Tracking single cigarette packs across Europe is a tough assignment, but companies all over the world have supply-chain management problems that can be just as intractable.
Procurement, the buying of goods and services, is the piece of the supply chain that companies directly control, so that’s where many managers see the greatest potential for squeezing out savings. The idea is simple: A company just writes a check to whichever vendor does the best job for the lowest price, right? But figuring out which suppliers actually are the “best,” as well as establishing more efficient relationships with them—such as through online marketplaces—can be complex tasks requiring outside assistance.
A.T. Kearney, a subsidiary of information-services giant EDS, is a specialist at helping companies overhaul their procurement operations. Indeed, its customers say the company has expertise in supply-chain consulting that’s unmatched by competitors, though some say it charges a pretty penny for that know-how.
For John Knappenberger, vice president of administration for car-parts supplier Dura Automotive Systems, the biggest issue when his team wanted to cut the number of its suppliers in 2001 was winning over employees accustomed to buying commodities from suppliers they’d been using for years.
“Consolidating the supply base isn’t complicated,” he says. “The problem is you’re dealing with people. Everybody has a brother-in-law they’re buying from.” Some in Dura’s purchasing ranks were adamantly opposed to changing how they did business, according to Knappenberger, and a few threatened to quit. But using an outside firm like A.T. Kearney to lead the project, he says, reduced dissension because the consultants were seen as a neutral third party.
“They were manufacturing people. They weren’t kids out of grad school,” he says. “They could be convincing, not because they were from A.T. Kearney or anywhere else but because they’ve walked the floor of a plant.”
A.T. Kearney Procurement Solutions, a 120-person unit dedicated to supply-chain consulting, employs consultants with extensive experience working with suppliers in specific industries, such as chemicals, printing and steel.
Moreover, customers say, A.T. Kearney is attuned to leaving companies equipped to manage new processes themselves. “The big benefit we got out of A.T. Kearney was transferring the knowledge about how we were saving money,” says Sarath Ravipati, general manager of strategic sourcing for ChevronTexaco, which spends about $18 billion on products and services annually. He says the firm provided complete documentation for all the work it performed, and provided templates for purchasing agreements that ChevronTexaco staffers could use.
But A.T. Kearney charges significantly more than competing firms, according to George Szewchuk, vice president of purchasing at Maple Leaf Foods. A.T. Kearney ran several online auctions for the Toronto-based food producer for “somewhere less than $50,000” per auction, he says, whereas other vendors were asking for less than $10,000. “Although it wasn’t the cheapest, we felt it was the best value,” Szewchuk says. He and other customers praise the Web application suite A.T. Kearney developed for managing online auctions and contract bids, called eBreviate (see sidebar).
The consulting firm acknowledges it’s usually not the lowest-priced option. “When we lose a deal, it’s typically because of price,” says Jim Pearson, vice president of solutions for A.T. Kearney Procurement Solutions.
And rivals have been turning up the heat. EDS, in recent quarterly earnings announcements, has blamed increased competition as well as weaker demand for high-end consulting services for depressing the subsidiary’s revenue. Pearson says the supply-chain consulting business has followed the “classic cycle” of a maturing market: “Our competitors have gained a better understanding of the space.” A.T. Kearney, he says, will continue to position itself as a “high-value” consulting services firm with proven experience under its belt. “We’ve been in this space for 20 years,” he says. In other words, it’s not planning to slash its fees.
Still, competitors don’t always beat it on price. In 2002, Staples considered online-auction bids that were roughly the same cost from A.T. Kearney and FreeMarkets, a supply-management services firm acquired by Ariba last year. Jack Newman, Staples’ vice president of strategic sourcing for the office supplies retailer, says the company chose A.T. Kearney because it was willing to put knowledgeable staff on-site—more than 15 people at one point—who could effectively explain how to run the auctions to Staples’ own procurement group. “They weren’t just coming in to get the implementation done,” he says.
“We had the maximum amount of brainpower you could want on a given category,” Newman adds. “That’s something the smaller consulting firms couldn’t do.”
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A.T. Kearney Operating Results*
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* Fiscal year ends Dec. 31; YTD is first nine months
** 2004YTD revenue compared with same period of 2003
‡ Not reported
Milestones
- 1926: McKinsey & Co. accounting firm founded in Chicago.
- 1939: A. Tom Kearney splits off from McKinsey to form his own consulting company.
- 1995: Acquired by EDS.
- 1998: Annual revenue exceeds $1 billion for the first time.
Source: EDS
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