Buyers learn from their distributors
Distributors do more than move products around. Their expertise at logistics can be invaluable to MRO buyers working to improve efficiency, reduce costs and ultimately improve the bottom line.
By Susan Avery -- Purchasing, 3/12/2009 2:00:00 AM
Supply chains for maintenance, repair and operations (MRO) goods and services are complex and differ from distributor to distributor. While purchasing doesn't need to be familiar with all the intricacies of how an MRO item gets from the manufacturer to the end user—that's the value of a good distributor—buyers can tap that logistics expertise to improve efficiency and reduce costs along the supply chain.
There's no time like the present, says Tim Underhill, president of Strategic Business Solutions in College Station, Texas. "With the uncertain economy, companies are focusing efforts on reducing costs."
As he sees it, managing the supply chain, or logistics, is about orchestrating relationships internally and externally for long-term performance, and he suggests that buyers and distributors collaborate "because suppliers have knowledge that can help make their customers' companies more profitable. They can help by decreasing costs or increasing revenue."
Buyers can begin at the start of the supply chain by leveraging a distributor's relationships with its suppliers and its knowledge of the products they sell. This knowledge can help with consolidating the supply base, a particularly vexing challenge when developing sourcing strategy for MRO.
By its nature, much of the MRO buy is unplanned, bringing the category notoriety for having many—sometimes thousands—of products and suppliers. As buyers know, reducing the number of suppliers a company does business with helps streamlines processes, enhancing productivity and reducing costs.
In the same vein, a distributor's relationships with its manufacturer suppliers can also help a buyer with efforts to standardize on product lines used by the plants. Purchasing fewer types of products helps lower inventory levels. It also can help better focus training activities.
Consolidating the supply base and standardizing products go a long way toward helping to decrease the number of transactions processed by purchasing and its suppliers, says John Mansfield, vice president of corporate accounts at Graybar in St. Louis. As he sees it, issuing transactions and processing them is an area ripe for purchasing/supplier collaboration and improvements can help to lower costs and improve productivity.
Mansfield offers up Graybar's expertise at helping customers to analyze the products they have on the shelves in the storeroom and the plant's real usage. With the data, "we would try to steer purchasing to our strategic suppliers that we know provide quality products at the lowest cost, and look for places where we can standardize."
His other suggestions for reducing costs associated with processing transactions for both the buyer and the supplier include converting from manual ordering to EDI (electronic data interchange) systems and implementing summary billing.
Tackling similar issues for its customers is Airgas in Radnor, Pa. Mike Molinini, COO and executive vice president, points to an internal program called Core Strategy II, through which Airgas provides its associates with additional training in customer service.
He explains that "while we think we are good at stocking, fulfillment and delivering on time, there are opportunities for us to make it easier for the customer to do business with us.
In his work with customers, Molinini is witnessing dramatic change in classic buyer supplier roles. "More astute buyers are looking to reduce total cost, not just purchase price," he says. "With these buyers we are collaborating and moving a lot of the work historically performed by the user to the supplier."
For Airgas, this can mean locating personnel onsite at a customer facility to manage the supply chain, inventory and the storeroom. When the onsite Airgas personnel identify opportunities for improving product application, they call in company specialists to recommend alternatives or to provide additional training.
Consolidating, expanding
Applied Industrial Technologies in Cleveland likewise is investing in additional training for its employees. And for customers looking to consolidate the supplier base, it continues to expand its product line, based in part on input from its customer advisory council.
The company started out in 1923 selling bearings and over the years has added power transmission products, electrical products, fluid power products and others and continues to expand that offering as customer needs arise. Applied also expanded its geographic scope and now does business in Mexico, Canada and Puerto Rico, a plus for customers with operations in the regions that want to do business with a preferred supplier from the states.
Applied and other industrial distributors can help MRO buyers bring benefits to their companies in unexpected ways. The company uses a dedicated, or closed-loop transportation system that delivers products from its distribution centers to its branches or stores. This way, it is able to deliver orders to customers even if they need them on the second or third shift.
"The supply chain has become more important in the business of how we move products from the manufacturer to the ultimate customer," says Jeff Ramras, vice president of supply chain management at Applied, explaining that the dedicated delivery system helps lower costs within the company's distribution centers and, even more important, helps improve customer service. Plus, there are environmental benefits for both Applied and its customers that are implementing green buying initiatives: The distributor uses reusable totes within its supply chain.
Grainger relies on the relationships it has with its manufacturer suppliers to expand its product line, an effort the distributor embarked upon five years ago to help its customers pare down the supply base.
"Our suppliers are great partners and play a lead role in helping us service our customers with a broad range of products," says D.G. Macpherson, senior vice president, global supply chain at Grainger in Lake Forest, Ill. "They've been critical in helping us identify gaps in our assortment to better serve our customers."
Addressing the issue of unplanned purchases, Macpherson explains that buyers don't want to hold safety stock or manage a huge number of suppliers, but timing is crucial.
To meet customer demand for one-stop shopping, Grainger recently added 64,000 new items to its 2009 catalog, including new electrical, metalworking, safety, HVAC (heating, ventilation, air conditioning) fleet management and materials handling equipment. All told the catalog has 240,000 MRO items.
Grainger also is expanding its operations globally to meet demand for its services in other regions.
Expect more value add from distributors
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