Michael Parson and his team continue to build a supply chain management strategy for maintenance, repair and operations (MRO) goods and services at the United States Postal Service (USPS). First, they used an eight-step strategic sourcing process to purchase custodial and MRO supplies. Then, they took on purchasing responsibility for some MRO services, namely elevator maintenance and power distribution systems.

It wasn't an easy task. Parson, who was a speaker at this year's ISM Indirect-MRO Group conference in Seattle, leads a small team of nine purchasing professionals at the Postal Service's Environmental and MRO Category Management Center in Dallas. The team is responsible for sourcing MRO products and services— a $296 million annual spend for 38,000 postal facilities in the U.S. Most recently, the team has been working with suppliers to get materials and services to USPS facilities in Louisiana and Mississippi hard hit by hurricane Katrina.

That's not all. The MRO team is taking a new look at optimizing its supply base, with an eye toward including more diverse suppliers. Its supply chain management model continues to mature; now the team is involved in such activities as supply chain integration, supplier performance measurement, value engineering, and customer relationship management. It is also working more closely with key suppliers; Parson is represented on an advisory board at one power distribution services supplier to the USPS.

Two years ago, Parson and his team were profiled in PURCHASING for working with custodial suppliers to develop new products for the USPS (PURCHASING, Oct. 9, 2003; p. 15). These partnerships are still on track, and together the team and the suppliers continue to meet cost savings targets. For custodial products, an $85.6 million annual spend, the team reduced costs by about $16 million in 2004. PURCHASING named Parson to its MRO All Star buy team in 2003.

These activities are part of a Transformation Plan and Breakthrough Productivity Improvement Initiative unveiled by the Postal Service in 2002. The initiative, put in place to better manage costs, includes adopting more aggressive purchasing strategies such as those practiced by many U.S. businesses to leverage the enormous purchasing power of the USPS.

In 2002, Parson and his team assumed purchasing responsibility for two big MRO services spends—elevator maintenance and power distribution systems. Their mission: to strategically source what until this time, was mainly a transactional buying activity for the Postal Service. For 2004, they helped reduce costs of these services by more than $2 million on an annual spend of more than $11 million.

Until that time, purchasing service centers were handling elevator maintenance service. The USPS had some 200 to 300 contracts. After evaluating the spend, the team decided that it would manage a master ordering agreement for elevator maintenance with three suppliers.

The team worked to create a standard USPS process for purchasing elevator maintenance service to leverage the spend. "There were so many different ways that we were performing elevator maintenance," says Parson.

Personnel at some facilities told the team that they were not receiving enough maintenance while others were being serviced beyond standard requirements. The team benchmarked against industry standards and selected what they thought to be best practices.

"Now we look at the function and categorization of the service," says Parson. "We have both freight and passenger elevators and escalators. Each is critical to our operation." Now, the USPS has a performance-based statement of work for every postal facility in the U.S. There are more than 900 units under the contract.

"Once we did this we could go back to the supplier and talk about leveraging volume," says Parson. "We could talk to them about process redesign, and that helped us to reduce costs."

For the Postal Service's power distribution maintenance services buy, requirements differ from one facility to another. Some facilities were not doing preventive maintenance, while others were overdoing it. Parson and his team worked to redesign this process as well. Now, service providers are geared more toward performing standard predictive maintenance.

"Instead of putting a schedule in place that states the service provider will come to a facility x amount of times in a year to perform a list of requirements, we now use sophisticated diagnostic tools that alert us when something is wrong," says Parson.

The team's next task was to create a process for the facilities to place orders electronically for power distribution systems services using an internally developed online catalog called eBuy. Putting a services buy online can be a challenge to purchasing organizations because of the variables involved in the process. With power distribution, there is a number of different pieces of equipment on which service providers perform certain maintenance services. The Postal Service has about 28 major pieces of power distribution equipment; there are more than 100 different tasks that can be performed on them.

"What makes it difficult," Parson says, "is that we don't have to perform the same services on each piece of equipment." He and the team set up a matrix with horizontal and vertical boxes. When a Postal facility requires maintenance service on a piece of power distribution equipment, the requisitioner simply checks off the appropriate boxes.

In the past, contracted suppliers were influential in determining what a facility needed to service or overhaul. The USPS separated these duties. The Postal Service's contracts do not cover major overhaul and repair. This activity is under different contracts. The team narrowed the scope and clearly spells out service requirements in a power distribution maintenance handbook. The supplier uses the same guidelines.

At a facility, the supplier takes an inventory, identifying equipment and creating a baseline according to the minimum requirements in the handbook. Then, the supplier meets with the customer, who can ask for more than the minimum requirement. From the baseline the two negotiate the other requirements. This renegotiated matrix becomes the order form.

"The key is the supplier works with the customer to develop a profile, which becomes the order form," says Parson. "A guessing game doesn't take place." The facility places its order which is electronically transmitted directly to the supplier. The supplier performs the maintenance and acknowledges it online. The facility checks the invoice that is then sent to the Postal Service's payables office in San Mateo, Calif. The supplier is paid electronically.