Indirect purchasing costs are under more scrutiny than ever and against this backdrop, procurement professionals need to find new ways to holistically manage costs and deliver value.
The impact of Covid-19 and the humanitarian effect for people, businesses and the economy will be long-lasting. Organisations have had to adapt and quickly, reviewing their business models, assessing the impact of reduced demand, through to introducing social distancing measures at operational sites. In a survey by Supply Management & The Chartered Institute of Procurement & Supply, 86% of respondents cited their supply chains have been disrupted and 24% stated their businesses did not have risk mitigation plans in place to deal with this level of impact.
Businesses and their people have had to embrace change. The adoption of digital technology as an enabler has accelerated significantly in such a short period of time. In a recent survey, McKinsey report this shift and the increased role of digital vs traditional channels, be it methods of ordering, mobile apps or consideration of new suppliers.
There are opportunities for the procurement profession by focusing on the here and now, whether by developing and forging stronger working relationships with suppliers, tapping into their knowledge and working with them to deliver value.
Have you ever been so busy that you’ve said, or wanted to say, that you’ve only got one pair of hands? Well, what if you had more than one pair? You’d be able to get more done, of course.
That might sound fantastical, but there is some sense in there too. Faced with the need to sharpen up processes and find ways to deliver long-term sustainable cost benefits, there’s only so much one pair of hands can achieve. This is when many procurement professionals turn to their Maintenance, Repair & Operations (MRO) supply chain for help.
However, the research behind our Indirect Procurement Report 2019 – The Future of MRO shows that some organisations are asking an inefficiently high number of different suppliers to help them their workload. The research shows that UK businesses are working with an average of 39 different suppliers, and that supplier rationalisation is a major focus for more than half of the respondents.
But beyond simply cutting down on the number of suppliers you trade with, refining the way in which you work with them can yield significant results.
There are many ways in which businesses can start to delegate some of their responsibilities to their suppliers, simultaneously improving service and reducing overall cost. Here are three examples of how that could work.
“Increasingly customers are looking for a broad-range supplier with high technical and specialist knowledge”Peter Malpas, President for EMEA, RS Components
1. Procurement solutions
Keeping the lights on and the wheels turning has become a collective headache in many organisations. Engineers tasked with repairing and maintaining equipment won’t always follow procurement procedures in their efforts to get things up and running as fast as they can.
Finding the right item can mean following the path of least resistance; people will often take it upon themselves to act independently if it’s not immediately clear how and where to find what they need.
The fallout from not following processes properly can involve everything from the risk of buying counterfeit or substandard goods through to creating additional manual work for finance teams, who have to process unexpected invoices from unregistered suppliers.
The path of least resistance, however, can become your secret weapon in ensuring purchasing compliance across your organisation.
• Can your supplier create a comprehensive e-catalogue of the items you are most likely to need?
• Can they deploy that catalogue where access to it will be needed – even out in the field or in industrial settings?
• Can they simplify the identification of parts to avoid guesses and errors?
2. Inventory solutions
The front-end ordering process is one of the most obvious and visible aspects of MRO strategy to outsource to a trusted supplier. But one of the other key areas is right at the other end of the chain – holding stock, managing where it is kept and ensuring replenishment.
A vendor-managed inventory (VMI) solution can be a great way to ensure there is a ready stock of fast-moving, low-value items available close to their point of use.
In our Indirect Procurement Report 2019, around 25% of businesses told us they were evaluating or considering VMI solutions. When asked about the benefits of VMI solutions, 69% cited the reduction in time spent raising orders, while 67% said better visibility of stock and spend.
While guaranteeing stock availability is the biggest day-to-day benefit of VMI services, they can also help to improve contract compliance and quality assurance. After all, if the stock that’s being used comes from a single approved source, you can be certain about what is being deployed. Contract compliance is a priority for 48% of businesses, according to the report.
A VMI solution can also remove several operational and finance bottlenecks by virtue of being tightly integrated into your systems. Orders are regular and predictable, replacing drawn-down items in a timely manner. And rather than handling a high number of low-value invoices, your accounts team will be processing a smaller number of higher-value invoices.
“Contract compliance needs to be driven at every level in the organisation, everyone making sourcing decisions needs to buy into the business rationale for compliance”Peter Malpas, President for EMEA, RS Components
3. Maintenance solutions
One of the most obvious ways your supplier can help with maintenance is ensuring you always have what you need where and when you need it. But there are other key steps that can be taken which will deliver ongoing benefits.
Almost 40% of participants in our Indirect Procurement Report 2019 whitepaper told us that improving asset performance is a business priority. Condition monitoring is an effective way to do just that. In any factory, each machine will give off warnings if all is not well. Two of the most common are heat and vibration.
Both are part of the normal operation of just about all industrial equipment. But monitoring how much heat and how much vibration there is, and comparing it with historical levels, can alert you to a problem.
“A structured cleaning, inspection, lubrication and tightening programme will help ensure the long-term health of components,” says Richard Jeffers, Director for Industrial Solutions at RS Components. “A condition monitoring programme can be used to identify impending component failures.”
There are internet-enabled sensors, and smart machines, that can transmit this kind of data to a central IT system, thanks to the Internet of Things. But the Industrial Internet of Things (IIoT) is still in its infancy.
Condition monitoring must be regarded as a slightly less futuristic endeavour. But it can still offer huge benefits. Something as simple as regular oil analysis can reveal how healthy a machine is, whether the oil is degrading, and more. This kind of proactive approach to maintenance is another service a supplier can take responsibility for. Given that more than half (54%) of participants in our whitepaper cited ageing assets as their biggest driver of downtime, this ought to be on everyone’s hit list.
“Condition monitoring can allow you to take action that will extend the life of a component or replace it prior to a potentially catastrophic failure”Richard Jeffers, Director for Industrial Solutions, RS Components
Involving your partners and suppliers in a shared strategic responsibility is more than a great way of getting rid of a burden. For any of the approaches outlined above to work, there needs to be a close working relationship between supplier and customer, and there will need to be a robust analysis of MRO purchase history data.
The closer you are to your supplier, the more likely it is they will start to tailor some of what they do to meet your needs more closely. The more they can do to help streamline your processes around MRO, the easier it will be to keep those wheels turning and keep those lights burning. But with a greater understanding of the historical data on the items your organisation uses comes a greater chance to make more accurate decisions in your MRO strategy. And this can start to become a virtuous cycle of continuing benefits.
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