Purchasing pros build a strong case for centralizing MRO buying
ISM Indirect-MRO group conference review
By Susan Avery -- Purchasing, 11/15/2007 7:00:00 AM
Centralizing the MRO buy is an issue long debated in purchasing circles. It resurfaced again during educational sessions and informal networking at the 10th Annual Indirect-MRO Group conference held in Chicago in September. The Indirect-MRO Group is an affiliate of the Institute for Supply Management (ISM). MRO stands for maintenance, repair and operations.
Tim Underhill, president of Strategic Business Solutions, gave the keynote address in which he talked about "Managing the Forces of Change," referring to the "Managing the Forces of Change: Lead the Way in the Supply Chain" study published earlier this year by Adam Fein, president of Pembroke Consulting in Philadelphia. Underhill also referenced Purchasing's 2006 MRO Indirect Strategic Sourcing Benchmark Study, which the magazine conducted for 3M, as a source for many of his remarks.
Of his research, he says that strategic sourcing is a key topic, and a best practice identified in the Purchasing study. "No one in an organization is not impacted by purchasing or suppliers or supplier performance. In fact, some key suppliers impact everyone in the organization," he said.
Underhill went on to tell conference attendees that suppliers can help them attain competitive advantage through innovation, but they need a forum. "That's what strategic sourcing is all about, trying to work with suppliers differently to reduce costs and improve productivity."
In his talk, he also mentioned that 88% of companies with world-class buying operations are moving toward centralized purchasing, another best practice cited in the Purchasing study.
Picking up on the theme, Gordon Walsh, regional director, the Americas, Delphi Corp. in Troy, Mich., told attendees how he and his team are transforming the indirect purchasing operation at his company. When he assumed his current position in 2004, indirect purchasing was called "nonproductive" purchasing, and it was a place where people went as they neared the end of their careers, he said. Not anymore.
As a way to help the automotive supplier get out of chapter 11 bankruptcy quicker, Walsh, with support of top management, led such activities as centralizing indirect purchasing, maximizing leverage opportunities, continuing a Lean manufacturing transformation, meeting corporate governance requirements such as Sarbanes-Oxley, and optimizing the supply base to reduce complexity.
He introduced commodity management to the company's indirect purchasing operation, with such categories of spending as industrial supplies, facilities services and machinery and equipment. To free up purchasing pros to spend more time on strategic activities, Walsh helped move many tactical tasks to a new Operations Process Center located in Mexico that handles purchasing transactions. Some buyers who were at the company's plants now work in the new central indirect purchasing operation.
"The Process Center works very well, and was created with Lean concepts in mind [ridding the purchasing process of waste]," he says. "Now, commodity managers are working to better understand what we buy and who we buy it for." To do that, they now travel to the plants, walk the floor and meet with internal customers.
Deb Oler, vice president of sales at Grainger, led a panel discussion on "Critical Issues and Trends in Indirect MRO." On the panel were Carl Mauer, sourcing manager for the manufacturing division at Merck, and George Pfeiffer, vice president of strategic contracting at Avendra.
Pfeiffer spoke on the topic of "Making the MRO purchaser a hero." Avendra is an independent procurement services company owned by Marriott, Hyatt, IHG, Fairmont and ClubCorp. that sources such indirect goods and services as food and beverages, linens, engineering items and elevator maintenance for these organizations.
When Avendra enters into negotiations with suppliers on behalf of these companies, Pfeiffer puts together a team of representatives from each of them. "We bring ideas to the table and partner with the best MRO suppliers," he says. The panel, which included several executives from Grainger, discussed topics that included Lean procurement, green buying, and e-commerce tools.
In response to requests from MRO purchasing pros at the Indirect MRO Group's event last year, Joel Thomas, conference chair, invited Mike Filitti, senior buyer, MRO with Alliant Energy, and a member of Purchasing's All-Star MRO Buy team for 2006, to speak and essentially provide a roadmap for creating an MRO buying operation. Following Six Sigma principles, Filitti created an MRO purchasing team and entered into contracts with 17 MRO suppliers. Using e-procurement software from Ariba, he's helped to deliver 10–50% savings, depending on commodity, to Alliant. That's $2.5 million on a $15 million annual spend since 2005.
Back by popular demand were indirect-buy roundtable discussions. These discussions focused on such topics as negotiation skills, services sourcing, metrics and measuring in the MRO world, management support for change and MRO materials outsourcing.
Suppliers that had table-top exhibits at the conference were: Cribmaster, Dolphin Safe Source, Storeroom Solutions, Turtle & Hughes Integrated Supply and Vinimaya.
Chairman of the Indirect-MRO Group, Michael Smith, Ph.D., Western Carolina University, was on hand to welcome attendees to the conference. "Indirect purchasing can be a core competency," he said. "It's a competitive advantage for many organizations. It has tremendous potential." Approximately 200 purchasing professionals were at the event and were able through the presentations to see just that.
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