Grainger takes new look at unplanned MRO purchases
Buyers: Consolidate category to cut costs
Staff -- Purchasing, 9/1/2005 2:00:00 AM
With its market expansion under way, Grainger recently has spent time talking to its customers to get a better handle on the way they purchase MRO items. The distributor is using the information to develop its Grainger Value Advantage program to help customers optimize unplanned MRO (maintenance, repair and operations) purchases.
"Our findings were not surprising," says Deb Oler, vice president, sales and marketing operations, W.W. Grainger, Lake Forest, Ill. "They validated some of the things we were seeing." Oler and her team surveyed and met with MRO buyers at companies considered by the distributor to be some of its larger customers. Eventually this team evolved into a group of consultants that now work with customers through Grainger Value Advantage to help leverage unplanned MRO buying activities.
From their research, Oler and her team learned that many Grainger customers had strategic sourcing initiatives in place, but they do not extend to the indirect buy. They also found that customers needed help most with two big indirect buying categories: MRO and office supplies.
Through behavioral analytics they also unearthed procurement tendencies or ways that MRO purchases work. The team discovered that there are literally hundreds of thousands of products that can be considered MRO; these products keep manufacturing facilities up and running. Of this category of products, MRO buyers consider about 40% spot buys or unplanned purchases.
"One of the key learnings for us is that unplanned buy really means infrequently purchased," says Oler. And the purchase is unplanned not because someone isn't a good buyer or maintenance professional. It's unplanned truly because of the way the item behaves in the facility. She uses an elevator's up and down button as an example—neither purchasing nor maintenance plans for the button to go out and when it does, purchasing typically needs to place an order for the item if it's not found on a storeroom shelf.
"As we dug into this, we learned another interesting fact," she continues. "If you look at any facility and take a snapshot of its purchases in a year, you find that 90% of the items are purchased fewer than five times a year. In the following year, 65% of the items were not repeat purchases. Again, it has nothing to do with purchasing or maintenance practices. It has to do with the way the item behaves in the facility."
Oler and her team are working with customers to help them understand this. In their conversations with customers, they learned that MRO buyers are having trouble with contract compliance and that most problems are related to unplanned purchases. "Suppliers that are really good at planned purchases are doing exactly what they say they are going to do," says Oler. "It's all the little infrequently purchased odds and ends that are hanging everyone up."
The team measured costs of un-planned MRO purchases. They mapped the MRO buying process, including numbers of people and suppliers associated with it. "It isn't unusual for us to find that a purchasing operation may have up to 200 MRO suppliers," says Oler. "The purchase process is very costly because someone has to spend hours tracking down the item." This holds true for most MRO buying operations.
Using the example of the elevator button, the team finds that users at customer companies typically contact purchasing's preferred MRO supplier for the item when they don't find it on a storeroom shelf. If users have to wait for delivery they may contact several other suppliers until they find one that has the item in stock. Not wanting to be in this situation again, the buyer may order several of the items and put them on a shelf in a storeroom. "It's the absolute wrong thing to do with unplanned MRO," says Oler. "They may not use that item again for another two or three years, which can add up in inventory costs."
She says that if MRO buyers are ever going to optimize the category, they have to treat it as just that—a category.
To help MRO buyers reduce costs associated with unplanned MRO purchases, Grainger, through its Value Advantage program helps map out their processes and identify within their systems, items that are infrequent and unplanned so they can inventory them differently. For many customers, they were able to demonstrate 25-40% savings on inventory alone. Other areas for savings include streamlining the purchase process so there are fewer people involved and suggesting alternative products.
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