MRO…Maintenance, Repair & Operations or More Rotten Orders. Or, as I’ve titled it, Massive Reduction Opportunity!
A recent blog in Procurement Leaders “A Roadmap For MRO Savings And Efficiencies” pointed to this category as being one of the most rewarding areas for Procurement where huge savings can be made provided things are done systematically and properly.
To complement what has been written in the article, I would suggest that these opportunities can be even furthered through working with the bidders, pre award, and being factored in during the supplier consolidation and selection process (much preferred) rather after the successful supplier(s) has/have been identified and business award made (could be tricky…stable doors and horses spring to mind).
Suppliers Own Branded Products
The major suppliers will in all likelihood offer their own branded or named products as alternative to the better or nationally known brand names that appear in MRO catalogues and in media advertising and can cost a fortune. These products can range from tooling (hand/measuring/power etc.) to PPE (boots) to stationery (paper). These supplier own branded name products shall have been probably produced in the same factories than the main name branded stuff, possibly even on the same production line. What may be missing in the supplier own brand is (e.g.) a polished surface on a spanner, or plain wrapping paper on a stationery copier paper or envelopes, or the lack of a designer tag on a pair of PPE boots.
There shall be no difference or compromise with supplier branded name product reliability or quality versus the branded name equivalents. What shall be different, though, is pricing where up to 90% savings can be achieved just by switching brand names. There may be a lost opportunity in choosing the successful MRO supplier that might ultimately not be able to make this type of offer.
Supplier Presentations
MRO can be a funny area of spend and customer preference/usage. Over time users shall have got accustomed to using certain brand name products therefore may be very reluctant to the prospect of change up to the point of even refusing point blank to cooperate. This a real problem and requires to be recognized during the supplier selection process and addressed at that point rather than glossed over.
As a key action in the bid process the short list of candidates should be invited to make formal presentations to the potential customers and at that stage explain and demonstrate the capabilities, safety and quality assurance of own branded name products whilst highlighting the potential savings opportunities in doing so. The internal key budget holders thus cannot overlook what’s on offer and can assist the suppliers in making these points. For example, users of PPE that have the facility to choose and order new/replacement “designer label” boots from the supplier’s catalogue have this removed and in turn are provided with fit for purpose supplier branded boots.
Vendor Managed Inventory (VMI)
Part of the Request For Quotation scope of work should include the bidders addressing then presenting how they would tackle VMI and what benefits (financial and inventory management) it would provide, and what the mutual roles and expectations within this programme would be. Key outputs could be an agreed KPI for time to supply from notification of requirement, and payment period after a VMI product is finally pulled and consumed.
Consolidated Purchase Orders (POs) and Invoices
A major area of indirect costs is with issuance and receipt of a plethora of POs and invoices and in the case of MRO in all likelihood for repeat products over the financial year. Without offering my own estimation for the cost of PO placement or invoice management; I’ll let you decide on your own figures, imagine what savings and efficiencies could be achieved if the numbers were reduced from, say, up to 10,000 per annum by up to a factor of 90%? It’s a no brainer! If the candidate supplier can accommodate this it has to become a major component in the final decision making analysis!
There will be more of this ilk; I haven’t even mentioned e-sourcing MRO, however enough to get tails wagging. I’ve been there in a previous life. Working on an MRO consolidation project can be what makes for looking forward to going to work, when you’re in the middle of a project like this and you already have a good idea what the outcome is likely to be and how your employer shall receive it.
I was happy once!
