MRO Sourcing: Knowing When to Partner with Distributors and Integrated Providers

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.

Perhaps the most challenging and vexing quadrant in Peter Kraljic’s famous sourcing 2/2 matrix is the lower right, which is often known as “bottleneck” spend. These are items that are often difficult to address through more common sourcing, partnering, or automation approaches, hence the “bottleneck” label. Within the MRO sourcing world, we refer to the types of activities that procurement organizations should pursue as “Analytics, Demand Management, Customer Experience, and Supplier Partnering” opportunities.

But how do these activities translate into specific sourcing strategies?

As we move to the lower right quadrant of MRO spend, it can make sense to outsource to an provider or aggregator such as Grainger for tail spend, among other areas (especially tail spend where a strong supplier or manufacturer preference already exists). An aggregator can also provide preferred buying channels, creating a way to meter demand or make it easier for users to “do the right thing.”

These approaches can take the shape of new buying interfaces on a heavily curated punch-out 
site or supplier catalog (or catalog of catalogs), mobile interfaces, and new kiosks that serve to dispense a given item at the point of purchase, based on employees swiping their badges in a self-service environment to get a SKU out of the machine (e.g., safety supplies). It is likely that providers in this category can serve to manage supplier distributors as well, in an integrated manner.

In an excerpt of a Smart Cube report recently shared with Spend Matters, MRO Integrated Supply in North America, there are other recommendations made for this segment of spend, including working closely with integrated suppliers on the following:

  • “Assessment and analysis of MRO materials usage and optimum inventory levels”
  • “Planning and forecasting of MRO materials requirements and optimum stock levels (identification of minimum and maximum required stock levels for each item)”
  • “Storeroom redesign and SKU standardization”
  • “Customization, installation and maintenance of inventory dispensing systems for often-used MRO items, consumables, and low-value items (e.g. vending machines for PPE equipment and items such as bolts, nuts, and bearings)”
  • “On-site inventory management personnel—to check inventory levels and place product orders (approved by the client company)”
  • “Inventory management IT systems that can be integrated with the company’s internal systems”

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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