Collaboration with suppliers is on minds of MRO buyers
Purchasing professionals and industrial distributors learn more about strategic sourcing at the Institute for Supply Management’s Ninth Annual Indirect MRO Group conference held recently in Chicago.
By Susan Avery -- Purchasing, 12/14/2006 2:00:00 AM
It appears that it's no longer a question of whether MRO buyers and their supplier partners will collaborate to resolve issues surrounding the maintenance, repair and operations (MRO) buy. Now, it's more a matter of how much impact the relationship has on the companies' bottom lines.
Such was the thinking—and line of discussion—to emerge from the Ninth Annual Indirect-MRO Group Conference and Workshops held recently in Chicago. The Indirect-MRO Group is an affiliate of the Institute for Supply Management and arguably sports one of ISM's more active memberships.
More than 200 MRO and indirect purchasing professionals, distributor executives and others attended the event which included as speakers: a member of Purchasing's 2005 MRO All-Star Buy team, Jason P. Trevison, senior technical buyer and BMW Procurement Systems, BMW Manufacturing Co.; Deb Oler, vice president of sales at Grainger in Lake Forest, Ill.; Tim Underhill, president of Strategic Business Solutions in College Station, Texas; and Richard Palmer, professor at Eastern Illinois University in Charleston, Ill. and an author of the 2005 Purchasing Card Benchmark Study.
Clare Donnalley, marketing manager at CAPS Research of Tempe, Ariz. was on hand to provide insight into the organization's market basket of goods price indexing for MRO items. The market basket provides benchmarking data for such items as Square D circuit breakers, GE fluorescent lamps and Gates belts gathered from such companies as Intel, Honeywell, Texas Instruments and others. CAPS Research is jointly sponsored by ISM and Arizona State University.
Also at the conference: Michael Smith of Western Carolina University assumed chairmanship of the MRO-Indirect Group from Joel Thomas who is retiring from the post. Thomas is continuing to organize the conference for the group, however.
At the BMW Manufacturing Co. plant in Spartanburg, S.C., the company has integrated procurement best practices with its ERP system (SAP) to automate its processes for managing capital equipment and operating supplies and services buys. These include blanket agreements, spot buys, recurring payment and punch-out catalogs.
Conference attendees were especially interested in the session and posed questions to Trevison on a new supplier rating system using data generated by the ERP system that measures and drives performance improvement of strategic suppliers and commodity groups that he and a team of professionals at the plant have developed. The system also tracks nonconformance to bring visibility to total cost of ownership (TCO). They are piloting the process with 200 suppliers, with a launch scheduled for January 2007.
Grainger's Oler addressed the group on unplanned purchases, a long time bugaboo of MRO buyers. Research conducted by Oler's team shows that more than 40% of MRO dollars are spent on unplanned purchases. Using the research, she showed that most of these are non-routine, one-time buys and are typically sourced from many different suppliers. The purchase process is also long and costly.
Oler suggests purchasers consolidate unplanned buys in a separate category or commodity bucket and presented examples of Grainger customers doing that—including one that cut costs by $250,000 on a $1 million annual MRO budget.
Underhill, who consults with both purchasing professionals and distributor executives, seemed to pull together a theme of the conference through his session entitled “Total Cost: A Real Opportunity to Save.” Presenting with purchasing professionals from ITC Transmission, he demonstrated ways purchasing and suppliers work together to impact the bottom line by reducing costs, increasing revenues, minimizing risk and improving performance. ITC Transmission tracks this impact through software developed by Underhill called SourcingStrat.
Managers of purchasing card programs position card use. The payment method is key to continued growth, Palmer told MRO buyers attending his session. These Pcard program managers use data generated by the tool to manage their companies' relationships with suppliers as well as a means to negotiate more favorable contract terms, he said.
According to results of the benchmark study which Palmer developed with Mahendra Gupta, respondents expect to increase spending on the cards (87%) and to work toward improved acceptance of the cards by suppliers. Average monthly spend per card is $1,831. Organizations that have reduced card distribution have not performed as well as those that have maintained or increased distribution, he added.
“Price and Cost Analysis for Indirect Supply” was the topic of a pre-conference workshop led by Lee Buddress of Portland State University in Oregon. Joe Rice of Benedict Negotiating Seminars conducted a post-conference workshop on “How to Professionally Prepare for any Negotiation.” Exhibitors at the event included Fastenal, Rockwell Automation Systems, Cribmaster and Precision Industries.
For information on ISM's Indirect-MRO Group, go to www.indirectmro.com.
Related stories:
On BMW:
The making of a champion
BMW procurement system streamlines the MRO buy
On Grainger:
Grainger opens branch in China and makes progress on expansion
Grainger announces biggest product expansion in its history
Grainger takes new look at unplanned MRO purchases
Grainger spruces up branches; now has retail look and feel
On pcards:
To save more, distribute more cards, study says
On Fastenal:
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