Optimizing Parts Purchasing Processes at Motorola

The Problem

Motorola Corporation, the electronics and telecommunications products giant, spends half of its revenue on purchasing component parts from independent suppliers -- some $16 billion worth in all. By the early 2000s, Motorola’s procurement process had become very large and relatively inefficient. A decentralized culture at Motorola, combined with a low-tech and labor intensive purchasing system, resulted in slow purchase cycles, high staff costs (including expenses associated with visiting suppliers for price negotiations), and needlessly high parts prices. These inefficiencies became acutely painful to Motorola during the recession in the telecommunications products industry in the early 2000s. Something had to change dramatically for Motorola to remain economically viable over the long term.

The Analytics Solution

To address the problem, Motorola secured a comprehensive, end-to-end Internet-based supplier negotiation system that could handle its four-step purchasing process, which features:

1. developing a strategy,
2. aggregating requirements,
3. conducting negotiations, and
4. issuing awards.

The system manages not only simple e-quotations but also complex iterative negotiations. The system supports up to 1,000 users dealing with as many vendors in many locations. The software solution, dubbed the Motorola Internet Negotiation Tool (MINT), features sophisticated analytics-based functionality including the following:

• Optimization-based bid analysis tightly integrated into the negotiation work flow;
• Business-constraint modeling that enables trade-off analysis of different purchasing strategies based on such factors as supplier capacity, delivery requirements and performance standards; and
• Total cost of ownership assessments determined by optimization analysis that considers individual cost drivers, supplier performance history and multiple forms of discounts.

The Value

During the first 18 months of MINT's phased implementation, Motorola saved $600 million, or approximately 4%, on $16 billion of parts purchases. The savings stem from three sources:

• Motorola's new ability to engage more suppliers during more negotiations and help them to compete more effectively during bidding, accounting for 60% of total savings;
• Suppliers' ability to make value-added bids (30% of total savings); and

Reduction in Motorola staff time and travel involved in purchasing (10% of savings).