Supplier Mine

This is the million dollar business created by the entrepreneurs from São Paulo, Fabio Ciuchini and Leonardo Franco. The outsourcing wave is creating new companies.

Supply chain integration. Integration of what? Four years ago, when Paulistas Leonardo Franco and Fabio Ciuchini decided to build their company, they had no idea what this business was. Friends since college, Franco – a business manager with having completed graduate work at the University of California, in Berkeley – and Ciuchini – an engineer with graduate work in business administration from the University of São Paulo – wanted to make good use of the experience that they both had accumulated while working in purchasing departments of large companies to start their own business. With an initial investment of 4,000 Reais, enough to get a computer, fax and printer, they set themselves up in the garage of Ciuchini’s parent’s house, close to Cidade Jardim Avenue in the southern area of São Paulo, and founded Argos. The initial concept was to have a company that performed purchasing services for large companies. As time went by – and with the appearance of new needs coming from the clients - Argos became a supply chain integrator. More than a provider of tactical services, the integrator became a strategic partner once that depends on the selection and the functioning of a whole network of suppliers. “The concept was new for us too”, says Franco who had left the purchasing department of Embraer for Argos. “Actually, the first time we had heard this term was in August of 2001”.

Even without knowing what label to give their undertaking, the pair has been able to see the opportunity of the new business. Since the economy headed for globalization and companies have started to look for more efficient suppliers – not mattering if they are located in Quixeramobin or in Shanghai -, finding someone who can make the connection and take the responsibility of finding, selecting and supervising the work of these suppliers may be the reason for the success of the process or its failure. This explains the exponential growth of Argos sales. In its first year of activity, its income was US$45,000. Last year, between services and sales of parts, the company’s income has reached 2.8 million dollars. Even better: the gross margin was 18%.

But how, in practice, does this integrator really work? The best way of understanding this service is to watch the work developed by Argos for the North American company Bendix, of the automotive sector which since last year, belongs to the German group Knorr Bremse (before that, Bendix was part of AlliedSignal, which in 1999 merged with Honeywell). Bendix does more than half of its purchases from outside the United States. In Brazil, they have a group of 12 suppliers – all selected and monitored by Argos. “In the past we had a purchasing division that tried to identify suppliers in Brazil”, says William Lecky, responsible for global purchasing at Bendix at the time Argos was hired. (Today, Lecky manages his own supply chain integration, in the United States), “but there were many obstacles and it didn’t work out. Because of that, in 1999, we sought out Argos”.

The Brazilian integrator was in charged of selecting the local suppliers according to the needs of the client. The development of the project took almost two years – the first exportation occurred in December of 2000 -, and during all this time the Argos partners worked for free. (In order to maintain the office, they performed simple purchasing-related services in the, acting as representatives of foreign companies. Still today, Argos acts as an extension of the purchasing department of companies such as Visteon and Siemens VDO.) “We determined that our income would not be based on the delivery of services, but on the sale of parts”, says Franco. In other words: Argos assumes the production risks and earns according to the volume shipped. Nowadays, Bendix doesn’t have any contact whatsoever with its 12 Brazilian suppliers. Everything – logistics, contracts, payments – is done by Argos. For the client, the main advantage is to reduce the costs, while maintaining the quality. “Contracts like this one can cut purchasing costs up to 15%.”, affirms Lecky.

The partnership with Bendix was also the main impulse for Argos to establish itself abroad. As it was necessary to maintain the Bendix parts somewhere, Franco and Ciuchini decided to put their foot in the United States, opening a warehouse in Chicago. With the increase in the amount exported, they noted that there would be more advantages to have their own warehouse. “We realized that would be the only way of having total control over the management of the stock, which is so vital to our business”, says Franco. The partners invested US$ 45,000 last October and opened a warehouse in Chicago.

How do Ciuchini and Franco convince a great company to trust a small Brazilian company with only 20 employees, directed by two young partners (Ciuchini is 30 years old, and Franco, 32) and put them in charge of such a strategic area as management of the supply chain? “The main doubts of the clients are in relation to the quality of the suppliers and the compliances with delivery terms”, says Franco.

Right now, what matters is the experience of the partners. “We have always had a strong international relationship”, affirms Ciuchini. Before opening Argos, he had worked for over two years outside Brazil. His first experience was in Germany, in a small procurement company. There he made contacts with purchasing professionals of the auto parts manufacturer VDO. A little more than one year later, the German company became the first client of Argos. Following that, he went to work for AlliedSignal, in Ohio, in the United States, at that time, the owner of Bendix. It was there that he made the contacts for the partnership that would become established in the future.

The other difficulty they had was to find the right suppliers for their clients. Because much of the time they are dealing with small manufacturers, it is necessary to help them develop. “We even had to teach some how to send e-mail, because the all of the communications were still by fax”, says Franco. For some manufacturers, the partnership with Argos meant the first step for exportation. That is the case of Metalúrgica Nunes, located in São Leopoldo, in Rio Grande do Sul. A little over two years ago, the company started to export brake system parts for Bendix. “We had never sold to The United States, but the business with Bendix gave us visibility”, confirmed Renato Nunes, owner of the metals company. “Lately, we have started to receive requests from other international companies”.

In the Middle field

On one side are the buyers, multinational companies with little knowledge about the Brazilian market. On the other side, local suppliers, with limited market knowledge. It's here that the supply chain integrator enters the picture. Look to see what type of needs this type of company can attend to:

Rua Demóstenes, 1.222

04614-015    Campo Belo    São Paulo    SP    Brasil

Ph: ++ 55 11 5091-8288    Fax: ++ 55 11 5091-8280