Archive | April


6:00 am
April 1, 2007
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Viewpoint: Commitment To Ethical Conduct And Culture



Kendrick Melrose, former CEO and Chairman, The Toro Company

Despite CEO- and CFO-signed certifications attesting that their company has complied with disclosure requirements, the brutal fact is that somewhere within an organization, deceptive or fraudulent activity may be lurking. Even with a myriad of procedural checks and balances and extensive documentation of accounting processes, executives still must rely on employees to act ethically-and to some extent, act as watchdogs for their peers.


Ethics is about much more than legality. One Toro board member frequently mentions three questions to ask when discerning right from wrong: Is it legal? Is it honest? And will it stand the test as a headline in The Wall Street Journal?

When you consider all the pressures inside publicly-owned corporations to make bottomline numbers and meet analysts’ expectations, you can understand the rationalizations that draw employees into “gray” areas of right or wrong. Therefore, I propose a fourth question: Does it stand up to your values-that little voice inside that keeps reminding you of what you know deep down is right?

Employees need to be motivated to do the “right thing” all the time. Building a robust compliance infrastructure is good, but not enough to significantly reduce the risk of unethical conduct. Organizations must focus on creating a strong culture with attributes such as personal ownership, empowerment, trust and conflict competency. Principle-centered leadership-leaders doing what they say they will do-building trustworthiness in the organization and giving each individual a sense of value, ownership and accountability are some of the key drivers of a culture that steers and even motivates employees to practice ethical behaviors.

It’s hard to argue against the claim that a good culture will help build an environment to minimize unethical behaviors. An environment of goal-oriented conflict, accountability and trust also creates a sense of safety for employees to bring forward concerns about questionable behaviors and practices by others, as well as admit their own complicity. But, ethical behaviors will not happen in an organization from the bottom up alone. Management must set a clear and impactful “tone at the top,” for example, by ensuring that the organization’s whistleblower hotline is effective and by making the management of ethics an important part of the business routine. Executives must lead the process for good ethical conduct, so that employees have no doubt about management’s commitment to both the conduct and the culture.

One of the best parts of a strong practice of ethics throughout the organization that emanates from good cultures is its positive effect on business performance. Research from the Center for Ethical Business Cultures at the University of St. Thomas Opus College of Business demonstrates improved profitability and shareholder value from companies with strong commitment to, and execution of, ethical cultures. The result of building such an environment is widespread trust in the organization, plus empowerment, accountability and ownership woven into the tapestry of its culture.

Ken Melrose currently serves as Endowed Chair in the Practice of Management and Ethical Leadership at the University of St. Thomas Opus College

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6:00 am
April 1, 2007
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Uptime: Facing Our Own Giants?


Bob Williamson, Contributing Editor

Ever wonder why some places have really great maintenance and reliability results and others don’t? Why some maintenance crews perform like champions, preventing problems, and others keep fixing things that break? There are many reasons (and excuses).

For the most part, maintenance and reliability results come from the behaviors and expectations of managers, supervisors and leadership in general, more than from the guys and gals on the plant floor working with their tools of the trade. Sure, if the Maintenance technicians do not have the skills and knowledge to do things right the first time, they’re the ones to blame for shoddy work. Or are they?

Who put them there in the first place? Who allows them to do work they are obviously not fully qualified to do? Who decides to cut back on training and skills development because it is too expensive? It’s not the Maintenance technicians! Managers, supervisors and leadership sometimes create an environment where bad things seem to happen regularly. Leadership actions often communicate their vision of the future! There was a letter to the editor in our local paper here in North Carolina a few days ago that went something like this:

The New Heat Pump…
In April last year, our 15-year-old heat pump gave up. We searched for a new one and bought the best from a local installer. It worked fine through the late spring and summer months. But, when winter came it would not keep the house warm!

So, we called for service from the company where we purchased the new heat pump. They sent out a technician who checked the auxiliary heat and emergency heat circuits and said everything was fine. It was not! The next cold night we noticed that the coils were frosted up outside! We called them again. They sent out the technician who stated that we had too much R410 refrigerant, so he removed some. After that, it would take all day for the house to warm up! The technician came back, removed the thermostat, checked it out, changed something in the program, and pronounced it “fixed.” The house still would not heat up!

So, I got out the schematics, started tracing the wiring, checked the thermostat and found that a small wire was missing between the ‘auxiliary heat’ and the ‘emergency heat’ terminals. Disgusted with the installer’s technical service, I called another dealer who sent another technician out. He put in the short wire and added more R410 refrigerant to the unit and it has been fine since! I highly recommend ‘Company X Heating and Air Service’ for YOUR heating and air condition work.

What kind of credibility did the manager of the heat pump installer have? Did the technician believe he or she was doing the very best to solve the problem? While the “talk” may have been credible and the technician seemed to know what the problem was, the results were just the opposite! Sound familiar? Have you experienced similar levels of “service” in your own organization? Sometimes we get frustrated by little problems and sometimes they are GIANT ones!

The “Giants” we face in today’s workplace can create enormous levels of fear among our Maintenance crews. Our “Giants” can be the plant manager who dictates “fix it fast or your job is on the line!” That really translates into “we don’t have time to fix it right so just get it running again.” Or, the pressure Maintenance technicians are under to hurry and patch things up may be so they can go home and leave the problem to the next crew. Leaving these “Giants” unchallenged, the entire plant or facility work culture becomes demoralized, frustrated, and berated because of shoddy maintenance…in other words, the big, ugly, threatening “Giant” wins!

A powerful new movie called “Facing the Giants” (2007, Sony Pictures Home Entertainment) is now out on DVD-and well worth seeing. It is about a struggling, downtrodden Georgia high school football team that keeps sinking into a pit of loss after loss, year after year, then achieves seemingly miraculous success. (Actually, this is a “must see” movie!).

There is one scene in the movie where the team believes it can’t possibly win the next game, let alone the championship. An outspoken player named Brock-someone who others on the team look up to-keeps grumbling that the team doesn’t have a chance. Coach Grant Taylor singles out Brock and challenges him to do the “death crawl” down the football field with another player on his back. He also calls for Brock to do his very best, not for the usual 20 yards or painful 50 yards, but just to do the very best he is capable of doing-blindfolded.

As the entire team watches this challenge unfold, Brock struggles, but keeps pushing ahead, not knowing where he is. All the while, Coach Taylor does his best to “coach” Brock to keep going, to keep giving his very best. Sure, Brock struggles against seemingly impossible odds. But, as he progresses ever so slowly down the field, doing the “death crawl” blindfolded, with a 160-pound person on his back, the entire team watches in awe. Brock, as burdened as he is, manages to crawl the ENTIRE length of the football field. He shows what his “very best” could be!

Once the team sees that the seemingly “impossible” really is possible, it is reinvigorated and motivated to win! Then, through their renewed belief, faith, hard practice and skill-building, they actually DO win–and win big!

What did Brock really do? He showed that he could do much better than he typically demonstrated- much more than he believed was humanly possible. He had the skills, the knowledge and the ability to perform at much higher levels.

