MROh My!

As many already know, the indirect or nonproduction spend, also known as maintenance, repair and operating (MRO) spend, deserves the attention it has recently received in the trade press. In many organizations, MRO spend is estimated at 15 to 40 percent...


Finally, national contract negotiators realize that the most important element in the preferred-supplier method is the relationship. The benefits to both parties depend on the quality of the relationship, specifically, the upfront expectations that made the agreement possible. Negotiators are aware that stakeholders must be educated and trained in order to redirect purchases to the preferred supplier. They sell the merits of the agreement, emphasizing the benefits to both company and stakeholder. Or, if the stakeholder experiences some level of personal discomfort, they emphasize the good of the team over the good of the individual. If possible, stakeholders should be included in the selection effort; if that doesn't happen, the process should involve plenty of communication.

On the sell side, suppliers must be willing to operate outside the status quo, especially during the initial transition. They must move quickly and effectively to correct inevitable miscues, thereby building the goodwill that will serve them down the road when events beyond their control impact users.

Above all, the agreement should not be oversold by either party. The buyer cannot overstate projected spend, and the seller cannot overstate discounts and service levels. If either of these conditions occurs, the agreement is jeopardized.

For the near future, this method will continue to be used by MRO strategists. Combined with other methods, it returns customary savings and other efficiencies. Over time, effective e-procurement models integrate and aggregate data to produce sophisticated national contract deals that have real-time impact.

Purchase Cards
Often considered a supporting strategy, purchase cards are used or would be considered by more than 70 percent of study participants. Their use has become an integral part of MRO procurement. Essentially the outsourcing of an administrative process, purchase cards are a move toward greater participation by suppliers in managing MRO. A purchase card program can bypass the drudgery of high-volume, low-value transactions, allowing more focus on strategic issues.

Additionally, this method is cost-efficient. Card suppliers have recently added the detail required for sourcing and reporting efforts. When they're combined with Internet buying, a synergy is created that leads to self-serve purchasing.

Purchase cards are also important in easing concerns about moving to electronic methods, much like the ATM helped facilitate high-tech, low-touch banking.

Integrated Supply
The integrated supply method is generally defined as a supplier providing a single source for a broad range of MRO products traditionally carried by many distributors. In the marketplace, however, the definition of integrated supply can be more comprehensive, falling just short of full outsourcing. It takes the basic format of the national contract with a preferred supplier and adds services such as inventory management, reorder, inventory ownership, administration and more, but only for a predefined item or group of items. It generally does not include all MRO, as would an outsourcing agreement. This method can be found most commonly in a shop floor environment, restricted to items such as fasteners, hand tools, electrical components and bearings. It is, however, a bridge to full outsourcing. Sixty percent of respondents reported that they either have used or would use this method.

As long as suppliers create value-added options for their programs, integrated supply will prove useful. Many suppliers who don't continually upgrade their offerings will face extinction. Additionally, integrated supply allows organizations to test the waters by turning over parts of their MRO business to trusted suppliers; they get a limited view of the dynamics of outsourcing. Again, the key to this method is maintaining the relationship and managing the expectations of both parties.

Outsourcing
Outsourcing, or business process outsourcing (BPO), while popular for IT, payroll and inventory management, is underrepresented for MRO procurement. Only 32 percent of respondents use or are likely to use outsourcing as an MRO purchasing method. Decision makers seem willing to outsource some but not all of their MRO business. The study may also indicate the existence of a competent middle class of employees, currently essential to the transaction-based purchasing occurring in many organizations. As organizations move closer toward strategic purchasing and away from transactional purchasing, they will be faced with either retraining these employees or outsourcing the more technical functions such as sourcing and supplier management.

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