I'm in Boston today, sitting in on Endeca's Manufacturing Summit. Michael Porter -- yes, that Michael Porter -- led off the day with a great overview of the basic foundations of how companies can create competitive advantage and how this maps to IT investments, past and present. Prof. Porter is as lively and animated as ever and even though the material was basic for someone who has lived and breathed corporate strategy work for years, I found his delivery and some of the key takeaways for what his views mean for procurement and supply chain quite refreshing. I plan to share some of those ideas in a series of Spend Matters columns in November -- Applying Porter to Procurement. Throughout the rest of the day, I've had the chance to talk to a number of companies in the manufacturing sector finding creative ways of bridging the sourcing, spend analysis, supply chain, manufacturing, finance and R&D gap.
I'll also plan to share some of these findings later in the week and next, but one of my initial key takeaways is that thanks to a number of Endeca users, we now have some real case studies about how manufacturers are reducing complexity and better integrating multiple functions to drive to greater standardization and reuse with procurement, along with IT's help, driving these functional and information integration efforts. For example, Whirlpool, which has undergone significant expansion through acquisitions, faced a significant part/SLU proliferation challenge. But even in categories like resins which are fairly standardized already, they've been able to find ways of consolidating spend based on company-wide standardization using color, filler and specification attributes. The result? An estimated 4-8% savings and a 39% reduction in number of parts/SKUs (the results in other categories are even more impressive, but I'll save further discussion of the results for another column).
A theme I've gathered from folks attending this event -- and obviously, the audience is a bit self-selecting given that Endeca is realizing traction primarily with highly innovative companies on the spend side -- is that traditional sourcing and supplier rationalization approaches are coming up short for companies that need to drive next-level or second-wave savings in categories that they've already sourced strategically in the past. Procurement organizations in these companies are now beginning to tackle direct materials sourcing by attacking engineering / design commonalities and other approaches versus simply having suppliers bid existing specifications. Consider that at Whirlpool, procurement is taking the lead integrating information and driving savings / risk reduction initiatives between global R&D, engineering, manufacturing and finance. Another example of their recent success has been coordinating these functions to move from 2,000 different handles across its products range (and brands) to 200-300. All of which suggests to me that the future role of direct materials procurement inside more innovative companies might take on new levels of truly strategic importance to the business by going significantly beyond traditional approaches to strategic sourcing and supplier management.