MRO Sourcing: Dusting Off the Reverse Auction Engine

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.

When we consider the “leverage” quadrant for MRO sourcing (which we describe as best suited for strategic sourcing approaches, including reverse auctions), we tend to think of MRO spend as best suited to a competitive negotiation environment. There is often a significant amount of spend within a broader MRO procurement portfolio that can fall into this area.

Granted, the business still might go to an aggregator, but the sourcing strategy shifts from one of partnering, demand management, and efficiency to being centered on SKU/service substitution and direct negotiation, often for the highest dollar spend areas in which there is sufficient competition and coverage. In short, if you can model award decisions based primarily on basic total landed cost considerations alone, a direct negotiation approach, of the type that falls in this quadrant, can make the most sense.

It’s important to realize that this type of direct competition is not necessarily synonymous with reverse auctions. Multi-round RFPs and target costing for higher dollar value and volume line items can be an effective means of driving negotiated total cost savings in the “leverage” quadrant for MRO sourcing. Yet if your organization is positively inclined to use reverse auctions, this is certainly the only MRO area that is likely appropriate for it. It’s also critically important to remember that negotiated savings is never booked savings. Compliance (through P2P systems and catalog management) counts as much in the leverage category as any other area or segmentation of MRO spend.

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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