In a world of rapid change, supplier relationships have never been more important. But do Maintenance, Repair and Operations (MRO) procurement teams always know how to get the best from their suppliers?
Remember the days when you could just issue a request for proposal (RFP) and wait for responses to flood in? You can still do that of course, but you would be missing out on a world of innovation and resilience.
In 2022, the most effective MRO procurement professionals constantly seek new ways to partner with their suppliers to harness their capabilities and creativity. In the process they are transforming the nature of supplier management for good.
“We have introduced risk into supply chains, so we have to find new ways of working with our suppliers”Bernhard Raschke, Chief Transformation Officer, RS Group
“When it comes to the challenges we are facing, the first big thing is shifting supply and market dynamics,” says Bernhard Raschke, Chief Transformation Officer at RS Group. “We have introduced risk into supply chains, so we have to find new ways of working with our suppliers.
“Having a supplier who gives you a new way of working that drives productivity in your business and allows people to be more innovative is not just about innovation, it’s about improving your risk management, too .”
Of course, building strong supplier relationships can be quite a task if your organisation has multiple suppliers. The 2022 Indirect Procurement Report by RS and the Chartered Institute of Procurement and Supply (CIPS) found that UK businesses have an average of 80 MRO indirect suppliers. Average total indirect MRO spend is £2.5m.
“The number of suppliers is not as important as the quality of the relationships you have with them,” says Emma Botfield, Managing Director for the UK & Ireland at RS. “It’s about building trust so that suppliers can understand your business culture and bring new ideas to help you optimise your MRO procurement.”
The report also revealed a subtle change of emphasis among the 83% of organisations that use key performance indicators (KPIs) to measure indirect MRO supplier performance.
Quality, a leading KPI for 77% of companies in 2021, is now favoured by 73%, while on-time delivery remains the most popular KPI in the UK – used by 80%. Availability has risen in importance, used by 63% of firms in 2022, up from 53% in 2021.
Managing direct and indirect suppliers
Procurement strategies vary between direct and indirect procurement, says Martin Wakelin, UK Head of Indirect Procurement at dairy producer Müller. “When it comes to direct procurement, we need milk to run our business – that’s easy for everyone to understand,” he says.
“Indirect procurement can be somewhat hidden, though. In processing raw milk, you need chemicals to clean down the machinery afterwards. It’s easy for someone to say they don’t care about that, but actually, it’s fundamental to our ability to supply our product.”
Wakelin has created a scorecard for the indirect team, shared with the rest of the business, which not only shows what they are doing to ensure continuity of supply for items like chemicals, but reinforces the critical role of indirect procurement in keeping production running.
“So it’s absolutely clear at the beginning of the year what we intend to work on – and we get our stakeholders to buy into that list,” says Wakelin. “And that’s how we manage our business. That’s how we manage the indirect procurement team.”
In order to ensure continuity of supply in these challenging times, Wakelin says supplier relationship management has to become more strategic. “It’s thinking about our suppliers in a different way than we have in the past, ensuring that we fully understand the commodities within our control.”
“You need to be able to work with a really good supplier to understand the fundamentals of the market”Martin Wakelin, UK Head of Indirect Procurement, Müller
Rising prices are also an opportunity to talk to suppliers in a different way, he says. “The answer is not to continue to batter them over the head and say we will not accept your price increases.
“You need to be able to work with a really good supplier to understand the fundamentals of the market, to understand what drives it, to understand how we can stock to protect ourselves and how we can find alternatives,” says Wakelin.
It’s vital to understand where each category sits within the organisation and its relative importance to the business. “You can then ask questions like: Do we really need these things? Could we do without them? Could we do something differently?” he adds.
Know your suppliers
When it comes to building closer relationships with suppliers, it’s important to know where you stand. The 2022 Indirect Procurement Report found that only 9% of organisations actively contract-manage at least 75% of their spend on MRO supplies.
The same is true of wider supply chains, according to Deloitte’s 2020 Chief Purchasing Officer survey, which found that only half had high visibility over their tier 1 suppliers, while 90% rated their visibility over their wider supply network as moderate to very low.
Helen Alder, Head of Knowledge & Learning Development at CIPS, says that clarity is vital to improving supplier relationships. “Collaboration is a really good idea in so many ways. But you need to find a really good vendor that understands your business and can add value,” she says.
Closer relationships between buyers and suppliers could create significant value and help supply chains become more resilient, according to McKinsey. But they need to be built on openness, regular communication and trust, the consulting firm says.
“It’s about how to leverage innovation in your supply chain,” says Kate Davies, Global Head of Indirect Procurement at RS Group, “because we’re not always the expert. You are not always going to get the most opportunity from telling a supplier exactly what you want.
“Describe your problem and let them help solve it with you. Because it’s a minefield for procurement professionals to stay ahead of all the innovations and new technologies – the new solutions that are coming out in a plethora of different categories.”
Above all, it’s about building trust between customers and suppliers, says Davies. And that can only be done by openness on both sides. Sharing knowledge and understanding each other’s business opens opportunities to innovate, she adds.
Good relationships with suppliers are critical to business success, especially when times get tough. Trust and transparency are fundamental pillars for growing those relationships and building resilience in your supply chain.
Let’s leave the last word to McKinsey: “We are no longer in a world where assuming ‘an annual RFP will yield 3% price savings’ is a viable operating model. After a year of continual and intensive action to adapt, many procurement organizations have deepened their understanding of their supply chains and deployed new levers. But more can be done.”