Original Date: 09/15/2003
Revision Date: 01/18/2007
Best Practice : Long-Term Agreement Process
United Defense, L.P. Ground Systems Division Aiken implemented a Long Term Agreement process for the procurement of materials. By taking advantage of the needs across United Defense and its second-tier suppliers, better pricing, delivery, service, and quality have been achieved for both United Defense and its second-tier suppliers.
United Defense, L.P. Ground Systems Division (UDLP GSD) Aiken implemented a Long Term Agreement (LTA) process for the procurement of materials used by the company and its second-tier suppliers. The LTA enabled the company to save money and ensure that the supply of regularly needed materials was readily available.
Previously, the company put purchases out for bid, but realized that by combining the purchases from all its facilities and second-tier suppliers, better pricing, response, quality, and delivery could be attained by using an LTA with its suppliers. United Defense established a “Commodity Team” of buyers/purchasers to develop an LTA with its commodity suppliers. The goals of the LTA were to guarantee high quality, reduce cost, improve delivery, and provide service flexibility. Initially, an LTA was used to procure aluminum sheets and plates. This product line was selected because of the opportunity for a quick return, and all United Defense sites used the material. Five mills and nine distributors were considered for the LTA. A consolidated forecast of the needs of UDLP GSD Aiken and its second-tier suppliers was created and resulted in a survey of suppliers where six were solicited. After a request for quote and a statement of work were generated, the quotes were evaluated and an LTA was awarded.
UDLP GSD Aiken realized many benefits from this process. Purchasing lead-time has been reduced by 20 days due to the elimination of bids, proposals, and the quote process. Supplier lead-time was reduced, and a more consistent quality of material is received from the supplier. Deliveries are 100% on time, and 99.4% of the deliveries meet the requirements. Should problems arise, only one supplier needs to be contacted. A reduced price, with a maximum escalation clause, was obtained by giving the supplier exclusive rights to the procurements from UDLP GSD Aiken, unless the supplier cannot supply the needed material or the quality deteriorates. The supplier can lock in mill forecasts in advance and maintain inventory and remnant stock, which has improved R&D and prototype lead times.
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