US-Style MRO Procurement in Europe

- February 12, 2013 2:31 PM
Categories: Commentary | Tags: , , , ,

Marcus Olsen is Director of Strategic Sourcing Solutions at Xchanging. Xchanging provides BPO, technology and procurement services internationally for customers across various sectors. 

MRO is significant to the performance of companies’ asset bases, directly impacting the asset performance. It has the potential to greatly affect the bottom line of a manufacturing operation.

The fragmented nature of the MRO market, with the largest North American supplier controlling only 5% of the overall market, is an invitation for buyers to maximize MRO spend leverage. With MRO, integration is critical to improved product costs, service level, and working capital. In comparison to European MRO, the North American buyer faces an integrated, service-oriented market, creating opportunities to improve service, reduce investment, and reduce cost with MRO.

With the largest global market, the European MRO buyers need to work to exploit integration opportunities currently enjoyed in North America. The following chart illustrates the opportunities that the European buyers can develop to extract value from their MRO spend:

chart

The European market is less mature with outsourcing models generally, notwithstanding MRO activities like inventory management or maintenance operations, which are non-core operations to most manufacturers. This is due to factors that affect the free flow of labor and goods, like geography or cultural resistance to change. Regionally (e.g. the UK), more advance integration could provide a stepping-stone for continent-wide projects or integration of a US-European model common to both global regions.

From purchasing’s perspective, the North American model provides higher service levels and lower inventory requirements through supplier’s willingness to keep inventory at the last mile of distribution. Cash flow and service levels are better using integrated purchasing and inventory models, like consigning critical spares on the shop floor or using dedicated vending machines for high use items. The North American market provides opportunities to leverage MRO spend because the larger suppliers tend to combine product offerings to include several subcategories of MRO rather than focusing on one subcategory. More spend with a single source equates to higher leverage.

These suppliers tend to work with their favored customers to provide value added services like product substitution, complex purchasing, and managed inventory within client facilities. You’re less likely to observe these types of co-located offerings in a European facility due to tighter regional or cultural rules.

These differences tally to improved cash positions, expense management, and service levels for the North American MRO buyer. How can a European or global company encourage the development of integrated MRO suppliers to service European facility needs? Supplier development through contracting is one path, which could include working with large MRO suppliers in North America to expand their European offerings. A buyer, recognizing the benefit of integrated MRO partners, could offer contract terms to encourage such market expansion. Alternatively, buyers could work with large regional MRO providers within Europe to include multiple categories, inventory solutions, and value added services.

The prize of improved integration and the subsequent cash and service benefits are within reach. MRO distributors will be willing partners in assessing any opportunity to expand. Buyers only need to provide the raison d’etre.

Related Articles:

  • No related articles found

Comments

  • Ernest:

    MRO procurement integration in Europe is certainly not there yet and the benefits to manufacturing will surely enhance working assets and capital

    More so the issue of real time visibility for critical equipments & components will greatly improve the competitiveness of EU manufacturing .

    The Americans have obviously lead the MRO supply chain market and Europe can learn from their seamless lean-agile system integration

  • Harkirat Singh:

    I completely agree on the above points mentioned. I would also like to add in that in US, maturity of MRO distributors is high. They belive in multi-channel sales and are moving towards an omni-channel approach. E-commerce has also been a big boom for suppliers, wherein it adds an additional channel for sales. Purchasing in North America is also adopting the same channel for procurement. When compared with Europe, the system is not that automated and the purchasing is more random. Clearly North America leads in the supply chain maturity in MRO

Join the Conversation

* Required fields  [email address will not be published]

*