In a perfect world, each successful sourcing initiative would result in years of effective, hands-on spend management. In reality, however, a single event is little more than a good start. While identifying new suppliers or retooling existing relationships might provide savings and efficiency in the short-term, it's all too easy for organizations to forget the 'management' side of spend management. Many find themselves boosting visibility and regaining control only to slide back into the same old bad habits.
'Set it and forget it' is no way to approach MRO spend - or spend in any category. Generating value and maintaining control in the long-term means taking proactive, decisive action. It means never settling for 'good enough' and never relying on old methods 'just because.'
While MRO is most definitely a complex category, it's far from unmanageable. There's no reason any organization should find the joy of a successful event supplanted by the pain of maverick spend, poor communication, or a lack of visibility. Luckily for Procurement, they've got a lot of options for approaching the category more strategically.
1. Punch Outs
Punch Out catalogs connect a buyer's personal eProcurement system directly to their supplier's website. Buyers 'punch out' of their internal systems and gain access to their supplier's online catalog. Without such a system in place, Procurement creates far more work for itself than necessary. Whether it's loading individual items into a cart or verifying pricing against a pre-loaded master catalog, the function is wasting valuable time and resources.
A punch out's real-time, dynamic catalog provides Procurement with live updates on thousands of line items. This ensures that purchasers only select products that adhere to contract terms. In addition to expediting the purchasing process, punch outs make it possible for Procurement to devote its time to more high-value, strategic activities.
2. Vendor Managed Inventory Programs
The MRO spend area includes parts and components that keep an organization and its facilities running. As such, emergency, one-off purchases are an unfortunate (and unavoidable) reality in the category. The sort of incidents that might inspire an emergency purchase are far more common when organizations don't maintain open lines of communication with their supply base. Waiting on a delivery - or a response - could even mean contending with stalled production for an extended period.
Vendor Managed Inventory programs promote communication and optimal supply levels by making inventory the supplier's responsibility. Like punch out catalogs, they cut out a considerable piece of Procurement's tactical workload. Certain VMI programs will see a vendor set up operations on the site level. With direct access and insights into your company's resources, they can set optimal purchasing levels and automate the reorder process.
It's worth remembering, however, that VMI programs run on trust and close oversight. It's not enough to select a supplier and trust they'll make a positive change. Some vendors will make mistakes. Others will behave unscrupulously and look for opportunities to serve their own interests. That's why it's so important to vet vendors thoroughly and establish a management framework that will guarantee reliable service.
3. Supplier Consolidation
One of MRO's most prevailing challenges is the category's breadth. Whereas certain spend categories include just a handful of products and services, MRO compels even small organizations to manage hundreds of SKUs. Things are doubly complicated when these diverse products come from an equally diverse set of suppliers. That's why supply base consolidation is so often the answer for organizations looking to get a handle on their MRO spend.
Carrying out a strategic sourcing event can help a Procurement team uncover hidden opportunities to cut down the size of their supply base. Once they've done so, they can work to build relationships that offer more competitive pricing and better serve their unique needs. Instead of a few dozen 'good enough' suppliers spread far and wide, they'll begin to develop a bench of best-in-class providers who'll serve them on the local level.
Be careful. Organizations should not indiscriminately cut ties with their suppliers. Like any sourcing initiative, a consolidation effort requires effective planning, a wealth of information, and an apparatus for long-term monitoring.
Source One's MRO specialists discuss these best practices and more in the fourth and final installment of MRO Demystified. Download the whitepaper today to develop the hands-on, strategic methods that MRO spend demands.