A new dimension in MRO
Successful at leveraging the buy, purchasing is being asked to take on more responsibility for MRO and is, in turn, looking to distributor suppliers to help share the load.
By Susan Avery -- Purchasing, 11/15/2007 2:00:00 AM
Purchasing's role in MRO is growing.
Purchasing operations increasingly are being asked by top management to take on more responsibility—in some cases, for tasks that are entirely new to them. And they are looking to their distributor suppliers for help.
David Stockwell, MRO category manager at Saint-Gobain Containers in Muncie, Ind., and a member of Purchasing's All-Star MRO Buy team for 2007, is a case in point.
Stockwell is responsible for purchasing and inventory management for storerooms at Saint-Gobain Containers' 14 plants in the U.S. He routinely looks to his company's preferred distributors for help with vendor managed inventory (VMI), and he's negotiated buy-back (of surplus inventory) programs in his company's agreements with the suppliers. He also is working closely with one preferred distributor, Motion Industries in Birmingham, Ala., and one of its motor suppliers, Baldor in Ft. Smith, Ark., on ways to better manage the U.S. plants' energy usage.
To be sure, MRO purchasers and industrial distributors have long been working to reduce costs along the supply chain. They've streamlined processes and introduced new tools such as p-cards and e-procurement systems to get rid of much of the paper usually associated with placing orders for and receiving MRO items.
Using these tools generates data with which purchasers are analyzing and managing spending. With the data in hand, they've consolidated the MRO buy and negotiated national or even regional or global agreements with distributors, helping their companies to further reduce costs.
As part of these agreements, the distributors are providing their customers with a host of services. According to Industrial Distribution magazine's 61st Annual Survey of Distributor Operations, distributors offer technical/product support, faster delivery and employee training as a matter of course. They also offer cost-reduction assistance, inventory management and consulting services.
More responsibility
Now, however, "procurement at best-in-class companies is getting more and more responsibility for the entire value chain, and they are driving activities in nonprocurement areas such as inventory and storeroom management, warranty management and demand management," says Dale Flanders, global category manager—MRO, Procurement Solutions at Accenture in New York.
As he sees it, purchasing is leading these activities and working internally not only to reduce waste and cost in the processes, but also to add value directly to the company's bottom line. He borrows the term value chain or stream from Lean manufacturing thinking. While at some companies, the term is used in purchasing to describe processes for direct materials, increasingly it's being applied to indirect materials as well. For MRO, the value chain consists of such processes as sourcing, contracting, order tracking, receiving, distributing and rationalizing and simplifying, among others.
Schneider Electric North America Operating Division in Palatine, Ill., is one company that is extending Lean thinking to purchasing, including indirect goods and services and MRO. Jeff Wood, vice president of supply management, says he and his team "are working with key suppliers to ensure supply availability, improve total cost and identify innovative ways to create competitive advantage for customers."
Cost-reduction opportunities
They've mapped out the value chain and find in purchasing "that there tends to be more opportunity to reduce cost outside the price of the item," he says. "Mapping also provides a nice picture of complexity and waste."
One area where Wood and his team are taking ideas from Lean and applying them is at the company's facility in Mexico City, where they've entered into an agreement with Grainger through which the distributor is staffing and managing inventory in the storeroom. Having one supplier handle the processes reduces both complexity and waste, he says.
Whether companies choose to categorize these moves by purchasing into new areas associated with MRO as part of a formal Lean program or not, there's no denying that MRO buyers today are more involved in activities that add to their companies' bottom lines such as inventory management, environmental management, demand management (consolidating on number of items available to purchase/standardizing) and other programs.
At Ash Grove Cement in Overland Park, Kans., Gene Brieck, director of purchasing, has invited his company's bearings and power transmission products distributor to "bad-actor" meetings held at the plants. As part of Ash Grove Cement's preventive maintenance program called Maintenance Excellence Process, plant personnel meet regularly to trouble-shoot and look for the root cause of problem parts, be it a haul truck in a quarry, a piece of process equipment or a drill press in a machine shop. "After attending the meetings, the distributor will, in some cases, turn to its resources, the manufacturers, to help resolve the issues, with the goal of getting the part off the bad actors' list," says Brieck, who was named to Purchasing's MRO-All Star buy team in 2004.
Managing inventory and more
Pat Davidson, senior vice president of sales and marketing at Grainger in Lake Forest, Ill., says that the distributor is called upon often by MRO purchasers at companies for assistance with managing inventory. He tells of one agreement with a large food and beverage company that covers multiple plants.
"As the company was implementing the agreement, the facility manager at one site asked for some extra help. He told our rep that, in addition to the MRO items he needed, he also wanted us to provide him with all the racking and storage equipment to set up the storeroom. For him, getting the place up and running was his most critical objective and he realized he could take advantage of his company's national agreement with us."
Graybar, brings its manufacturer suppliers in when conducting energy audits and at other times for its customers. Tim Muldoon, strategic account manager at Graybar in St. Louis, recalls working with a customer to consolidate its buy with the distributor. The customer had more than 40,000 SKU (stock keeping unit) numbers at more than 50 plants in the U.S.
"They asked us to work together to standardize the parts down to a smaller subset of those SKU numbers," he says. "We made recommendations and went through the products making sure the customer was comfortable with the new products. Once we agreed, we rolled out a new program nationally that reduced the number of SKUs to 10,000. We're in the process of quantifying it. Early estimates point to a cost savings of about 3%."
USG Corp. in Chicago has two types of agreements with suppliers—exclusive/strategic and nonexclusive/preferred. Matthew Haughton, manager of indirect materials and services, says that under exclusive agreements, his team focuses on developing a collaborative relationship with the supplier at both the corporate and local levels to reduce costs and improve operational performance. Nonexclusive agreements are similar, but differ in levels of participation and requirements.
Haughton is working on a demand strategy program that focuses on item standardization. "Our strategic suppliers provide valuable insight and assistance in the analysis of form, fit and function interchangeability," he says. Already, they've reduced the number of office supplies they buy from 5,000 to 1,400.
Ashgrove Cement's Brieck has consolidated the company's electric motor buy to a single brand. The company, which has more than 14,000 electric motors in operation at any time, had previously been using eight or nine different brands.
"We sold the program to the plants based on the fact that the new high-efficiency motor is going to improve our reliability," he says. The manufacturer tracks the purchases, calculates energy savings and reports to Brieck each quarter. He, in turn, relays savings figures back to the plant locations.
| Source: The 61st Annual Survey of Distributor Operations, Industrial Distribution magazine | |
| Technical/product support | 84% |
| Employee training | 65% |
| Cost reduction assistance | 55% |
| Inventory management | 52% |
| Consulting services | 46% |
| Consigned inventory | 45% |
| Kitting | 45% |
| Onsite storeroom/tool crib management | 34% |
| Plant audits | 32% |
| Extended warranties | 19% |
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