Everything You Wanted to Know About MRO Sourcing But Were Afraid to Ask
Categories: Learning / Research, Procurement Research, Spend Analysis, Spend Management | Tags: L2, Sourcing and Categories
The MRO sourcing landscape has evolved dramatically in recent years, yet most of us haven’t adapted to the changes. To help our readers catch up to the new world of MRO sourcing – and significant advances in tools, techniques, and technologies to get more from MRO spend – we’re excited to announced our latest Spend Matters research paper: Everything You Wanted to Know About MRO Sourcing But Were Afraid to Ask.
Based on analysis from multiple Spend Matters Plus/PRO briefs as well as additional research, this new paper addresses fundamental challenges associated with MRO sourcing. This includes achieving the right levels of data/spend visibility, developing a portfolio of sourcing and supplier management strategy, and overall approaches to getting more from the category through different approaches (e.g., when to consider MRO group purchasing organization [GPO] contracts versus other models).
MRO is truly a unique animal, even if on the surface it looks like many other large spend areas. Most companies typically see MRO as:
- A significant portion of their spend (e.g., a top-ten spend area for many manufacturers)
- Having a fragmented and differentiated supply base, which can make it difficult to directly compare alternatives because of unique, supplier-specific capabilities
- Being subject to the whims of business stakeholders (e.g., plant managers) who often have different priorities than centralized procurement
- Not being well-controlled or managed despite existing strategic sourcing and compliance efforts
Yet, if your procurement organization is applying old techniques to a category where new approaches, options, and technologies can dramatically impact the cost and quality of the MRO experience, then you’re losing out on potentially tens of millions of dollars of savings. One challenge here is the fact that MRO is complicated. From safety supplies that protect workers to janitorial/ facilities items to electrical items to specialized MRO goods for specific industries to fasteners to MRO services, the list of MRO sub-categories is diverse.
Moreover, the line between MRO and direct materials/supply chain spend can be blurry, as can the line between MRO goods and services. From traditional distributor models to truly integrated supply approaches, there are several levels of services that suppliers offer as well. Add new market entrants (Amazon Supply), and the complexity of it all can leave even a seasoned plant manager scratching his head.
Technology can play a critical role in helping procurement organizations manage MRO spend more effectively and create implementable savings programs with additional benefits (e.g., supplier rationalization). But companies shouldn’t start with sourcing or eProcurement tools – let alone clever supplier technologies to manage demand (e.g., Grainger kiosks). They should start with spend analytics, but any old generic spend visibility program applied to MRO won’t do.
Insight into cost breakdowns is important as well, including distributor models. For example, in MRO there are service providers (e.g., “diverse” suppliers like DSSI) who themselves may buy from distributors and manufacturers. In situations like this, there are now two levels of opaqueness and potential lost margin. Your plumber might buy from Grainger, instead of you buying from the manufacturer on behalf of your plumber. Now, replace “plumber” with BPO, “integrated supply” firm, 3PL/4PL, MSP, CM/ODM, etc., and it’s the same issue. However, with MRO, you can get to the SKUs and drive to a catalog for easier closed-loop management if you invest the time in data visibility and analytics up-front.
But of course savings comes from sourcing. And in Everything You Wanted to Know About MRO Sourcing But Were Afraid to Ask we explore four distinctive sourcing approaches to getting the most from MRO providers. Whether you’re just getting started in looking at MRO strategically or building on a more advanced category management initiative, we encourage you to download our analysis of the MRO market and the tools and approaches that work best to get more from spend in the area. But don’t delay. Temporary free access to the paper is being underwritten by BravoSolution. Act fast, as we’ll be putting it back in Spend Matters PRO research library (subscribers only) soon.
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