What did Coach Taylor do? He shared his vision with the assistant coaches and the team and relied on his belief, faith, leadership and coaching abilities, to bring out the very best in one of his team’s key players.

Consider, though, what Brock and Coach Taylor together accomplished for the team.

0407_uptime1While Coach Taylor was the “formal leader” of the team, Brock was its “informal leader.” Together they showed that the seemingly impossible task could be accomplished only if they did their very best. Coach Taylor did what all effective leaders do: He got people to reach levels of performance that they normally would not achieve by themselves. To go places they would not normally go by themselves. The remaining ingredients in the relationship between Coach Taylor and Brock were TRUST and RESPECT. Without “trust” (confidence, faith, belief, reliance), there is fear. Without “respect” (admiration, high opinion, reverence), there is disregard and insolence. Without positive action, a leader’s vision for the future is only a dream.

As we undertake improvements in maintenance and reliability in today’s workplace, it is essential that we understand, appreciate and utilize effective leadership-both formal and informal leadership. As leaders, supervisors, managers, we must have credibility and integrity to gain and retain the trust of those we are leading to new levels of equipment performance and reliability. We have to learn to separate the “smoke and mirrors” improvement programs from the meaningful strategies we choose to deploy in the workplace. Furthermore, it is our responsibility to educate our leaders, our upper management and company decision-makers at all levels. Organizational leadership must be aligned if new levels of performance and reliability are to be achieved, sustained and improved.

As formal maintenance and reliability leaders, it is our responsibility to develop, nurture and grow the informal leaders in our Operations and Maintenance groups. While they may appear to be the talented nay-sayers, they could be our biggest and most talented advocates. Through peer pressure and modeling new behaviors and attitudes, these informal leaders often can move their respective crews or teams ahead faster than formal leaders, supervisors or managers can.

As leaders, supervisors, managers, we also must prepare the members of our Maintenance teams to succeed individually and collectively. As Coach Taylor did with Brock and the assistant coaches did with the entire team, they showed them, trained them and drilled them so they had the skills, the knowledge and the attitudes to win. And they won!

0407_uptime2When we send someone out to do a job, and we know deep down inside ourselves, that he/she is not qualified to do the job right the first time, we lose credibility. We lose respect. We lose the trust not only of our crews but of others in the plant and the company. Effective leaders in our field act as teachers, as coaches and as mentors who develop the skills, knowledge and attitudes of their Maintenance technicians, their crews and their organization.

Remember, winning is not about developing one person to be a winner. Nor is it about developing one of several crews to be a winner. As Rick Hendrick, owner of Hendrick Motorsports (NASCAR Race Teams) once told me, “We’re going to win or lose together.” Likewise, when we’re facing the “Giants” in our own workplaces, we must do our very best to find new ways that harness the power to develop the strength to win…to win together, that is!

Author’s Note: [My heartfelt thanks to my friend Rex Gallaher, at MARTS 2007, for the reminder of one of the many lessons learned from the movie “Facing the Giants.”]

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6:00 am
April 1, 2007
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Technology Update


Training has changed radically over the past decade. Nowhere are these changes more evident than in the maturation of training that is based on or utilizes electronic media, including numerous additions to the training lexicon.

Here are just a few of the most important terms maintenance professionals need to know as they make their way through the new education mazes.

Asynchronous training/learning…
Any training program that does not require the student and instructor to participate at the same time. Common examples are self-paced, online tutorials.

Blended learning…
A training curriculum that combines multiple types of media. Blended learning usually refers to a combination of classroom-based training with self-paced e-learning.

Classroom training…
Any training that takes place with the students and facilitator interacting in a real, physical classroom. A form of “instructor-led training (ILT)” which, although there is an instructor, could still take place over an Internet connection.

Collaborative learning…
Learning through the exchange and sharing of information and opinions among a group. Computers and the Internet have enabled collaborative learning for geographically dispersed groups.

Computer-based training/learning/education (CBT, CBL or CBE)…
Any computer program used by a learner to acquire knowledge or skills.

Software used to support educational activities. Distance learning… Education and training activities in which the instructor and students are separated by time, location, or both. Distance learning may be synchronous or asynchronous.

Broad defi nition of the fi eld of using electronic technology to deliver learning and training programs. e-Learning applications and processes include Web-based learning, computer-based learning, virtual classrooms, and digital collaboration. Content is delivered via the Internet, intranet/extranet, audio or video tape, satellite TV, and CD/DVD.

Kirkpatrick Evaluation Model…
The four-step training evaluation methodology developed by Donald Kirkpatrick in 1975. Level 1 refers to the students’ reaction to the training. Level 2 refers to the measurement of actual learning (i.e., knowledge transfer). Level 3 measures behavior change. Level 4 measures business results.

Learning management system…
A program that manages the administration of training. Typically includes functionality for course catalogs, launching courses, registering students, tracking student progress, and assessments.

Stands for “mobile learning” and refers to the usage of training programs on wireless devices like cell phones, PDAs, or other such devices.

Synchronous training/learning…
Any training program in which the student and instructor participate at the same time. Traditional classroom training and an instructor-led chat session are forms of synchronous training.

Technology-based training (TBT)…
Term encompassing all uses of a computer in support of learning, including but not limited to tutorials, simulations, collaborative learning environments, and performance support tools. Synonyms include CBL (computer-based learning), TBL (technology-based learning), CBE (computer-based education), CBT (computer-based training), e-learning, and many other variations.

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6:00 am
April 1, 2007
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The Search For Better Sealing Solutions

Ensuring that your sealing devices work properly and deliver the service life you expect from them begins with where and how you plan to use them.

Sealing devices, such as gaskets, O-rings, oil seals, bearing isolators, valve packing, expansion joints and hydraulic components, are all items to consider when it comes to achieving optimal plant performance. Without them, pumps would leak, valves would release chemicals into the air, flanges would spray process fluids and oil would drip from gearboxes, among other things. Unfortunately, sealing devices also have something in common with everyday consumer items like cars and household appliances-their owner/operators seem to care most about them when they fail to function properly.

Where and how you apply a sealing device is crucial to its ability to deliver for you. Following the seven steps outlined here can help you make sure that you are selecting the right solution for a particular application.

Step 1. Identify the problem
Ask yourself several questions.

First, what’s your facility’s definition of a leak? If you are a chemical or hydrocarbon processor subject to the EPA volatile organic compound (VOC) regulations, the rule of thumb that “if it’s not dripping, it’s not leaking,” is certainly not your world. You think in terms of parts per million, “fugitive emissions.” If you work in a distribution center with hundreds of gear motors running materials-handling equipment, visible oil leaks from gearboxes is your standard. If you come from a pulp and paper mill living up to the standards of ISO 14000, you think of leaks in terms of thousands of gallons of un-conserved water poured down the drain after it flushes or drips from a pump seal.

Second, what is the desired area of improvement? The focus for many is “improved efficiency.” Specifically, this can mean reducing fugitive emissions, water conservation or reduced downtime. The concept is very simple: optimize resources and raw materials to improve profitability. Perhaps a more specific end is the target of improvement-such as reducing work orders to repair equipment seals, increasing the time between replacements or reducing the amount of time required to replace a seal component.

