Sourcing MRO: Beyond Leverage and Automation

When I was originally schooled in strategic sourcing 101, I was taught that MRO was MRO. In other words, it was the quintessential quadrant in a sourcing 2 by 2 where the benefits of automation (and occasionally leverage) outweighed the benefits of building strategic relationships with suppliers, focusing on collaboration, risk management, etc. But this article from Purchasing examining the case of MRO procurement at AEP, a utility, helps turn some of this conventional wisdom on its head. In fact, AEP is measuring at least some of its MRO suppliers with "a scorecard that tracks such metrics as delivery, quality, order fulfillment, safety and customer satisfaction". Moreover, they've "set a goal to meet with these suppliers annually to discuss performance and business opportunities". Does this sound like a simple automate or leverage model? Not at all.

Increasingly, especially given the rise and interest in all forms of supply risk (including but not limited to supplier performance, quality, financials, etc.), it might serve all of us quite well to do away with traditional spend segmentations entirely, at least how we've conceived of them in the past. After all, even some of those suppliers we might put into the leverage or automate categories and then ignore after deploying an initial strategy, require active management in certain areas if we value reducing potential risk exposure to our organizations. Moreover, the big difference between now and when the 2 by 2 approach to sourcing was originally conceived is the degree to which we can automate many aspects of the relationship management and supplier development process.

Back in the eighties and nineties, we were all forced to make do with a Microsoft Office desktop as our supplier management desktop. But with new supplier performance, spend analysis and information management systems, we can now automate how we track, monitor and develop a much greater portion of our supply base with minimal additional effort or resources required. Because of this, it's now possible to more effectively manage the total cost of that MRO supplier throughout the relationship lifecycle versus simply tossing them into a quadrant and following a singular strategy as we might have in the past.

Jason Busch

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