DSSI — Redefining MRO Distribution and Outsourcing (Part 4)

Click here for the first three posts in this series: Part 1, Part 2, Part 3.

Many organizations engaged in the outsourcing of one or more procurement areas often have measured -- or at least balanced -- words to describe current and past partners. Anytime a third-party takes on ownership of a result (plusthe means for achieving it), the stakes rise. So does the potential to potentially rub at least some internal constituents the wrong way. DSSI, on the other hand, appears to have very strong support of the clients that Spend Matters has spoken to. One organization that had worked with DSSI for just over a year at the time we spoke to them, arrived at choosing them for MRO via a somewhat circuitous route -- but might be more common than one might imagine for somewhat mature organizations that end up going with DSSI in the end.

This story begins with an industrial company that brought in a new CPO that recognized the importance of "MRO and indirect" spend to focus on. At first, the company did multiple auctions that "went very well" on screen with another services provider. However, the "implementation did not go well," and when the company tried to implement new pricing models with new suppliers, the results came up short. In the IT area, for example, when procurement identified 25% savings in a key category, IT pushed back based on changing specifications and requirements. The end result was a complete inability to implement any of the 25% savings that the organization uncovered in an auction process.

This is when the organization moved in the direction of a more outsourced solution, inclusive of technology and services. At the time, this organization evaluated Ariba, ICG Commerce (an incumbent and current vendor in other areas for the company across categories such as legal, HR, marketing, etc.) and DSSI. Ariba "gave a good presentation" (as did ICG Commerce), according to the organization, but DSSI put forth a deeper level of detail and understanding, especially in the industrial setting, in the evaluation process. According to the organization, DSSI overinvested -- to their credit -- in communications and the knowledge of how to operate MRO supply in a distributed plant environment.

Savings-wise, this organization found that with DSSI, they were able to consolidate spend from multiple facilities to rationalize purchases based on price, terms and supplier lists in key indirect and MRO areas. Saving in these cases was approximately 12-14% initially (on an implemented basis). For directed spend, where DSSI was required to source from a specific supplier, they were able to "bring back savings in the 3-4% range).

In fee structures, DSSI ultimately agreed to a model that was different from what was originally proposed. Initially, "their structure was a split of savings" that ultimately "morphed to a fix flat fee" that the customer believes is "the better way to go." The organization "does not think it takes incentive away" but rather allows DSSI to look beyond just price toward opportunities to really improve overall MRO delivery (e.g., in directed spend areas where savings might be less, but other benefits can accrue, including stakeholder satisfaction at the plant level).

As an another example of non-savings benefits, DSSI suggested that the company faced risk because they had no buffer of inventory for -- or means of replacing -- custom tooling in a timely manner. DSSI worked with the organization to introduce a tool crib solution -- which helped put the company at ease that they understood their business from a shop floor perspective. The company had planned to be "cost neutral" in their first year working with DSSI because of all the changes -- and non-price improvements -- involved, but by year end, had saved nearly half a million dollars.

In the technical area, this user was an Oracle shop (iProcurement on the requisitioning front) and DSSI integrated its own procurement tools directly with Oracle. DSSI was able to modify the approval structure in EPIC (its own eProcurement toolset) in four days to mirror their customer's custom Oracle environment. The organization now receives consolidated invoices from DSSI on a weekly basis. They have also seen a reduction in p-card spend as a result of the program.

Spend Matters believes that DSSI's ability to build empathy with their clients on the shop-floor level is a differentiator that is clearly serving the provider well in the industrial manufacturing sector. Stay tuned as we conclude our series on DSSI.

Jason Busch

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