Precast Procurement

Jack of all trades – and master of all.

By William Atkinson

Being a procurement professional in the precast concrete industry these days is no easy task. It requires diverse knowledge and the ability to manage a number of different tasks at the same time.

Dutchland Inc.
One such successful professional is Ira Altman, C.P.M., purchasing manager for Dutchland Inc. in Gap, Pa. Altman has been with Dutchland for almost nine years but has a total of 14 years of experience in purchasing. “When I started, we had $5 million in sales and 45 employees,” he recalls. “Now we do over $18 million in sales and have 110 employees.” In his position, he purchases most of the materials for the precast shop and for field construction projects. However, he doesn’t purchase cement. “Because of its importance, the board of directors made the decision on the cement supplier,” he explains.

Dutchland is a hybrid manufacturing/construction company. “We don’t build a lot of standard products that sit in the yard to be sold,” he notes. “We build products that we need for the construction projects we do, which are about 70 percent municipal and 30 percent private.”

The “project” nature of the business poses a challenge for Altman, who must always be responsive to demands from the field. That is, while he needs to make sure the manufacturing area has the materials it needs for production, he especially needs to make sure the field construction people have everything they need when they need it. “In sum, purchasing is a service function, and the line function expects a high level of service from us,” he notes. “While we are expected to maintain cost control, the service that we must provide is paramount.” For example, when someone calls in from the field and needs something right away, Altman needs to be able to put other things aside and respond.

While there are numerous keys to success in purchasing, three of the most important are selecting suppliers, deciding how much business to give to each supplier and building relationships with those suppliers.

Supplier Selection. When selecting suppliers, Altman first considers the service level. This includes lead times, delivery dependability, willingness to stock material, and responses to questions and problems. Second is the quality of the material, and third is price. Years ago in purchasing, price was paramount. Since that time, purchasing professionals have come to realize that if service and quality are less than expected, costs related to the poor quality and service will increase to the point that price savings will be wiped out. The concept is called “total cost management.”

“You have to determine how much things like service elements and product quality add to or subtract from the total cost,” explains Altman. “For example, if you have quality problems from a supplier that delay your project, that adds cost.”

Supplier Business. Some purchasing managers like to spread purchases out between two or more suppliers of each commodity in order to encourage competition and to ensure adequate supply if one of the suppliers suffers a setback. While there can be value in this approach, in some cases it makes more sense to do business with a single supplier of each commodity. “Since we are a small company, we purchase in small volumes,” explains Altman. “As such, it makes sense to single-source so we can get some leverage for pricing and service.” Of course, Altman realizes that he still needs backups in case the main supplier has problems. “We can’t be in a situation where we have no source of materials,” he explains. “This is particularly true with rebar. While we have a main supplier, we have a couple of backups in case we need a short lead time and the main supplier can’t get a shipment to us quickly enough.”

Supplier Relationships. Altman doesn’t create long-term, formal contracts with suppliers. Instead, he works on building long-term, cooperative relationships with the suppliers. These relationships are what encourage the suppliers to do whatever it takes to meet Dutchland’s needs.

Modern Precast Concrete
Another purchasing professional who has achieved success with his approach to the job is Jim Dauscher, purchasing manager for Modern Precast Concrete in Bethlehem, Pa. Dauscher purchases “virtually everything that is needed for production” in the company. He has been in purchasing for 25 years in four different industries and has been with Modern Precast about 12 years.

Supplier Selection. When considering new suppliers, the first thing Dauscher does is look for suppliers who are capable of supplying what the company needs. “On occasion, we might ask some of our competitors for the names of potential suppliers,” he states. Then when he calls the supplier, he tries to get as much information as he can on the kind of work they do and whom they supply. He then asks for references. “I realize that they are only going to give me their good references, so I take this into account,” he notes. Next, Dauscher gets prices and compares them with prices from other suppliers.

Supplier Business. According to Dauscher, the traditional approach in purchasing was not to put all of one’s eggs in one basket. “The theory was that this built competition between suppliers,” he explains. This is not a particularly valid approach, though. The reason: “Each supplier knows it’s only going to get a certain percentage of the business, so it doesn’t try any harder,” he explains. “I have found through experience that if you commit yourself to one supplier, its service levels to you increase.” In other words, he has found that most suppliers really want to do a good job for his company, so the more business he is willing to give to them, the more they will do for his company.

