MRO Sourcing: The Role of Pre-Negotiated Contracts and GPOs

This post is based on material from the Spend Matters research brief, Everything You Wanted to Know About MRO Sourcing But Were Afraid to Ask (registration required – temporary free access to the content is underwritten by BravoSolution until December 2013). This brief contains excerpts from the Spend Matters PRO pieces  MRO Sourcing is Changing Fast: What’s Your Strategy? and MRO Sourcing: Forget Negotiations, Start With Good Visibility and Data.

In the case of lower potential savings and low MRO sub-category complexity and risk, pre-negotiated contracts and group purchasing organizations (GPOs) can play an important role in getting quick wins. But they should be viewed as only a component of an MRO portfolio strategy. Pre-negotiated contracts in the MRO area present an opportunity to drive quick wins, especially with lower volume items that do not have a strong end-user preference.

This approach also ties in with achieving actual compliance rather than just putting MRO spend through an Ariba, SAP, Coupa, or Oracle system. How? Actual compliance goes back to the question of awarding business to low-cost suppliers. But low cost means implemented, not identified, savings. And low cost needs to be verified. The advantage that leveraged contracts can bring is that implementation and compliance is straightforward. For all but the largest MRO buyers, working with a GPO can make sense for at least a small portion of spend.

Whether an organization works with a GPO (or not), one of the keys in all areas of MRO spend segmentation is to reduce uncertainty for suppliers. This takes away their requirement to hedge through higher prices. A key element, regardless of sourcing segmentation and model, is to examine contractual guarantees, including working with suppliers to create comfort levels with volume (which is likely not contracted): rebates, pre-bates, and other programs in this regard can remove uncertainty. Other strategies include showing that the procurement team is working to change perception and action at the individual plant or facility level.

Read the full Spend Matters Research brief: Everything You Wanted to Know About MRO Sourcing But Were Afraid to Ask (free, registration required). Temporary access to this material is underwritten by BravoSolution until December 2013).

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