Third, what do you think the problem is? It’s helpful for end-users to be able to express themselves in this regard. A good supplier of sealing solutions will know how to listen, interpret the need, evaluate, define the root of the problem and offer viable/value-tested solutions.

Step 2. Identify cause(s) of the problem application
This step is probably one of the more difficult areas to address. The reason it is that the problem could be as simple as an equipment-related issue-such as a worn shaft in a pump, a scarred stem in a valve, a rotating shaft with high run-out or a warped face on a flange. Conversely, the cause could be external to the equipment, including:

  • System temperature increases or decreases
  • Pressure upsets
  • Environmental conditions (inside facilities and/or outside weather conditions)
  • Wrong product chosen for the service conditions
  • Improper handling and installation of the seal produc

Get to the causes: failure analysis and troubleshooting…
Elementary my Dear Watson! There is a certain element of detective work required when identifying root causes of a sealing device failure.

A used sealing device creates a “fingerprint” of the equipment in which it was used. A trained person can tell how the sealing component was installed and its exposure to thermal, chemical and equipment conditions. For example, by inspecting the thickness of a used gasket, one can determine if it was properly compressed and in what condition the flange was, or if the previous gasket was properly removed. Inspecting the dimensions and wear patterns on the lip of an oil seal will tell if the lip was subjected to harsh chemicals, a rough shaft surface or a shaft with high runout or misalignment.

Once the causes are understood, the necessary characteristics of the sealing solution can be identified. For instance, a seal with the ability to handle temperature cycling in addition to imperfect equipment conditions may be needed. Perhaps there is no seal that will be able to handle the problem and last an acceptable length of time. Equipment overhaul may be necessary.

Step 3. Identify sealing needs and expectations
It would be an understatement to say that there are many needs and requirements to be considered and satisfied when selecting the proper sealing solution. It might be a little surprising to learn that not all of the needs will be completely obvious-and that these can be can be just as important as the more apparent ones.


To select the best sealing solution(s) for an application, the end-user needs to define the expectation of performance. When determining what performance is expected from the sealing device, two categories must be addressed-the Needs and the Implied Needs. The Needs are typically immediate, urgent and factual in nature. The Implied Needs, while not always verbalized in the initial conversation with the seal
supplier, are very important to the end-user. It is vital that you identify both types of “needs” in order to determine the correct solution (see Table I).

Fortunately, the majority of fluid sealing applications can be handled with consideration of just a few of the requirements in Table I. It is helpful to keep many of these in mind when seeking sealing solutions for difficult problems. The list of the critical requirements, though, may change depending on the services, equipment and industry.

Step 4. Identify service conditions: T-A-M-P-S-S
TAMPSS is a simple way to make sure that nothing is missed when gathering information on the application. It stands for: Temperature – Application – Media – Pressure – Size – Speed.

While many of these variables may seem obvious, it is important for users to understand what information is required and why. Refer to Table II for a description of each.


Step 5. Select the correct solution
Once all of the data has been collected, the next step is to select the proper product for the application. For any given application there are usually two or more choices of materials and a greater number of competitive, generically equal products. A bit of advice, though: don’t be penny wise and pound foolish when selecting sealing devices and components. Some points to consider before a seal is specified and purchased include:

  • What is the difference between the high- and low-cost sealing solutions?
    • What raw materials are used?
    • What is the life expectancy?


  • What is the value of the sealing solution?
    • Is it reliable? Will the seal minimize the possibility of unexpected shutdowns?
    • Does it install and remove easily? How long will it take? Does the cost of time and material to install and remove one manufacturer’s sealing component eclipse the difference in price?
    • Will the seal cause wear on equipment resulting in the need to purchase and install new equipment parts?
    • How much will it cost if it fails?
      • What is the cost of lost production product for the time period necessary to perform a seal repair
      • What is the cost in man-hours to execute such an event
      • What are the safety/environmental/regulatory consequences of a leak?

A common mistake is to try to save dollars up front by going with a lower-grade product that appears to do the same thing as a higher-performance product. Again, remember to take the whole cost of the sealing solution into account. A product that will successfully operate through the standard maintenance cycle without causing unscheduled downtime is the optimum product. The driving question is, “What is the financial impact of taking the process or plant offline to deal with a leak?”

Step 6. Install properly
We’ve all heard the phrase, “Give a man a fishing pole, teach him to fish, and he will never go hungry again.” Likewise, in the sealing industry, we give the end-user the proper tools and installation instructions, then teach him/ her how to perform proper installation so as to optimize plant performance and minimize/eliminate unscheduled downtime.

Sealing solutions require adherence to the manufacturer’s installation and handling instructions. The most premium of products will not perform well if they are not installed and handled properly. Therefore, you should expect the sealing solution provider to provide practical instructions that allow you to achieve effective installation. Field support may be necessary, depending on the criticality of the application or resources of the user.

A case in point, the Garlock Applications Engineering Department conducted a study on 100 gaskets returned for analysis. Fig 1 shows the reasons for premature failure that were identified.


Step 7. Engage in regular preventive maintenance
Each of us typically engages in some level of preventive maintenance in our daily lives, whether it’s having our car’s oil changed every 3,000 miles, or simply brushing our teeth in the morning. We know these activities pay off for us. By the same token, daily or weekly inspection of your fluid-handling systems will pay off by minimizing downtime and allowing you to take corrective actions before irreversible failures occur. Changing sealing devices on a routine basis is part of good operating practice. Working closely with your sealing solutions provider will contribute to optimizing seal use and performance. Correct identification, troubleshooting and gathering of information regarding problematic sealing issues will lead to specification of better sealing solutions for particular applications. Taking the time to familiarize yourself with the simple steps outlined in this article-and following them-will free up your time to address the other important maintenance issues facing your operations.

Jim Drago is manager, Engineering, with Garlock Sealing Technologies, headquartered in Palmyra, NY. Telephone: (315) 597-3070; e-mail: jim. Matt Tones is product manager for Garlock’s GYLON line. Telephone: (315) 597-3148; e-mail: Matt.Tones@

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6:00 am
April 1, 2007
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Solution Spotlight: Advances In Arc-Resistant Motor Control Equipment

Arc flash is responsible for about 80% of electricalrelated injuries. It occurs when an arc fault superheats the air around it, expanding and creating a pressure wave within the enclosure. The resulting arc plasma then vaporizes everything with which it comes in contact.

In industrial settings, many things could compromise the air space that acts as insulation to prevent electrical energy from igniting an electrical arc. The conductor could be as simple as a rodent, snake or water accidentally entering the electrical equipment, or human error-like leaving a tool in the equipment or forgetting to tighten a connection.

“The best prevention is an in-house safety program with compliance to NFPA 70E standards,” says Joe Sheehan, P.E, principal electrical engineer at The National Fire Protection Association (NFPA). “Then my most important advice is ‘shut it off.’ Electrical equipment should never be worked on live, unless it’s for diagnostic testing for correct amperage. It’s the culture in industry that we’re trying to change to keep workers safe.”

