We reveal the biggest challenges facing indirect procurement professionals and how to tackle them
Recent research by RS and the Chartered Institute of Procurement and Supply (CIPS) of procurement and supply professionals has helped define the biggest difficulties faced in the maintenance, repairs and operations (MRO) procurement process. Asked what were the key pressures that impact indirect purchases, by far the most common response was “reducing operational budgets” (57%), while “cutting inventory costs” came next (40%). In terms of day-to-day challenges facing procurement and supply professionals, the top response was “maintaining ageing assets” (49%).
We asked RS President for EMEA, Mike England and CIPS Head of Knowledge Helen Alder to share their top five tips on how to get around these issues.
1) Reduce operational budgets
“Organisations need to start moving away from a reactive unplanned maintenance environment and towards planned and preventative maintenance,” says England. “It is possible to reduce inventory costs by working with a smaller group of suppliers that can provide all of the products a business requires and deliver these when their maintenance teams need them – this reduces the need to hold items on site.
“Making these changes will require systems investment and a culture change within organisations,” he adds. “Equally, the different functions within those businesses, whether it is procurement, engineering, operations or finance teams, have to come together and look at the issue as a whole team rather than in isolation.”
"Different functions within businesses have to come together and look at MRO spend as a whole team rather than in isolation"Mike England, President EMEA, RS
2) Review inventory management
“Traditionally in indirect procurement the focus has been on price,” says Alder. “However, people are getting better at looking at the total cost and realising that the price paid amounts to only a percentage of the overall cost.
“If you can reduce the inventory to the minimum required, that’s a massive win. Procurement has a crucial role in expanding into supply chains and looking at efficiencies and lean supply, which make up the big picture of costs.
Organisations should also look at the levels of stock they hold, according to Alder. “There is a danger that companies end up holding lots of stock ‘just in case’ one of their ageing assets fails in some way and the parts aren’t available,” he says. “This ties up working capital and warehouse space, which is not efficient.”
Mike England believes your choice of supplier is key. “Using suppliers that can create a dynamic inventory profile to support their customers will help in this area. In addition, when suppliers are chosen it’s crucial to look beyond the cost price of products – reliability and speed of delivery are as important, if not more so.
"If you can reduce the inventory to the minimum required, that’s a massive win"Helen Alder, Head of Knowledge, CIPS
3) Improve asset management
“Short-term, good delivery lead times on parts will help businesses with ageing assets, but long-term companies should start to think about retrofitting these machines with sensors to help them move along the predictive maintenance journey,” says England. “In the future, more companies will start to deploy smart asset management technologies – allowing them to monitor ageing assets and start to predict failure more readily.”
“If an ageing asset uses parts that are at risk of becoming obsolete, they may need to look at a way of amending that asset so that it can take more current parts or it may be more viable to replace assets with new equipment,” adds England. “All of this needs to be looked at as part of a long-term MRO strategy so that the organisation can choose the best option.”
4) Consolidate suppliers
“Most of the larger customers we operate with can have more than 1,000 suppliers for indirect materials,” says England. “They have thousands of products across an average of 40 different categories, from electronics to industrial supplies to services. Operational efficiency and inventory are the two areas where businesses are recognising that there is the biggest opportunity to reduce cost.
“Vendor consolidation is one key way of helping businesses to reduce costs, so larger companies are looking to deal with fewer vendors more efficiently. Once they’ve consolidated supply, it is about looking for those vendors that not only have the product range and depth to consolidate, but also the digital platform and services to enable more integration so that process costs are reduced.”