MRO Sourcing: Complex Spend Requires Complex Negotiation Strategies

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.

Finally, in the upper right quadrant of our MRO sourcing segmentation, advanced sourcing or expressive bidding is most appropriate. This area includes sub-categories and line items requiring internal and supplier collaboration, as well as scenario-based analysis to arrive at the optimal award decision. Spend in this area often forms the largest overall MRO dollar component for companies (often spread across thousands or tens of thousands of line items).

Advanced sourcing approaches seek to collect and analyze both requested and alternative bid specifications from suppliers. Based on its experience sourcing MRO with this approach, BravoSolution, who provided useful insights for our recent analysis of sourcing technology applied to MRO spend, suggests that “suppliers will aggressively seek to offer alternate items based on their manufacturer relationships,” which makes it essential to ensure “specification collection and approval workflow is managed as part of the initiative.”

After collecting various bid specifications, success comes to review supplier proposals based
 on category coverage, geography, cost breakdowns (e.g. handling charges), and stakeholder preferences. This is where scenario-based analysis and optimization come into play.

 to BravoSolution, such an approach can “shift the focus to consensus building internally in addition to the generation of cost savings.” In evaluating different award scenarios, procurement organizations may wish to consider not only incumbent preference and supply base rationalization, but also other factors. These can include understanding award trade-offs associated with different levels of service offerings (vendor management inventor, proximity, transportation, etc.) and proprietary approaches a supplier might offer (private label, demand management programs, etc.)

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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