Another important safety measure is appropriate personal protective equipment (PPE). While PPE can be effective, it also can be heavy and cumbersome.

While prevention is the best possible solution, sometimes an arc flash explosion occurs regardless of best intentions. That’s where technology can help protect employees. As part of their arc flash prevention programs, companies now can install arc-resistant motor control equipment and intelligent control systems that offer enhanced safety features and remote operation and monitoring capabilities.

The way of the future Arc-resistant motor control centers (MCCs) are designed to contain the arc energy and direct it away from personnel- they cannot prevent an arc flash. “Arc-resistant” describes equipment designed to control arc flash exposure by extinguishing the arc, by controlling the spread of the arc or by channeling the arc pressure wave away from personnel.

John Kay, manager of Medium-Voltage MCC Engineering at Rockwell Automation Canada, has over 20 years experience working with MCCs. He compares advances in this technology to advances in automobile safety features.

“Fifty years ago, seatbelts didn’t exist,” Kay notes. “Eventually, they became standard in new vehicles, and are now legally mandatory. Newer safety features include anti-lock brakes and air bags, which will eventually become mandatory. The same can be said for arc-resistant MCCs. Arc-resistant designs represent enhanced safety technology and, therefore, an enhanced level of safety.”

According to Kay, Rockwell has a unique design in its Allen-Bradley ArcShield medium-voltage (up to 7,200 volts) arc-resistant MCC. The design redirects arc flash energy out relief vents at the top of the unit and away from personnel through an overhead plenum. These products have been successfully tested in accordance with ANSI C37.20.7: IEEE Guide for Testing Medium-Voltage Metal- Enclosed Switchgear for Internal Arcing Faults. During testing, cotton squares (similar to 4.5 oz/yard untreated T-shirt material) are mounted a meter from the ArcShield MCC. Acceptance criteria require that none of the cotton indicators ignite during or following a test.

“One of the key differentiators of the medium-voltage ArcShield MCC is that it maintains IEEE C37.20.7 Type 2 protection, even with the low-voltage door open for maintenance purposes,” says Kay. “The controllers are compartmentalized and the low-voltage panel is reinforced and sealed to prevent arc flash materials from entering it.” Specific testing is done to meet the requirements of each level of “arc-resistant accessibility” based on appropriate codes and standards. IEEE Type 2 accessibility means that all four sides offer protection, therefore anywhere within the perimeter of the equipment-not just in front of the door. The risk level is reduced for normal tasks to a Zone 0 category, which results in a reduced level of PPE.

To contain the pressure blast, the ArcShield controller’s cabinet is heavily reinforced with additional support members and plates, and uses 12-gauge steel for all doors, side, roof and back sheets. Extra strength, multipoint latches and robust door hinges add to the security of the unit’s main doors.

To redirect the arc exhaust gases, specialized silicone coated, aluminum pressure relief vents on the unit’s roof open to release the pressure. A plenum system above the enclosure channels the superheated gas and vaporized copper and steel to a safe and controlled location.

Kay also points out that Rockwell is the first equipment manufacturer to apply arc containment features to NEMA® low-voltage motor control centers (up to 600 volts). These MCCs do not use a plenum system, instead, they release the arc gases and pressure out the front of the cabinet in a lateral direction, away from personnel.

ArcShield products also can incorporate intelligent motor control solutions, including remote monitoring and isolation features to help prevent accidental exposure to energized parts. For example, networking these MCCs with Rockwell’s IntelliCENTER software permits realtime monitoring, configuring or troubleshooting of both medium- and low-voltage products. This information can be accessed from anywhere in the world via a secure Internet link.

Both medium- and low-voltage models can be specified with built-in DeviceNet™ wiring for remote monitoring of the equipment’s operating parameters, which keeps personnel out of the MCC room.

Rockwell Automation
Milwaukee, WI

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6:00 am
April 1, 2007
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Retrofitting VFDs To Air-Curtain Motors

0407_maintenancelog1Upgrades at a critical USPS facility delivered a number of benefits, including enhanced comfort, improved heating, lower energy usage, and reduced operating expenses. Way to go, Uncle Sam!

Until recently, ongoing heating issues related to air-curtains had been a big concern at the New Jersey International & Bulk Mail center (NJI&BMC) in Jersey City, NJ. When the outdoor temperature became abnormally chilly (in the low teens), the inside temperature would be in the high 70s. Retrofitting the air-curtain motors with VFDs, though, has made a big difference for this facility.

Dealing with the problem
The Maintenance staff at the NJI&BMC had determined that the site’s existing single-speed (1200 rpm) air-curtains were unable to distribute adequate heat for the employees working there. In fact, most of the air-curtains had been turned off because of unacceptable heat distribution and higher-velocity airflow that stirred up dust in surrounding areas. As a result, it was particularly uncomfortable to work around these areas during the cold winter season. Concerned about the problem, Maintenance management searched for a viable, cost-effective solution.

In December 2006 and in January 2007, the NJI&BMC maintenance crew successfully retrofitted and field tested three variable frequency drives (VFDs) on Bays 23, 25 and 26 of the facility (as shown in the accompanying photo.) The units were tested individually and simultaneously to determine if there were any adverse effects on the facility’s electrical distribution system and to assess the overall impact of retrofitting 50 more of the site’s single-speed aircurtain motors with VFDs. These tests showed that the VFDs were, indeed, very effective-improving surrounding temperatures (from 65 F to a toasty 77 F), especially when outdoor temperatures were 23 F or below.

The ampere draw for three VFDs (7.5HP each), on average, was 4.81 amps. The total harmonic distortion (THD) varied from 20% to 70%, and the power factor improvement was approximately 34%. Based on the facility’s more recent electrical rates and 3600-hour operating cycle, NJI&BMC has found that it can slash approximately $689 per VFD per year in electrical costs. As a result, plans have been made to retrofit 50 out of 72 units at the site, and keep the remaining 22 units to mitigate THD. Collected site data confirmed that turning on existing non-retrofitted units, in conjunction with three upgraded VFD units, in fact reduced overall THDs from 70 to 20%. Thus, by retrofitting 50 out of the remaining 72 single-speed air-curtain motor units, the facility anticipates being able to lower its annual electric bills by approximately $34K.

Project decisions
NJI&BMC is one of the largest of 21 USPS bulk mail centers in the country. The operation encompasses three main buildings totaling approximately 1.8 million sq ft. The facility’s high voltage 26 kV electrical system equipment is located in a fenced-in high voltage outdoor switchyard. The medium voltage 5 kV system is housed in an outdoor switchgear cubicle. The low voltage distribution system is comprised of eight double-ended, 4160- 480/277V 1000-1500 kVA transformers, with main, tie and subfeeder breakers. These subfeeder breakers provide power to various power, lighting, receptacle panels, motor control centers (MCCs), etc. One of the 480 V, 3-phase, 60 Hz breakers in the load center “B4” provides power to the tested air-curtain motors.

