One of the best-received presentations at the Valve Manufacturers Association annual meeting held last October in Naples, FL, was a panel discussion that explored the changing relationships within the industry's supply chain. From integration to consolidation, trends in distribution impact everyone. So Valve Magazine caught up with three people involved in organizing or participating on the panel-an end user, a distributor, and a manufacturer-for a follow-up conversation on the question: What do each of the different segments in today's supply chain need to know so they can understand each other better and work together more effectively?
THE END USER: Feeling the Pressure
Kelly Anspach is the Houston-based MRO category manager for the corporate procurement division of Chevron Corporation, headquartered in San Ramon, CA.
VM: What key factors drive Chevron's supplier relationships?
Anspach: At Chevron we draft an annual business plan for doing business with each of our distributors. These plans cover objectives, strategies, initiatives, metrics, and targets. But while each plan is customized to each supplier, we expect distributors overall to align with us in several key areas.
The first area, of course, is safety performance for incident-free operation. Then we want our distributors to make optimal use of the global supply chain, in order to assure reliability and material quality, manage material costs and identify lower-cost quality alternatives, standardize where possible, and deliver operational savings.
The need for safety and quality is nothing new. But today, our relationships with valve distributors and manufacturers are governed by intense pressures on end users for low-cost, reliable operations. These pressures are driven by our national partners and by Wall Street investors.
VM: How does the pressure to reduce costs affect Chevron's expectations of its suppliers?
Anspach: The pressures that Chevron encounters translate into more pressures on distributors and manufacturers. At Chevron we're focusing less on tactical purchasing, or simply buying a certain product when a given need arises. Instead, we're focusing more on how to manage our ongoing supplier relationships and supplier performance. As a result, Chevron is making its suppliers more accountable.
We expect suppliers to perform without safety and environmental incidents. Measurements for material performance are tracked and the results acted upon. As for manufacturers, they must either compete on price or find ways to differentiate themselves in some measurable way. In our view, manufacturers also need to take the lead on pushing the limits of testing for severe service conditions and containing fugitive emissions.
Finally, material sourcing has shifted to low-cost countries. Chevron is a global company and, as such, we have a complicated global supply chain. We cannot simply focus on North American sources. Yet it isn't reasonable for us to devote the resources for managing individual relationships with hundreds of international sources. So we've got to consolidate our supply chain. We want distributors to help us optimize the global supply chain and take advantage of these overseas opportunities.
VM: Realizing that relationships work both ways, what is your company willing to do as an end user to build relationships in ways that also meet the needs of suppliers?
Anspach: To build the kind of supply relationships Chevron desires, we're willing to consider different models of integration with our distributors. We believe the more we get our suppliers integrated into our business, the more value Chevron gets.
For example, a distributor could manage our warehouse stocked with its material so that we can purchase products at the point of use. We realize that we're calling on a distributor to maintain specialized inventory in order to serve our needs, so we might be able to provide onsite warehousing where the distributor can optimize material handling and logistics, and ultimately lower its costs.
If warehouse and inventory management is one value-added service that distributors can perform for us, another service is for the supplier to engage with us early in the design process. Our major capital projects cost hundreds of millions of dollars. We want manufacturers and distributors involved early, where they can help us save money through value engineering and by setting realistic budgets at an earlier stage.