What MRO buyers need to know about global sourcing
Don’t try to force fit MRO sourcing strategy that works in the U.S.
By Susan Avery -- Purchasing, 1/6/2009 8:34:00 PM
Despite the challenges and risks, opportunities to extend sourcing strategy for MRO goods and services to other parts of the world are too enticing for buyers to pass up.
Purchasing professionals who have a good understanding of the total cost of ownership (TCO) are among those who will be most successful at global sourcing of MRO goods, says Dale Flanders, global category director for MRO at Accenture Procurement BPO in a recent interview with Purchasing.com.
In his work with purchasing professionals, Flanders helps source and deploy strategies across multiple regions, and has seen companies have some success with integrated supply agreements and negotiating agreements directly with manufacturing suppliers.
What doesn’t work, he said, is trying to force fit a strategy developed for sourcing maintenance, repair and operations (MRO) goods and services in the U.S.
One challenge is locating MRO suppliers with regional or global scope.
“You have to be really careful about it, because if the supplier is not capable of meeting your needs in a particular market, there can be real trouble,” Flanders says. “MRO is non-core, but mission critical for many companies, and because of that you have to be absolutely sure you have a supplier that can meet your service needs.”
As purchasing professionals with responsibility for MRO goods and services know, price makes up only about one-third of the cost. The remaining costs surround processes that deliver goods to the end user. So, Flanders explains that it is important for buyers to have a global MRO sourcing strategy that addresses how the company runs its storeroom and makes improvements in its operation.
“If you have good spend data that shows what you’re buying and who you’re buying it from, you still can drive tremendous value without that single integrator or distributor across different regions of the world,” he says. “Best practice companies are trying to drive common practices that address the other two thirds of MRO costs.”
Integrated supply is one approach MRO buyers are taking.
A recent article in Purchasing, Integrated supply offers opportunities, limits, defines integrated supply. Under an integrated supply agreement, providers work closely with MRO buyers to eliminate and/or streamline non value-added activities in the process of acquiring and disbursing indirect items.
Other buyers are extending sourcing strategy for MRO to other regions by negotiating agreements with global manufacturers, a practice that isn’t common in the U.S. where purchasing views distributor suppliers as partners and relationships between the two tend to be strong.
“Purchasing understands the value of distribution,” Flanders says. “It’s not like that in other parts of the world. Typically in the U.S., buyers don’t purchase MRO items direct from the manufacturer. But a company based in a European country that has a significant spend will go directly to the manufacturer.”
He cited cutting tools and bearings as examples of products that lend themselves to this strategy. “Manufacturers will want to negotiate agreements for each region,” he says. “But depending on leverage, a buyer can push back on this.” As in the U.S., buyers then can purchase the items through distribution.
See also: MRO buying gets strategic
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