Investigating inadequate heat distribution…
When the Maintenance tech staff began investigating costeffective options to rectify heating problems and improve total operating expenses, it noticed that the majority of the air-curtain motors were turned off and damper-vanes directing hot air at the entrance of the bay doors were closed. Operating staff noted that these units blew cold air, at high speed, and that the high air velocity was not only noisy, it also stirred up dust.

We conducted an infrared thermography survey to learn if the heat-exchanger piping and valves were operating correctly. Initial findings showed that the solenoid valves were closed and the damper-vanes were forced-closed. Even though we opened the damper-vanes and reactivated the solenoid valves, overall heat distribution was questionable and not effective. The 1200 rpm speed of the air-curtain motors initially created high-velocity air that practically forced cold air toward ground level. At 10 feet below the unit, it felt as though the unit were blowing cold air instead of warm. Because this raised concerns as to the overall comfort level and safety of employees, we chose to follow up with a root-cause analysis. Our limited expertise and experience, though, resulted in it taking a rather long time to pinpoint the fact that the high single-speed of the motor was one of the main causes of questionable heat distribution.

Choosing to retrofit as a cost-effective option…
We considered several alternatives for enhancing heat distribution near Bays 21 to 28. One of the costliest was to replace all existing air-curtains with new overhead door heaters. A second option was to extend and upgrade existing HVAC ductwork and support structure. A third alternative was to experiment with multi-speed motor controllers or field test off-the-shelf VFDs.

Considering NJI&BMC’s rigorous 24/7 operating schedule, the availability of manpower resources needed to complete the upgrade project work instead of our usual PM, and the ease of the field installation, we ultimately elected to retrofit only three units with VFDs-but to do so with in-house personnel. We realized that by upgrading the units ourselves, we not only would be enhancing the working environment, we would be improving our inhouse employees’ skill sets. That decision, however, was not made lightly.


When we began looking for the least costly option, the first step was to assess our on-site manpower resources and skill sets. The Maintenance staff assessed the work scope and initially determined that NJI&BMC’s in-house crew should not tackle the complex tasks of retrofitting VFDs and reconfiguring field wirings. Because the existing motor starters and disconnects were mounted approximately 14 feet above the floor and not easy to reach, we thought that it was too cumbersome for our crew to carry out the project. Our initial thinking was that we might cause damage by mishandling existing components. Furthermore, we thought that utilizing our Maintenance crew instead of outside contractors would force us to reallocate manpower that was assigned to complete regular maintenance work. In general, our Maintenance resources are aligned and dictated by our mail-processing department. Any changes impacting processing of mail could adversely jeopardize our revenue. Because our facility processes mail on an around-the-clock basis, it was difficult to commit the availability of a Maintenance force that was specifically dispensed and reserved for maintaining critical mailprocessing equipment.

Our limited experience clearly caused us to be skeptical over our in-house ability to safely remove, reinstall and subsequently field test and validate the equipment components related to this project in their various operational modes. At least it did at first. In retrospect, however, our decision to allow the Maintenance crew to venture into retrofitting VFDs turned out to be very rewarding.

Timely help from vendors…
Two local vendors were very helpful in field-testing and retrofitting our VFDs. The technical staffs of both vendors provided excellent assistance in selecting the appropriate VFDs, reconfiguring the installation layout and mitigating high THDs, as well as support on connecting the power quality meter and capturing harmonic and various other electrical parameters, including energy usage data.

NJI&BMC’s first air-curtain motor VFD unit was acquired in summer of 2006, without any enclosure or additional harmonic mitigation devices. In-house staff chose to add the choke, wiring, terminal block, fuse holder, etc., and installed the entire unit in a NEMA enclosure at Bay #23. Later, when we conducted an IR survey, we found that we needed additional vent holes to dissipate heat accumulation within the enclosure.

We learned our lessons quickly and procured our next VFD unit with an enclosure and built-in DC choke. Our in-house manpower usage to wire the internal components was not cost-effective, however. Our crew installed this new unit on Bay # 26. We then reviewed our surrounding environment and decided to field-test one more unit without the enclosure or choke on Bay # 25. The vendor loaned this unit, contingent on successful field testing and acceptance. During the installations of all three units, we encountered no major problems-nor were NJI&BMC’s critical 24/7 mail-processing operations impacted in any way.

Field testing
Five field tests conducted in the last quarter of 2006 showed that the THD, in general, varied from 85% to 102%, when we measured THD individually, at the unit, and the VFD was running at 30 HZ. The current probes were clamped on to three incoming cables at the unit disconnect switch that is mounted on the unit, next to the VFD. When the VFD’s speed was increased to 40HZ, however, the THD dropped down, varying from 85 to 91%.

We then lowered the VFD speed from 40 to 35HZ, then to 25 HZ, and measured the THD at the power panel, located approximately 85 feet from the VFD units. The current THDs, in general, varied from 25 to 70% when we turned on the VFDs sequentially. To our surprise, though, when we turned on the non-VFD units, the THD dropped to 10% and the voltage THDs varied from 1.45 to 1.9%.

In general, the power factor improved by approximately 34%, whereas energy usage significantly improved-by 60%. Accordingly, based on NJI&BMC’s recent electric tariff of 10.5 cents per kWh coupled with a 3600-hour seasonal operating cycle, we expect the ROI from this VFD retrofitting project to take less than one heating season.

Lessons learned…

  • For NJI&BMC, retrofitting VFDs to existing air-curtains was a viable, easily-done energy-saving way to enhance employee comfort levels.
  • Based on recent electrical tariffs and a 3600-hour operating cycle, NJI&BMC can reasonably expect to slash our utility bills by approximately $34K per year.
  • Power quality and future THD impact on the existing electrical distribution system should be addressed through preparation of meticulous field-testing procedures and actual field testing.
  • NJI&BMC’s own test data confirms that switching on existing non-VFD units, in conjunction with retrofitted VFD units, significantly lowers the THDs. As a result, additional THD mitigation devices may not be required.



  • Seriously evaluate the skill sets of in-house technical staffs and Maintenance crews when considering a retrofit project of this magnitude. Developing the level of in-house craft expertise required to carry out this type of project may be somewhat difficult.
  • Remember that reconfiguring, laying out and wiring individual components on site is not a cost-effective option.
  • Repeat and validate field-testing procedures, specifically highlighting safety measures, when working with 480V power sources.
  • Monitor and collect field-test data and repeat it at least twice to eliminate any abnormalities. Document extensively (i.e. take and maintain digital photos, event logs and craft testimony).
  • Candidly discuss field-test data with in-house craft personnel and vendors.
  • Acknowledge and recognize the contributions of everyone involved, including both in-house staff and vendors.

The authors sincerely appreciate the efforts and assistance of the following individuals and organizations in procuring, installing, field testing and preparing of this article.

  1. USPS NJI&BMC: technical staff-Joe Becker, Ed Pfeiffer, Tom Finan and Sahi Raghbir; senior supervisors; managers of Maintenance Operations; and plant manager Frank P. Tulino.
  2. AC Tech/Lenze: Louis Mortaro, Steve Dextrase and Bill Monaco
  3. Faber Motion Controls: Jeff Brazer
  4. Test equipment used: Dranetz 4400 to collect electrical parameters; Flir IR 695 and Raytec gun to gather temperature gradients.

