As OEMs spend significant amounts of money on MRO purchases, it's an area that companies should focus on to create a single strategy that creates efficiencies and saves money
The definition of an original equipment manufacturer (OEM) varies somewhat with the UK business landscape. But in most cases OEMs produce unbranded goods that are then sold by another company with a customer-facing brand. Like the rest of the manufacturing industry, OEMs are keeping a close eye on a range of external factors that have the potential to influence costs, demand and supply. As such, it's more important than ever to look at ways of creating efficiencies that will help companies remain strong through tough times.
The challenge around the Indirect procurement cost of Industrial supplies for Maintenance, Repair & Operations (MRO) is a constant. By getting this strategy right, it's possible to make significant savings and improve productivity across the business.
One of the biggest costs to OEMs is unscheduled downtime for plant equipment. “There are a number of reasons why you should have an MRO strategy,” says Helen Alder, Head of Knowledge at the Chartered Institute of Procurement and Supply (CIPS). “But probably the most significant is that among the products you purchase will be items that would cause your operations to grind to a halt if they go wrong and you can’t replace them quickly.
“Ultimately, the most important thing is to keep your business running,” she adds. “The answer is to have a reliable set of approved suppliers that you can trust to have the products you need in stock, at a price you are willing to pay and that can deliver when and where you need it.”
Reducing supplier numbers
There are also a number of ways in which MRO spend for planned maintenance can be improved. One of the most cost effective methods of MRO Procurement
relies on keeping suppliers numbers as low as possible, states Brendan Free, Industry Sector Manager at RS Components. Which means it's crucial the chosen suppliers have as wide a range of products as possible.
“It's important for OEMs to consolidate the number of suppliers they use so that they have better visibility and control over MRO spending,” he explains. “Right now, senior management or the procurement team may look at their books and see hundreds or even thousands of suppliers listed, with just a cost next to the name and no more detailed information than that. This makes it virtually impossible to analyse the value of those purchases and look at ways to make cost efficiencies.”
"OEMs need to consolidate the number of suppliers they use so they have better visibility and control over MRO spending"Brendan Free, Industry Sector Manager, RS Components
The reason for this situation is quite simple, according to Free. It comes down to engineers looking to make a purchase quickly and choosing a supplier they know but not looking at the big picture when it comes to an MRO strategy, regardless of any contracts that procurement have in place with approved suppliers.
“This sort of practice may seem harmless on an individual level,” says Free. “But I've seen companies that have 30 or 40 sites, and between those sites they have in the region of 10,000 suppliers on their books, which is incredibly inefficient and is almost certainly costing the business significant amounts of money that could be put towards the bottom line.”
Alder believes that “maverick” spend of this type also presents other risks to the OEM. “There’s the chance that buying parts from non-approved suppliers will cost more, and possibly take longer to source, but the biggest issue is the quality of the parts,” she says. “It’s not unknown for engineers to search the internet and buy parts that turn out to be counterfeit or that don’t meet required quality levels. Where you have these products going into machines with moving parts, you have potentially serious consequences if they go wrong.
"The only way to avoid poor-quality products is to work with trusted, pre-qualified suppliers"Helen Alder, Head of Knowledge, The Chartered Institute of Procurement & Supply
“Similarly to consumers, there are people who will look up items online, see a ‘too good to be true’ price and not consider the possibility that it’s counterfeit,” she adds. “The only way to avoid this is to work with trusted, pre-qualified suppliers that can prove the quality of everything they sell.”
Communication is key
So how do you get the message through to users that approved suppliers are a better choice? First, says Free, the procurement team needs to communicate with users to understand what sort of products they need and to ensure that the approved suppliers they sign contracts with stock all the parts that are needed. “It's not uncommon for me to go in and have meetings with groups of senior engineers at this stage to discuss which products they need and to reassure them that RS will be able to provide what they need,” he adds.
The next step is to make switching to approved suppliers as smooth as possible. “Through the use of integrated eProcurement systems like the one RS has, it's possible to make the ordering process really easy,” Free explains. “By streamlining ordering through technology it is much more likely that the user will be willing to change their habits.”
The other area where efficiencies can be made is through releasing working capital from items held in storage. “A number of companies in the OEM sector will have huge storerooms full of products that are purchased in bulk and stored for when they are required,” says Free. “It's important to realise that with a contracted supplier such as RS, you can simply order these items as and when you need them and hold the minimum of stock on site. This frees up working capital and space in your premise.”