While streamlining the end-to-end procurement process is the top priority for most procurement professionals, many companies are taking the wrong approach according to RS’s Jarn Gill
A recent survey of procurement professionals conducted by RS Components via Supply Management Insider magazine provides an interesting snapshot into the issues facing the profession. When asked what was the most important issue they faced, 43% of respondents stated that they wanted to “simplify the end-to-end procurement process” – the most common response received.
RS’s head of corporate sales, Jarn Gill, believes that this matches what he and his team hear on a regular basis when talking to customers in procurement departments across a wide variety of industries. “It comes as no surprise to me that simplifying the end-to-end procurement process was the top priority in the survey,” he says. “It’s a common conversation we are having with procurement departments around the UK, however our experience is that we often need to talk to customers about how they should have a different process for indirect or MRO procurement compared to what they have set up for direct procurement.
“Businesses need to differentiate those two distinct areas of procurement first, and then it is possible to start simplifying the process.”
"Because MRO procurement is so complex, trying to apply direct procurement principles actually makes the situation worse"Jarn Gill, Head of Corporate Sales, RS
Gill points out that in many cases the hard work has largely been done when it comes to direct procurement, but there is still a long way to go in MRO spending. “Broadly speaking, if you look at the average procurement department’s journey over the past five to seven years, they will have made a significant number of savings through improvements to their direct, high-volume procurement process,” he explains. “They will have improved their supply chain overall, reduced risk and made the whole end-to-end process more visible.
“However, what we’re finding at RS is that many of those procurement teams are trying to use the same methodologies and successful practices that they incorporated for direct procurement and apply those to indirect, MRO procurement,” he adds. “Unfortunately, because MRO procurement is so complex in itself, trying to apply direct procurement principles actually makes the situation worse.”
Introducing a different approach
The reason for this different approach being needed comes down to the sheer number of people involved in the buying process, according to Gill. With MRO spend, there is a large number of “decision-makers” when it comes to purchases. These may be people in the procurement department but in most cases it comes down to managers or individual engineers on the shop floor – this is in contrast to large purchases made in direct procurement, which tend to be made by just the procurement department.
“This means that for indirect spend, the choice of supplier, price agreed, deliver time and various other factors are often devolved to individuals around the business,” says Gill. “As such, you need a process and a strategy that is aligned to this and takes it into account.”
The positive news from the RS procurement survey is that the vast majority of respondents are looking at technology to help with the problem. An impressive 93% of those who said they wanted to simplify the end-to-end procurement process said that technology had a partial or critical role to play in organising MRO spend.
Furthermore, 41% of respondents said they were actively looking to develop solutions, with 37% saying they were considering solutions. In addition, 61% said they were using eProcurement to place orders. Gill believes that these are signs that companies are taking the right steps.
Take advantage of technology
“It’s hugely encouraging that our survey suggests the majority of people are looking at technology to help improve their process because digital and eProcurement solutions, when used correctly, can be a massive help,” he comments. “This can range from new systems that take some of the time out of ordering, right through to the introduction of Industrial Internet of Things technology that will see self-diagnosing machines that can order replacement parts autonomously. All of these things are part of the solution and will help companies to simplify their MRO procurement process.”
"Our experience is that customers that use eProcurement correctly will achieve savings in their procurement process across their supply base"Jarn Gill, Head of Corporate Sales, RS
Gill believes that once companies have the data created through eProcurement, they can look at the items they order regularly versus one-off purchases. “This allows people to identify which products they need to keep in stock and which they can simply order from a supplier such as RS to deliver as and when they need it,” says Gill. “This frees up storage space and avoids capital being tied up in unused products. Companies should be working with suppliers – we can do an audit of stock and look at the data around orders to help clearly show what is needed on site and what isn’t.”
Gill also has a clear message for companies not yet using eProcurement: “I would encourage the 39% that haven’t embraced eProcurement to strongly consider it for the future,” he says. “Our experience is that customers that use eProcurement correctly will achieve savings in their procurement process across their supply base. It helps to funnel purchases through agreed suppliers, which gives procurement more control (and detailed information on spending) and allows them to rationalise suppliers over time and achieve even greater savings.”