To protect the company from situations where key suppliers have one-time emergencies, though, Dauscher is always in touch with other sources as potential backups. “As such, we always have someone to fall back on if something happens,” he notes. If he does have such a situation where he needs to use a backup supplier, he will continue to use that backup for a while rather than immediately shift back to the primary supplier after the one-time need is over. “I don’t want to quickly shut the door on them, because we may need them again,” he explains.

Supplier Relationships. Dauscher doesn’t create many long-term contracts with suppliers. Instead, he tries to establish long-term relationships. “This is the direction we realize we need to head in order to help each other,” he explains.

Giving all of his company’s business to single suppliers and building relationships with those suppliers pays off. Last year, for example, when steel prices skyrocketed and there were a lot of shortages, Modern Precast Concrete did not find itself in any danger at all. “Because we had a long-term relationship with our supplier, we were able to get steel when a lot of other people weren’t,” he points out. “It was the same thing with cement. We give 100 percent of our business to one supplier, so they made sure they took care of us first.” And while prices did increase for steel and concrete, Modern ended up getting better deals than a lot of other customers, because it had such good relationships with these suppliers. “They don’t want to lose our long-term business,” he adds.

Central Precast Concrete
While Don Humphrey, president of Central Precast Concrete in Livermore, Calif., doesn’t handle purchasing directly, he is very involved in the company’s overall purchasing strategies. “We have a purchasing manager and a purchasing agent, both of whom stay in tune with all of the issues that are going on in the marketplace,” says Humphrey. “For example, some of our materials come in from overseas, so they have to stay up with world markets.” The company’s purchasing manager, for example, is constantly doing research on materials that are coming from India and China. As such, if one of the company’s suppliers says it needs to increase its prices 10 percent, Central Precast will have information that will either validate that need or not.

Supplier Selection. The company already has vendors in place for everything it needs, but if it ends up in a situation where it needs to consider using a new supplier, the first thing to be determined is if the potential supplier has the capacity and service ability to meet the company’s needs. “If they do, the next thing we look at is their quality,” he says. After that, the focus is on the link between price and value. “We focus on getting the best value that we can on what we buy,” explains Humphrey. “For us, it’s not about price; it’s about value. For example, one supplier’s prices may be two percent higher, but they will carry the inventory in their yard and make deliveries twice a week. That means more to me than being able to pay two percent less but having to take delivery once a month.”

Supplier Relationships. To build relationships with suppliers, executives at Central Precast make sure to arrange a lot of face-to-face time with suppliers. “We also try to build strategic relationships with our key suppliers,” says Humphrey. “In these cases, we spend time learning about their business, how they operate and any business issues they might have. We are also open to sharing with them how we operate and what business issues we face.” For example, Central Precast will show suppliers its manufacturing processes. As a result, the suppliers may find that they have existing products or could design a product that can make Central Precast’s job easier. “This creates more business for them and more profit for us,” he notes. These opportunities only exist, though, when you build trust with suppliers, according to Humphrey. “If you treat them just as vendors, you’ll get nothing. If you treat them as partners, you’ll both benefit.”

Purchasing Tips
Altman, Humphrey and Dauscher offer recommendations for getting better at precast purchasing:

• Learn effective written and verbal communication skills. “This isn’t limited to being able to have nice conversations with people,” explains Altman. “It means explaining clearly to vendors what you need and when you need it, and making sure you get the responses from them that you need.”
• Learn how to make decisions. “Be able to balance all of the small decisions that need to be made on a daily basis,” suggests Altman. “You also have to know how to prioritize.” For example, if someone says he has an emergency, you have to decide if it really is. Then you need to assess how many other things you have going on at the same time so you can determine where this new request fits in.
• Develop analytical skills. “You need to be able to assess quotes and other cost information from suppliers so you can determine the impact of inventory levels, etc.,” notes Altman.
• Create a formal purchasing process, and manage it. For example, make sure that requisitions are placed only by authorized people, that purchase orders are submitted to vendors, that shipments are received and verified against the purchase orders, and that accounting verifies the billing is the same as was approved on the purchase order. “If you don’t manage this, there will be mistakes on the billing from suppliers, and it’s funny how those mistakes are almost never in your favor,” says Humphrey. “It’s not intentional; it just goes that way.” If you fail to monitor all of this information, then the time you spend locating and negotiating the best price will end up being worthless, because you will probably end up paying more as a result of mistakes in the billing process.
• Finally, never allow yourself to maintain the status quo. “I always want to take my job to the next higher level,” says Dauscher.