Kristiina , 06 Mar 2016 06:23 AM
April 20, 2011 | CAPEX Blogs
The complexities of sourcing for MRO stem from demand forecasts and aggregation. Globalised operations, large spend across business units and equally large supplier lists leave little or no room for quality delivery. Effectively, MRO categories are rarely sourced with the objectives of quality or procurement savings. Overtime the processes relegate to volatile mix of spot buys, incumbent suppliers and maverick spend. And Procurement may not even get a shot at a cleanup. The stakes are high and so are the costs. Downtime must be minimized at all costs.
Here’s what we recommend for a 5-step process to get your MRO house in order:
1) Find the biggest savings opportunities
The devil’s in the details. Map a detailed category tree and find what the business units are spending on, right down to the subcategories. Invoice data is an effective indicator of potential saving opportunities. As a rule, the categories with the highest spend should be targeted first. Those with a massive supplier list need a round of supplier consolidation.
2) Get a sourcing strategy in place
It’s never too late to get back to basics. Start with segregation of categories on parameters of cost, quality and delivery. Take those calls on whether it makes sense to source from an importing distributor or directly from the OEM. As a thumb rule bearings, belts, fasteners, electrical components and hand tools are usually sourced through distributors, while more complex items can often be better sourced from the manufacturer.
3) Raise detailed RFPs
It’s not always possible for suppliers to quote unit prices of all MRO items. Get around this by asking bidders to nominate prices for representative samples of a category. There are three ways to ask for prices: manufacturer’s cost plus mark-up, sell price at a specific gross margin, and a list price minus discount. Whichever you choose, it’s best to have all suppliers quote the same way.
4) Evaluation and selection
Based on relevant parameters, create a scorecard for each proposal to rate the price competitiveness and product coverage. Get your end-users on board for this exercise. Then, compare the non-price metrics such as consistency in quality, delivery models, financial backing. You are likely to expedite the process with valuable end-user input, and the relevance of their word cannot be stressed more.
5) Spread the word
Communicate the enhancements and reward the cooperating internal customers for a quick senior leadership buy-in for the next round. Convince them of the rationale behind the exercise and don’t get bogged down by resistance if any at this stage. It’s nearly impossible to please everyone. Work with the suppliers to manage the relationships and better price and non-price delivery metrics.
GEP helps Fortune 500 and Global 2000 companies across 20 industries and key markets manage their MRO spend more effectively. Learn more GEP can help you drive greater savings and value from MRO sourcing.
Click here for a complimentary GEP white-paper on MRO best-practices.