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The "TOTAL COMPANY INTEGRATION" Program (TCI)
The Purchasing Function in TCI
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Purchasing is known as a “free position” in the TCI program. Simply put, the purchasing manager is to save the equivalent of his/her burdened salary yearly.
TCI training (logistics):
Purchasing sequence must first look to long-lead items on every project. And those in purchasing should already know the long-lead items on every project, because they should be pricing items for estimating in the first place.
Working with purchasing, the estimator must enter buying programs for advantageous purchasing.
Off-site storage agreements with specific commodity suppliers. These agreements would be for a term guaranteeing purchase at an agreed to price for a specific period.
On-site storage agreements with specific commodity suppliers. These agreements would be for a term guaranteeing purchase at an agreed to price for a specific period.
Pre-payment agreements for commodity items.
Post-payment agreements for commodity items.
Purchasing must order special materials by item. If the same special material is in multiple items, this must be recognized by the take-off person and included in a single purchase order.
The reason that all quote requests and ordering must go through one office is that this office has goals that must be met. Averages for the industry are a 2-3% savings for commodity items under the TCI system. For special purchases, the averages are 5-6%. This cannot be achieved by multiple people requesting quotes. Suppliers become confused and play one person against another when this occurs.
The purchasing department becomes an extension of estimating. If more than one person is in the purchasing department, the goal is that the entire department becomes “free”.
The purchasing clerk is charged with meeting the needs of the estimating department, under the requested pricing by the estimating manager. This person is regularly calling for quotes, while the manager of purchasing negotiates the number down, as is possible.
The method for purchase negotiation is simple. In Excel, the company will have columns for the material, the estimated amount, and any number of columns for shopping. The minimum is three prices before an order is placed, but 5 should be the goal. If you do not have 5 suppliers the goal of the purchasing manager would be to identify more suppliers. In the case of some proprietary specifications, the attempt to shop is limited to distributors, or the manufacturer. As an example, a 3Form requirement cannot be shopped.
We see a busy schedule dictating purchasing in many companies. Being busy in purchasing has the opposite effect vs. being busy on the production floor. All the streamlining and efficiency you may achieve can be LOST by failing to follow the TCI program for purchasing. And, it is normal for good TCI companies to have more personnel in purchasing, and less in project management. The cost of a purchasing clerk normally is less that a project manager. The goal is to transfer some duties to the lower paid staff, and thus increase profit.
In the TCI methodology, there is no room for relationships between suppliers and purchasing. Rather, these are the factors that dictate who the company buys from:
Customer Service – when it can be shown that better customer service, combined with the higher price, may be the better supplier to go to. This is shown by a weighted dollar system for determining the value of better customer service. This weighted value should be communicated to the suppliers so that they can improve.
The method for determining a weighted dollar value for better customer service is complex. It is difficult to learn in the beginning of any process. DMC provides this service and/or teaches it to our clients.
The TCI methodology regarding purchasing can show the quickest return for a company. If $3MM is purchased in a year and there is a 5% savings, this amounts to increased cash of $150,000. This would be the minimum.