Direct and indirect procurement experts from different sectors explain why a smaller number of quality suppliers is always preferable to achieve MRO efficiency
As businesses from all industries look at ways to cut their operational expenditure, the need to make the MRO (maintenance repair and operations) procurement process more efficient has become increasingly important. One of the biggest weapons a procurement team has against excessive indirect spending (and the various soft costs incurred by having an inefficient process) is consolidating suppliers.
This is evidenced by research from RS and the Chartered Institute of Procurement and Supply, revealing that the single biggest pressure faced by procurement and supply professionals is the need to reduce operational budgets. In addition, the respondents identified supplier rationalisation as the most likely way to increase procurement efficiency.
Gas distribution firm Cadent was formed in 2016, having previously been part of National Grid, and the company is working hard to improve its efficiency. “We took the opportunity when we became this new, smaller company to look at our supply base and we targeted a 55% reduction on overall suppliers,” says Rob Woolley, who served as Directs Category Manager at Cadent. “There’s definitely an appetite to carry on in that direction.
“Consolidation gives us visibility around spend analytics and we can start to identify off-contract spend and present a challenge back to our stakeholders” Rob Woolley, Directs Category Manager at Cadent
“We were operating as a company with smaller resources but higher targets, so I think, selfishly from our procurement side, we sought through tenders to rationalise where we could just because we hadn't got enough people to manage that level of contracts,” he adds. “Within the MRO space, consolidation gave us lateral visibility around spend analytics and we could start to identify off-contract spend and present a challenge back to our stakeholders.”
This improved visibility and spend data is invaluable for companies that wish to look more closely at what they are buying, how often and for how much – all of which allows benchmarks to be set and improved upon. Another company looking to rationalise its suppliers is Schneider Electric, a global manufacturer of energy management and automation solutions.
“What we’ve seen over the past few years is that we don’t see results until we actually block off-contract suppliers to our end users,” says Hugo Barbier who worked as Procurement Manager at Schneider. “We started to close suppliers and consolidate our business into our recommended vendors. It required a lot of communication because the shop-floor engineers want to keep working with local vendors.
“However, when the expenses come through, this is where we have to get the benefit because we had to be able to understand where we were spending our money,” adds Barbier. “We’re able to say which manufacturers we wanted to spend our money with and then we were able to go back to them and say, ‘Right, we have three different manufacturers for three products in the same category – why can’t we consolidate and use just one manufacturer?’”
In many cases, this is the sort of information that existing suppliers can provide, according to Mike England, Chief Operating Officer, RS Components. “It’s possible to reduce inventory costs by working with a smaller group of suppliers who can provide all the products you need and deliver them as and when your maintenance team need them,” he says. “When RS is a preferred supplier, we are able to provide customers with valuable data about their MRO purchasing habits and help identify potential savings.”
“We have to look at how we build on the relationship with key suppliers and get them into our business to help us reduce our inventory” Kevin Cheetham, Category Manager at Ibstock Brick
One such customer is leading brick manufacturer Ibstock. “Having established preferred suppliers, there are only so many times you can push back on the price” says Kevin Cheetham, Category Manager at Ibstock Brick. “We have to look at how we build on the relationship with those suppliers and how we get them into our business to understand us more and help us reduce our inventory.
“It’s really building those relationships to make sure those preferred suppliers act as preferred suppliers, and there’s a two-way benefit,” he adds. “It may be as simple as the supplier having people who can come into our business and speak to our engineers and say, ‘I know you've been doing it that way for 30 years but, dare I say, have you tried that?’”
“You have to communicate the benefits of contracted spend to stakeholders, and suppliers like RS can help with that by sharing data that shows the savings” Mike England, President EMEA, RS
And this, according to Mike England, is the key to successfully implementing a successful supplier consolidation programme. “It’s the balance between driving vendor consolidation to remove costs and improve efficiency, versus the practical requirement to just get stuff done, either through production or maintenance,” he says. “This is the challenge that procurement teams always face when they are being challenged by engineers who have always used particular suppliers.
“The answer is to communicate the benefits of contracted spend to stakeholders and suppliers like RS can help with that by sharing data that shows the savings.”
The answer, then, comes down to trust and communication – organisations need to identify a smaller number of high-quality suppliers that they can trust to support them in changing practices and often an established culture within their business. By doing that, there is the opportunity to deliver the sort of cost-savings that boards are asking for.