Joseph C. Pearson has been the manager of Maintenance at the United States Postal Service’s New Jersey International & Bulk Mail Center for the past 16 years. The facility’s maintenance department consists of approximately 500 managers, engineers and craft employees.

Dilip A. Pandya, an electrical engineer at NJI&BMC for the past seven years, manages electrical requirements for the plant. He also is responsible for investigating and implementing innovative cost-effective technologies at the facility. Telephone: (201) 714-6727; e-mail:


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6:00 am
April 1, 2007
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Maintenance Audits Improve Maintenance Business Performance

Knowing the true sources of contamination in compressed air systems and what to do about them can lead to improved operating efficiencies for the equipment and far fewer maintenance headaches for you.

What is 1%, 2% or even 5% increase in uptime worth to you? Can it improve your bottom line? Of course it can. Improving the performance of the Maintenance function and equipment reliability has a direct link to plant uptime and company profitability. Past experience, however, has shown that getting “there” isn’t always easy. That’s because so many of the “breakthrough” techniques and technologies that companies hoped to use as “roadmaps” over the years have failed to consider the Maintenance function in its entirety. That no longer has to be the case.

Industry challenges
In today’s competitive environment, industry is constantly under pressure to reduce costs and improve performance. The challenges it faces can be categorized as either external or internal.

The external challenges include:

  • Market Globalization. Whether we like it or not, it is a fact of life and we all have to adapt to it.
  • Competitive Market. Some may say “we always faced competition,” but now it has reached a new level.
  • Wall Street. As with all publicly traded companies the market expects positive results quarterly. This may not lead to a long-term vision required to sustain the business. Management must be committed to improve business performance while making smart business decisions when it comes to any improvement programs. Sometimes short term indiscriminate cost-cutting measures can have a long-term effect on the business.


Every corporation and plant site also faces internal challenges. Quite often, these are even more difficult to deal with than the external type. Internal challenges include:

  • Management changes. A frequent occurrence, these don’t lend themselves to long-term improvement programs. The issue was identified almost 50 years ago by W. Edwards Deming, who mentioned it as one of the factors detrimental to American industry. Each management change introduces another “program of the month” variation. Personnel quickly learn this and try to “outlast” the program.
  • Cost-cutting culture. We all understand that costs need to be controlled, and it is important to manage them well. All too often, however, maintenance budgets are reduced arbitrarily without consideration to the impact on equipment, systems and plant performance.
  • Skills. This is something that a company actually can control. There might be shortages of skilled personnel on the market as a result of personnel retiring, but a company can and should develop a comprehensive employee development program.
  • Personnel Involvement. There needs to be a common culture established among all departments that will drive the improvements, and not simply be “us and them.” Personnel on all levels should work toward a common goal-improved and sustainable plant performance.


Silver bullets?
Analysis of past decades of American industry and Maintenance organizations reveals an interesting behavior-the “in search of a silver bullet” mode. Instead of performing an in-depth analysis of the Maintenance function, its structure, inter-relations and interactions with other plant departments, too many times, arbitrary decisions are made as to the direction of the Maintenance organization. Furthermore, these decisions are sometimes made by a single person-perhaps the Maintenance Manager or Plant Manager-who merely happens to read a paper or article or attend a technical conference. Thus, because an author or presenter is able to make a plausible case as to the benefit of a specific technique or technology, it suddenly can become a “program of the year.” Examples of such “programs” or innovations include:

  • Predictive Maintenance (PdM)
  • Planning & Scheduling
  • RCM (Reliability Centered Maintenance)
  • TPM
  • PM (Preventive Maintenance)

All of these listed “programs” can be effective-and all of them have the potential to deliver real benefits to a plant or a company when properly integrated and executed. To illustrate the point, let’s look at Fig. 1. It shows the expected benefit from implementing various methodologies and programs. Sadly, in most cases, the real result is suboptimal.


Refer, now, to Fig. 2, which illustrates what frequently happens in the real world. A relatively short period of improvement is quickly followed by performance deterioration.

Why do some companies make incremental improvements that are not sustainable? There are many reasons-and no single “universal answer.”

The most common mistakes
While most companies try to improve plant performance and effectiveness of their Maintenance function, the results are not always sustainable. The most common mistakes made during implementation seem to be:

  • Approaching maintenance as a cost center culture
  • Not taking a techno-commercial approach to resolve manufacturing losses
  • Always searching for a “silver bullet”
  • Not addressing “people issues”
  • Not creating a “plant reliability” culture
  • Short-term goals take over
  • No long-term commitment
  • Team environment not created
  • Departments work in isolation
  • Too many Management changes
  • Lack of understanding of the Maintenance business function
  • Going with current “trends
  • Continuous improvement is not realized

This is, by no means, a comprehensive list-and it is not intended as such. Based on past experience, though, it can be said, with a high level of confidence, that these are among the most important
and most frequently experienced influencing factors
impeding long-term success.


What is the solution? Benchmark your maintenance organization against the best in the industry, set SMART goals (Specific, Measurable, Achievable, Realistic & Time Bound) to improve plant performance by improving the Maintenance function. By performing the comprehensive and structured Maintenance Business Review (Maintenance Systems Audit), you will be able to identify the strengths and weaknesses of your Maintenance Management Systems, processes and procedures that, in turn, will allow you to develop a detailed roadmap to success.

Maintenance audits defined
A Maintenance Systems Audit (our organization calls it a “Maintenance Business Review” to emphasize business aspects of the maintenance function) can best be described as follows: Objective examination of Systems and Procedures used by an organization in the overall control of managing its assets. It does not involve individuals and their performance, though it does assess training and personnel development needs.

The audit addresses seven Maintenance functions that are further broken down into elements addressing individual maintenance aspects. The audit structure is as follows:


  • Management:
    • Management Commitment and Leadership
    • Maintenance Policy
    • Maintenance Improvement Program
    • Financial Control
    • Quality Assurance
    • Maintenance Review Program
    • Health, Safety and Training Management
  • Spare Parts Management:
    • Spare Parts Procurements
    • Warehouse Management
  • Personnel:
    • Organizational Structure
    • Workforce Involvement and Participation
    • Personnel Development Program
  • Contractors Management
  • Maintenance Planning & Scheduling:
    • Daily Planning
    • Outage Planning
  • Maintenance Process Optimization:
    • Operational Analysis
    • Maintenance Plan & Strategy Development
    • Asset Lifecycle Management
    • Plant & Equipment Condition Monitoring
    • Standard Procedures and Job Instructions
    • Plant and Equipment Performance Analysis
    • Maintenance Management System
    • Document Control System
  • Repair Services

As detailed in the foregoing list, every aspect of Maintenance as a business is addressed, including interdepartmental communication, personnel skills and training, health and safety, modern maintenance techniques and technologies and management practices. Each of these elements is assessed in a structured way on a scale of 1 (Innocence) to 5 (Excellence). The achieved score represents the maintenance organization maturity level on a scale one to five. During the audit, each element is described in detail showing the current state (“as-is”) with an identification of opportunities for improvement. In addition, a target value (“to be”) is assigned based on business conditions and required plant performance for each element assessed.

