When it comes to managing maintenance, repair and operations (MRO), involving an MRO service provider can be key. But how should procurement organizations go about selecting an MRO service provider, and how does the organization show value in working with a third party? Michael Croasdale, senior project manager at Source One Management Services, LLC, a procurement service provider based in Pennsylvania, shares his insights on these questions.
Croasdale, 26, was recently recognized among the winners of the Institute of Supply Management and ThomasNet 30 Under 30 Rising Supply Chain Stars Recognition Program. He has been tackling strategic sourcing challenges for procurement organizations at Source One, and even has some “MRO war stories,” which he shared in Part 1 of our conversation with him. Today, we discuss MRO service providers and how technology may impact how procurement collaborates with an MRO provider.
SM: What are the benefits of procurement adopting an MRO service provider? How can the MRO provider help procurement understand internal MRO needs better, such through benchmarking or analytics help?
Michael Croasdale: To start, a good MRO service provider should be able to cleanse, standardize and rationalize your data. Understanding an organization’s baseline from a quantitative and qualitative perspective provides the visibility that is necessary to make informed decisions. Not only this, but it creates a defined standard from which tangible, measured results can be derived. The best MRO service provider will then work toward establishing collaborative supplier relationships and rationalizing purchases, ensuring that purchases are being made with the right suppliers. Based on a combination of the spend data analytics, benchmarking and qualitative requirements the provider should make recommendations on sourcing, supplier consolidation, product standardization, etc. Each recommendation will be tailored to fit that specific organization. Ultimately all recommendations should have the same goal, helping the organization achieve the lowest total cost of ownership.
SM: How does procurement convince the c-suite and other stakeholders to hire an MRO service provider?
MC: My recommendation would be for procurement to emphasize not only the positive impact it can have on the bottom line but also, and arguably more compelling, how important it is to get objective feedback from people who work and source within the MRO industry day in and day out. MRO service providers have the focused, specific data to benchmark pricing, ensure service levels exceed industry standard and help to institute industry best practices. They’re not just looking at costs, but ease of management — finding ways to reduce time, administrative expenses, over purchasing and inventory obsolescence. They understand the day-to-day challenges both your procurement department and facilities face and can help to bridge the gap between laggard and leading.
SM: What are some of the key ways to manage an MRO supplier relationship? Are there any unique requirements specific to an MRO supplier?
MC: While every supplier relationship will be managed differently based on the product or service purchased, its criticality, and its risk, there are definitely best practices that apply across the board. The value-adds a good MRO supplier brings to the table are key to formulating a strong strategic relationship. One of the more unique requirements in MRO is the prevalent need for facility support. MRO suppliers provide facility representatives on a continuous basis, sometimes as often as daily. This isn’t the traditional representation where the supplier is just trying to push new products, more business or drive compliance. It’s much more than that. These reps are expected to provide recommendations on alternative cross products (OEM Part Conversion), look for areas to improve operational efficiencies, provide vendor managed inventory, offer training services, reduce maintenance and offer emergency services. A great MRO provider will typically offer these value-adds at no additional charge. Ensure that you are getting the services from your suppliers that your facility needs in an ideal world, because if your incumbent isn’t providing these, and is unwilling to do so, there is someone else who will. Make sure to understand your MROs supplier’s full service offering — many are broader than you would initially think.
SM: With a third party responsible for the functioning of your manufacturing machinery, how can you ensure mismanagement won’t lead to a total breakdown?
MC: If a third party is to be responsible for the functioning of your manufacturing machinery, you are certainly assuming a level of risk, but this can be controlled, to an extent. Within the contract there should be various service level agreements (SLAs), key performance indicators (KPIs) and metrics to which the third party is held, with associated penalties. You should also ensure that the limited liability is acceptable. But even before selecting the third party, you need to do your homework. Run financial reports, understand if and how any breakdowns have occurred under their management before, ask the right questions and conduct reference calls. All these preventive measures should be taken prior to selecting and utilizing the third party.
SM: What kind of technologies can help procurement effectively manage MRO internally and the relationship with an MRO provider?
MC: The key to effectively managing MRO is within master data management (MDM) layered with front-end interfaces for both client and supplier interaction. This type of software should essentially be plug and play with your existing computerized maintenance management system. The system allows for inventory management and tracking, issuing, cross referencing and ordering. Suppliers, if willing, can then use the same system to receive POs and push invoices as well as provide recommendations on the back end for potential MDM updates, (i.e., if they are carrying a new part that has the same form fit and function to a part already within the system and would like to have it added as a potential low cost alternative).
If proper categorizing techniques are utilized, unique part numbers are tied to manufacturer and manufacturer part number with a cleansed and standardized description. From there, each part is assigned a corresponding form fit and function. Form, fit and function schema allow for easy cross-reference data searching. This creates continuous visibility and control over your MRO spend and helps to alleviate the traditional spot buy purchases that are so prevalent within MRO. It also allows you to speak your MRO supplier’s language, provide clean, meaningful data and reduce administrative time and expenses. It allows the suppliers to perform less tactical work and focus more on strategic objectives.
I’m also a proponent of punch out under a procurement system. Punchout is a protocol created to access a seller’s catalog via the internet when a buyer creates a purchase requisition. When an item is added on the supplier’s website, the system generates a local requisition using the organization’s local catalog and internal part numbers. The act of the requisition moving to, and giving the buyer access to, the supplier’s website and catalog is referred to as “punching out”. The benefits to this system extend much further than ease of ordering. Punch-out systems show live prices and product availability and any contracted customer-specific pricing. Order accuracy improves dramatically when compared against conventional purchase orders, and the design of the procurement system and punchout itself helps to ensure compliance. Of course, the system is not “fool-proof” procurement still needs to audit to ensure pricing is at negotiated rates and that the master data behind it is maintained for both the organization as well as the supplier.
SM: As manufacturing continues to embrace the Internet of Things, how will intelligent machinery affect MRO and procurement’s ability to collaborate with an MRO provider?
MC: Imagine that a machine that breaks down, but that it can identify which specific part has broken down and automatically place a requisition for that part, which has already been preloaded into the system. Or better yet, a machine that continually monitors “wear and tear” to identify when a part is going to break and places a requisition for it prior to the part itself breaking, ensuring that the line never goes down. More and more I see intelligent machinery with capabilities like predictive analytics and real time monitoring to identify what needs to be ordered or what services need to be performed, allowing procurement to focus on operational efficiencies and supplier relationship development. But even with all that, it will still be incumbent upon the procurement organization to keep its finger on the pulse to monitor, track and perform analysis and ensure that they are capturing the maximum value from their supply chain.