Lean Purchasing Pays Off for Estee Bedding
Client Profile: For more than 80 years, Estee has been supplying the commercial bedding industry with innovative, high quality bedding solutions.The Chicago-based company employs 25 people. In 1996, the Chicago Manufacturing Center helped Estee Bedding become one of only a few mattress manufacturers in the U.S. to earn ISO 9001:2000 certification. In the ensuing years, Estee Bedding President Tim Enright has relied on CMC for assistance with quality issues, marketing and lean manufacturing. So when faced with the need to reduce costs of raw materials to stave off low-cost foreign competition, Enright turned to CMC.
Situation: Enright says he has always benchmarked well in purchasing against his competitors. But with global competition heating up in the bedding industry, he needed to find additional savings without sacrificing quality. CMC business advisor Alistair Stewart brought in a CMC vendor-partner, Aptium Global, who suggested that Enright consider Lean Purchasing as a strategy. Aptium Managing Partner Lisa Reisman studied Estee Bedding's purchasing patterns to highlight trends, then interviewed Enright about his purchasing process. This research identified three commodities that had the greatest opportunity for savings: inner springs, ticking and foam. Aptium Global helped Enright put together a plan to capture the savings.
Structured Solution: In December 2004 Enright began buying inner springs from a Chinese supplier. But the springs were arriving rusty. Although Enright's cost to de-rust them in his facility (a project CMC helped with) more than offset the cheaper price, there were other problems, chief among them uncertainty as to when the next shipment would arrive. Reisman researched specifications, including the carbon content of the steel in the inner springs. She then pre-qualified through interviews a short list of potential domestic and international suppliers and ended up with one Chinese supplier beating everyone's price. At that point, Reisman conducted a rigorous audit of the company, including quality, logistics and capacity and had Aptium Global's Asian partner visit the plant. Enright ordered a container load of inner springs. Except for a few minor glitches early on, Enright says he was very pleased. “For those few minor problems, the supplier provided written corrective action and the next container was 100 percent correct.” The change in suppliers lowered Enright's cost 20 percent, and there are no headaches with logistics. Ticking is a work in progress. To date he and Reisman have not found an opportunity for additional savings but Enright is optimistic. There were two potential suppliers for foam, one of which was Estee Bedding's current supplier. During the live auction, that supplier agreed to reduce prices approximately 13 percent. The other bidder matched the price and was even lower on a few SKUs. Because the incumbent was “golden" in Enright's experience, he kept 80 percent of Estee's business with them and awarded 20 percent to the second bidder. For 45 days Enright enjoyed his price break. Then Katrina devastated New Orleans and with it some refineries and related industries key to the production of foam. Additionally, two suppliers of a key product used in the manufacture of foam closed their doors for financial reasons. Overnight prices skyrocketed 67 percent. Looking on the positive side Enright says without the price reduction he would have been hit with an increase of 80 percent.
Results: Encouraged by the results he achieved, Enright is planning to implement lean purchasing to reduce costs in his second-tier supplies. These include corrugated cartons, plastic bags and finished mattress covers. By strengthening his competitive position in global markets, Enright is retaining current customers and adding new sales. $210,000 in cost savings, $1.3 million in new sales, and $3.5 million retained sales.
“Chicago Manufacturing Center's partner, Aptium Global, went farther with specifications that I had ever done to ascertain the carbon content of the steel in the inner springs. Lisa Reisman's plan helped offset the post-Katrina price increase for foam.”
Tim Enright, President