Fig. 3 depicts a spider chart with the current score superimposed on benchmark data for the industry. Benchmark data is available for the entire industry as well as a particular branch. This allows for an easy comparison with industry
leaders and laggers.

Comparison within an industry or within the customer’s multi-plants is important as it allows for benchmarking- something that will provide management with the impetus for change. This benchmark may, in fact, spark employee openness to change since it leads to a clearer understanding of the current situation and the possible improvements that are available.

As with any improvement program, clear SMART goals must be established. This is done as part of the Maintenance Business Review.

The gap between the “as-is” state and future projected state is defined in terms of cost reduction and improved uptime resulting from the realistic opportunity. This gap can be bridged by implementing the most technocommercial improvement initiatives. The recommendations portion of the audit should contain a detailed road map demonstrating how to bridge the gap with a timeline and proper resource requirements, both in terms of skills and commitment.

Bridging the gap is important as it translates to plant performance improvements in terms of maintenance cost per unit and uptime improvement that will lead to bottomline savings. Fig. 4 shows the positive financial impact of bridging the gap.

Coming next month
Part II of this article will highlight two real-world case studies where this strategy has paid off.

Krzysztof (Kris) Goly has more than 25 years experience in the field of maintenance and reliability. His past experience includes positions of maintenance and engineering manager, reliability manager and, most recently, principal consultant for Siemens Industrial Services, based in Alpharetta, GA. Goly is a Certified Maintenance and Reliability Professional. E-mail:


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6:00 am
April 1, 2007
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Strategic Sourcing Implementation

Too many dollars are being left on the table by U.S. companies because of poor sourcing strategies. How do yours measure up?

Estimates show that mid-sized U.S. companies miss the opportunity for supplier savings in excess of $134 billion due to inadequate sourcing competencies [1]. This much money left on the table could mean the difference between profitability and bankruptcy. That’s where Strategic Sourcing comes in.


There are two ways to view Strategic Sourcing.

  • On the operational side, we can look at benefits such as cost improvements, cycle time reductions, improved inventory turns, transaction reductions, higher service levels, inventory reductions, improved quality initiatives, etc.
  • On the strategic side, we can look at increased profitability, competitive positioning, improved reaction time to market conditions, utilization of supplier expertise, outsourcing possibilities, true partnering with suppliers, etc. Worldclass companies that have successfully implemented Strategic Sourcing initiatives recognize that a strong commitment internally, partnered with an innovative supplier base, are a valuable part of an organization that focuses on reducing waste, non-value added activities and costs.


The model
The Strategic Sourcing Model (as shown in Fig. 1) is based on a series of activities that must take place for the model to be successful. Without following through all the necessary steps to discover where the spending trends are and where opportunities lie, we are simply purchasing in traditional ways. Companies that have implemented Strategic Sourcing policies report a reduction of inventories between 50% and 70% [2]. This six-step model links the entire process together from Data Collection, and leveraging that data, through Supplier Management & Monitoring. Each step has very specific needs and requirements.


Step 1. Data collection & analysis
In this step, the entire inventory is evaluated for similarities and broken down into commodity categories. There is significant “Data Scrubbing” at this initial stage. Part numbers must be accurate; part descriptions must be “Smart” coded for easy search criteria; obsolete materials must be identified and disposed of. Once all of this is completed, a listing of commodities is agreed to and the inventory is then broken down and placed in those “Buckets.” In effect, the CMMS or ERP system must be cleansed before any other step.

After the “Data Scrubbing” is complete, a history or baseline can be developed. This is crucial in order to allow for the making of informed and intelligent decisions going forward. The data can be examined to determine buying patterns, one-time purchases, high-volume buys, what volume is with what supplier, etc. From this baseline, the needs can be determined-needs being where the biggest or greatest opportunities lie.

Fig. 2 can be used to decipher the data and make decisions on where to concentrate efforts. In the first cut or wave, certain criteria are used to determine the largest opportunities, including whether enough data is available to make a business decision and if used across divisions or departments, can a business case be rationalized to move forward, etc.

So far, we’ve identified the commodity, baseline data and opportunity and made a business case to support our efforts. The final step in this process is to clearly identify the specifications for each item in that product category. If we are to leverage our spending and negotiate preferential contracts, then we better understand what exactly we are buying. For instance, health and safety laws differ from county to county, state to state and, absolutely, country to country. If the decision is made to purchase safety equipment from an offshore source, it must meet all country, state and local laws.

Step 2. Develop a sourcing strategy
After all the research, data analysis, specification development and commodity classifications, the next step is determining the sourcing strategy that will be used. 0407_supplierrelations3The decision as to what to buy, where to buy and how to minimize risks is next. It’s not as simple as finding a supplier with the lowest price. We need to consider total cost of ownership (TCO) as well.

Offshore sourcing is becoming a necessity in today’s global economy. Companies must look at opportunities outside of traditional borders to maximize margins and profitability and assure no interruptions to the supply chain. If the decision is made to go offshore for sourcing, it is crucial to know the supplier and the risks involved, including current technology knowledge, communication, government stability, currency fluctuations, etc. Included in the total cost of acquisition and management of risks are:

Step 3. Leverage consolidation
Leverage consolidation is simply taking the data that has been collected, analyzed and commoditized and identifying trends for family product lines, substituting like products for less costly ones, reducing the supplier base, etc.

Fig. 3 depicts the traditional purchasing model, with many suppliers specializing in one focus area. Having multiple suppliers provide what otherwise could be classified as a commodity is NOT Strategic Sourcing.

Performing Steps 1 and 2 would yield this information. Data analysis would track how much we’re spending on electrical componentry and amount spent with each supplier. By combining all electrical purchases across all divisions and/or departments, we would begin to see the benefits related to leveraging aggregate pricing discounts, transaction cost reductions, preferential payments terms, etc. Moving toward a single source supplier (as illustrated by Fig. 4) begins the process of true partnership. As they say: What’s good for the goose…

Step 4. Relationship restructuring
0407_supplierrelations4We’ve done the research, data analysis, specification development and commodity classifications, determined the sourcing strategy and consolidated family products lines. Now we’re ready to move into the bidding, supplier selection process and negotiations for a successful relationship.

Successful strategic assessment will develop an understanding of the market. Strategic professionals will, therefore, understand the true importance of the supplier, the balance of supply and demand, new entrants into the marketplace, consolidations, alternatives, supplier capabilities and overall strategic alliances. Once this is embraced, the ultimate “Lowest Total Cost of Ownership” will be achieved.

