By Tom Gallagher, VP of Consulting, Global eProcure
If you’ve ever been challenged by the procurement issues surrounding MRO – Maintenance, Repair and Operations – you are not alone.Even the most seasoned procurement pros find this arena daunting and highly frustrating, especially in enterprises with substantial production, manufacturing and processing activities. The task of keeping the enterprise supplied with the myriad parts, materials, and services needed to keep the machinery humming, sometimes seems to resist all the usual procurement best practices and disciplines. It’s a high-spend beast that is difficult to tame.
MRO Procurement by nature is complicated due to its complex mix of highly technical products and specialized services that can be difficult to understand and much less to manage. When it comes to MRO, the user community typically has strong and emotional attachments to their parts and suppliers; they have a much greater stake in avoiding downtime and outages than in saving on inventory and adhering to procurement processes.
So, how do we reduce costs and consolidate the supply base? The five steps to less complexity and lower costs include:
Locating your biggest savings opportunities
Developing a sourcing strategy,
Going to market,
Evaluating & selecting suppliers, and
Telling the organization.
The first step is to determine accurately what the organization is spending on the various MRO sub-categories and supply solutions. This allows you to identify, at a high level, which MRO categories offer the greatest savings opportunities. In most cases, these opportunities will lie in the categories with the highest spend, and those where large numbers of suppliers can be consolidated and leveraged for more attractive pricing.
After careful spend analysis, it is important to determine which go-to-market solutions might offer the best potential for savings, without compromising operations in any way. In practice, you will probably need a number of these solutions, based on cost issues, on the operational and technical needs of the sites, and even the politics of the organization.
To make better decisions and to gain stakeholder support, it is always helpful to communicate early and often with the plant managers, maintenance supervisors and engineers who use the MRO products. Failure to engage the users throughout the process will undermine the success of the strategy. Remember, the best-negotiated pricing agreement in the world is useless if no one uses it.
After the strategy decision, collect and organize all of the data necessary to “go to market.” And ask the users to identify all of the technical service and customer requirements that must be included in the RFP. In the selection of a MRO supplier, supplier’s ability to satisfy these requirements, and non-price service requirements such as delivery, product coverage, technical support, and customer service are just as critical as their pricing.
Once these requirements are known, you need to develop a formal evaluation process that weights each supplier’s response, to determine their ability to provide the support required by the users.
Once the supplier selection process is completed, it is necessary to communicate -- and preferably over-communicate -- the decision across the organization, carefully explaining the rationale, and what benefits the company can expect. It’s wise to expect some pushback; it is nearly impossible to please every single user across the organization. As user issues arise during the early implementation, it will help to work very closely with the supplier to proactively address any user concerns.
It is absolutely necessary to manage the supplier relationship throughout the process to ensure that the commitments, pricing and service, are being met. A successful MRO sourcing process can deliver big dividends for the organization. Good MRO supplier partners drive more than price savings, they can help reduce demand, reduce inventories and bring improvements to the manufacturing and maintenance processes that can deliver significant value across the company.