Utilize the Right Sourcing Lever to Manage Your MRO

Avoid the pitfalls of improper maintenance, repair and operations (MRO) management and use the right sourcing levers for maximum profit and reduced spend


Life Cycle Costing (LCC)—Life Cycle Costing is a process to determine the sum of all the costs associated with a commodity during its entire life which includes acquisition; installation; operation; maintenance; disposal; refurbishment; and any other costs directly attributable to owning or using the commodity. It therefore covers all aspects of a commodity.

Conversion—In the entire manufacturing cycle if one process is not cost-effective to the manufacturer (or it has any capacity constraint) then that particular process can be outsourced to a conversion agent. The manufacturer can give the raw material to the suppliers who in turn will convert it to next higher grade/component. This would occur when the manufacturer may have adequate raw material/production facility but does not have the adequate capacity to produce the same. The conversion agent gets a business assurance and also appropriate profit margin.

Commodity Futures—This is applicable to all components which have composition of non-ferrous metals. It is one of the important levers for de-risking the supply manager from the fluctuating market price. Through commodity future, market mediates between supply manager and the supplier of commodities. It becomes very important for metals like copper, aluminum, tin and zinc—whose prices do not only depend on demand-supply factors but also on mining, refining and corporate activities such as mergers and acquisitions and labor issues.

Free Deliver at Site—Many suppliers offers free delivery of material at the site from their manufacturing units provided they are given a certain consignment size. The souring personnel should try to negotiate for this and optimize this consignment size. This simple sourcing lever can eliminate the logistics cost.

Buy ‘Solution’—With the increased competitiveness of the market, more and more supplier are offering “Total Solution” and supply manager are also willing to buy solution instead of the product. They offer customer-specific solutions by owning and solving the problem. This lever can be utilized if the strategic sourcing personnel is fully aware of the end-to-end process where the material is going to be used, and then only he can buy the solution instead of the product.

Backhaul—With increasing logistics cost, backhaul is a win-win leverage for the supplier as well as the manufacturer. When a mode of transportation is used to bring something to the manufacturing unit, the same transportation can be used to send something-else back to the supplier, e.g., lubricant drums can be sent back to the lubricant supplier.

Global Sourcing—‘Looking beyond the boundaries’ is the mantra for this sourcing lever. With technology bridging borders and enabling global commerce, the choice of suppliers today is truly worldwide. Chief Procurement Officers (CPOs) are taking advantage and seeking out viable suppliers in low-cost jurisdictions that can offer comparable quality and better price points.

Alternate Sourcing—With this sourcing lever, even if you are satisfied with your present supplier, always keep a look-out for the alternate supplier, alternate location and also the alternate brand.

Benefits of Taxation—In those countries where multiple taxation exists (e.g. in India VAT and CST), sourcing personnel should always try to leverage the one which is most beneficial. In case of import orders, Hi-sea sales option can be considered to nullify the impact of CST.

Leverage Seasonal Buy—Price of some commodity shows cyclic pattern throughout the year. For those items it is better to buy when the prices are at trough rather than at the peak of the cycle. For some commodities, supplier give season end discount; a good sourcing personnel should always look for such opportunities.

Leverage Technology—Companies can build competitive advantage over its competitors by adopting best-of-breed solutions to fill selected gaps, integrating them with legacy systems and with suppliers, customers to enable end-to-end processes and to provide good visibility of the pipeline. IT-enabled supply management tools and new technologies like RFID, global tracking system, e-procurement and bar coding delivers the business value as well as complete visibility of the value chain through process optimization, cost reduction, inventory reduction, resource optimization, time compression and better planning and scheduling.

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