The package can be put together for any specific commodity. It is time to send out for bidding. Today’s electronic E-commerce opens the door to a whole new world. The marketplace is no longer defined by geographic constraints. With the help of the Internet, an operation in East Littletown, USA can now compete successfully, on a level playing field, in global commerce just like any other company. Do your research and find the appropriate portal or B2B Website for your specific needs. The following links offer some useful starting points:

The identification of suitable suppliers is as critical as any other step. You can negotiate the best price, delivery, payments terms, etc., but if the supplier isn’t stable or in partnership, what good will great pricing do for your company? When seeking suitable suppliers, look for the following:

  • Strong commitment to environment, health and safety
  • Lean manufacturing & 5S principles that are in place and visible
  • Cost competitive culture
  • Financial stability
  • Progressive management with clear and visible metrics
  • Understanding and use of Web-based paperless systems
  • Registered ISO or QS certifications
  • Actively seeking solutions to problems without your intervention
  • Commitment to your organization’s requirements 24/7
  • Willingness to share ideas and processes improvements

At this point, we’ve nearly completed a full 5S Strategic Sourcing exercise. All the steps have been taken to Sort, Standardize, Strategize and Study.

Now we’re ready to select the best Supplier. The first step is to negotiate the total cost of product. Using the previous steps, we should have a clear understanding of what we want at what price and when. Before the meetings between customer and supplier even begin, some basic negotiating skills must be assured.

  1. Do Your Homework. Know who you’re negotiating with prior to the meeting and know what you want.
  2. Anticipate. The smart negotiator tries to anticipate what the other party thinks you want.
  3. Build Trust. Negotiation is a highly sophisticated form of communication. Without trust, there won’t be communication.
  4. Know Your BATNA (Best Alternatives To a Negotiated Agreement). Before you begin a negotiation, know what your other options are.
  5. Recognize a “Win/Win” situation. Both parties are in the business to make money. If you can reach an agreement within your settlement range, that’s a Win!

Step 5. Best practice evaluation
One of the key steps companies fail to take is trying to renegotiate prices and payment terms. There is no harm in asking. You don’t get what you don’t ask for.


0407_supplierrelations5Remember, though, that your suppliers are in business to make money-squeezing the last nickel from them is not a best practice.

There are other options that benefit the operation. Negotiate preferential payment terms. Change from FOB shipping point to FOB dock. Look at capitalizing on deliveries that best suit the operation-not supplier convenience. Measure total inventory value and break it down by costed inventory vs. consigned or vendor-managed inventory (VMI). The higher the consigned or VMI is, the better your managing of inventory.

Look at freight costs-which can be a very big expense these days. Negotiate with your carriers on fuel surcharge percentages. Clearly document the baseline cost the freight company is using for a gallon of diesel. Negotiate percentages from that baseline and discuss rebates. Have an open conversation with your carriers and ask if they have other customers using the same lanes as you are, then negotiate a “piggyback” fee instead of an LTL charge (less than truckload).

Issue credit cards for small MRO purchases instead of issuing a PO for each order. It makes good business sense to process one check for many low-cost items as opposed to many checks for many orders.

Use online or E-commerce B2B portals to obtain best pricing and research a broader assortment of suppliers. More and more companies are using the Internet to do business. E-commerce decreases the cost of processing purchase orders and, ultimately, overall costs. Fig. 5 reflects the trend of Internet usage for online purchase orders.

Step 6. Supplier management and reporting
Track results and restart assessment (continuous cycle)…

  • Track % of total spending with your strategic suppliers (including capital expenditures). This is a wonderful tracking measurement as it tells you whom you’re spending your money with. This instantly communicates who your largest suppliers are and what percentage of expenditures are spent and where.
  • Track and trend total number of suppliers. This will indicate how successful you are at strategically aligning your buying power(leverage).
  • Track price increases vs. CPI (Consumer Price Index). Are the price increases your supplier is passing on to you higher or lower than the consumer price index (CPI)? This is a very good indication if your supplier is actively pursuing cost reductions, process improvements, self imposed strategic sourcing policies, etc. A bit of caution on this metric: prices may be increasing because of the current cost trends of raw materials. This should be taken into account and can be verified by checking the Wall Street Journal for current raw-material pricing and trend analysis.
  • Purchase Price Variance (PPV) tracking. Is what was quoted what was invoiced? Other than the obvious cost discrepancy there is additional cost to the business when the invoices don’t match the purchase order. The process to correct intertwines from accounting to purchasing through the supplier. Few companies truly understand the costs associated with PPV’s and what they respresent to many organizations in manual labor.
  • Track % of POs manually vs. E-commerce. As noted previously, this measurement is very important and it can be tracked. Very few companies know how much it truly costs to place a purchase order. It simply is not placing an order over the phone. The real cost is incurred from the time the need is discovered to when accounting matches the invoice with the PO and makes payment. IBM calculated its cost to place a purchase order at $120; Raytheon used $86 as average cost; Kodak justified $102. as the cost to place a PO. Now, however, these corporate giants average less than $10.00 for placing a purchase order. As noted previously, the average manual purchase order cost is $82. After implementing Strategic Sourcing and E-commerce based systems, that cost drops to $8.00. You can see the immediate cost benefits and reduction.
  • On-time delivery. One of the most important indicators of how well your supplier is performing is when the order hits your dock. Not only is it critical that your suppliers meet the expected delivery but the order quantity as well. The best planning can go south real quick if the order that you were expecting is late. It costs money to schedule the labor, equipment, contractors, etc. If the supplier fails to meet an obligation, there is a cost associated with it. Early shipments are just as bad. You’re not in the business to pad your salesmen’s monthly numbers or for your suppliers to meet their revenue goals by shipping everything before the end of the month. The same concept applies to quantity accuracy. If the order is for 100 pieces and your supplier short ships, then there is a cost associated with that, with regard to min/max levels, reorder points and potentially short-shipping your customer. It goes the other way as well. Over-shipments are not acceptable. There is no quicker way to increase your supplier’s sales than by accepting anything over the order quantity. Accept the original order and thank your supplier for the extra samples. There is a high probability that your supplier will not over-ship again.

In summary
The six major steps to implementation of Strategic Sourcing have been highlighted here, but you still have some work to do before the benefits are realized. Once captured, however, these benefits can have a significant positive impact on your bottom line.

Successful implementation starts with data collection and categorizing the products lines. After that has been completed, a business decision can be made based on facts as to where the greatest opportunities are.

Selecting and negotiating with the identified suppliers is an integral part of supply chain management that offers unique opportunities. Today’s marketplace is not based on who offers the lowest cost, but, rather, who delivers the lowest Total Cost of Ownership.

After your sourcing strategy decision has been made, including where to go and with whom, the management of that decision must be tracked. Measuring the supplier based on performance benefits both parties and clearly defines the expectations of each.

It is vitally important for companies to elevate the awareness and criticality of sourcing across their organizations. Implementing the six steps of Strategic Sourcing will assure that those organizations are proactively managing their operations.



Andy Gager, CPIM, has over 20 years experience in Operations and Materials Management. Working with Life Cycle Engineering, based in Charleston, SC, he specializes in the areas of warehouse configuration, inventory reduction programs, supply chain management and inventory accuracy. Telephone: (843) 744-7110; or e-mail:



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