all of Emerson's suppliers are grumbling. Bill Swift, director of Cargill Inc., acknowledges that MIN will let Emerson carve out lower prices from Cargill. But that could also mean more business from Emerson, he says. "When you can get your arms around the data about what you are buying, it makes it easier for a supplier like ourselves to take a look at the opportunity Emerson has and see where there are fits," Swift says. "Hopefully, we can both share in the savings that MIN offers, because it will mean, for us, larger runs and fewer minor differences in orders between divisions."

MIN has also brought jarring internal changes. One of Peters' top concerns remains the challenge of getting all the divisions to work together, instead of buying materials separately. "Direct materials are the lifeline of every operation, so the divisions were very reluctant to cede control," says Peters. "The whole initiative is rife with turf wars." To ease the cultural frictions, Peters and Carmichael created what they call "commodity groups" organized around the company's 18 purchasing areas. The most politically influential and experienced leaders from each division were appointed to head them up. It's working, but Peters acknowledges it's not yet perfect. Emerson executives, however, remain committed to MIN as one of a handful of examples of so-called "strategic sourcing" actually working in the U.S. And Peters says Emerson is just beginning to discover what MIN can do.



 

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