Critical Information for Market Testing MRO
MRO should be a simple category for delivering savings through spend consolidation. There are plenty of distributors ready to compete for your business, and at least a handful can offer the range of MRO items and services you need.
But, there are two things that typically get in the way of MRO savings.
First, most corporate (or division) purchasing teams don’t know the services that are provided by MRO suppliers at each plant.
They don’t know which plants rely on their suppliers for services such as:
- Self-service portal for administering safety shoes
- Sharpening and recycling for bits and blades
- Electronic catalogs of standard items
- Vending machines and cabinets
- Vendor-managed inventory
- Online ordering portals
- EHS training content
- Expedited delivery
- MRO crib staffing
Without knowing precisely what plants need, they can’t find suppliers that can fulfill all that is required. There is a big risk that an MRO market test will results in suppliers that just aren’t going to deliver and plants will opt out of any consolidation initiative.
The second piece that is almost always missing is knowledge of the manufacturer and manufacturer’s part number for the items that are purchased repeatedly.
Distributors purposefully use their own item numbers on the items they deliver and that’s what gets entered into the ERP system. Without this item detail, you simply cannot conduct a market test of like items.
The result of these two roadblocks is that corporate/division purchasing teams will engage with one of the big national MRO distributors and negotiate a preferred pricing agreement. However, since they can’t promise a certain volume, the discount is nominal (don’t be fooled – like hotel rooms, the “list price” on MRO items is inflated to make it look like you’re getting a huge discount).
MRO savings projects that include these two vital pieces of information needed – specific services needed at each plant and manufacturer/part number for repeat buy items – result in huge savings.
Here are a couple of examples:
- 8.5% net savings and increased service levels by replacing the primary MRO provider at a $1B commercial truck manufacturer
- 8% net savings and increased service levels adopting an MRO 3rd-party commodity manager at a $150M valvetrain component supplier
- 5.6% net savings at an electric steering supplier that needed to fire their 3rd-party commodity manager and source MRO internally
Done correctly, MRO savings projects can be completed quickly. With the right approach to identifying plant service needs and manufacturer/part number for repeat buy items, these types of MRO savings projects can be completed in 13 weeks and 4 months.
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