Recent research shows professionals responsible for indirect procurement and MRO supplies face a range of pressures both on a day-to-day basis and at a strategic level.
Procurement professionals are under pressure. This may come as no surprise, particularly for those working in the sector, but a recent survey among Chartered Institute of Procurement and Supply (CIPS) members has shed light on the extent of the current pressure for the complex Indirect procurement category for MRO supplies.
The survey is a result of the knowledge partnership between RS Components and CIPS, which represents procurement professionals globally. More than 850 CIPS members took part in the research, which forms the basis of the Indirect Procurement Report 2018: drivers of change and how to respond whitepaper.
Here, Mike England, Chief Operating Officer for RS Components, and Helen Alder, Head of Knowledge at CIPS, discuss what the survey reveals about pressures within procurement and how those in the industry can respond.
“You can’t keep cutting costs and squeezing suppliers on price because it isn’t sustainable”Helen Alder, Head of Knowledge, The Chartered Institute of Procurement & Supply
The top five business pressures facing MRO professionals
When asked what business pressures most impact the way their company procures indirect materials, survey participants listed five important areas.
The need to reduce operational budgets comes top (55%), closely followed by the need to reduce inventory costs (52%). The pressure to improve asset performance (42%), need for continuous improvement (38%) and carrying out sustainable and ethical procurement (36%) also play a role.
A drive to reduce costs is a demand that England recognises. “Procurement teams are being pushed harder than ever to deliver savings,” he observes.
However, there are limits to what can be achieved, warns Alder. “You can’t keep cutting costs and squeezing suppliers on price because that isn’t sustainable,” she says. “Instead, the focus needs to be on value.”
The day-to-day challenges facing MRO professionals
The day-to-day pressures facing procurement professionals are wide-ranging. Asked about the challenges in controlling purchasing activity, 47% of the survey’s respondents mention ensuring contract compliance with preferred suppliers and 46% mention maintaining ageing assets.
Other issues include managing stakeholders over multiple sites (42%), finding people who understand best practice procurement (42%), delivering annualised cost savings (41%), lack of spend visibility (40%) and lack of investment in technology to control purchasing (35%).
England says some of these pressures are closely connected: “Cost pressures and ensuring contract compliance go hand in hand with delivering an effective MRO strategy. “While the average order size in MRO procurement is small, the time required to make the purchase significantly adds to its costs. Part of that is because organisations are dealing with too many suppliers without working to a streamlined process.”
How to respond to challenges
There are concrete actions that those responsible for procurement can take in response to these challenges that will reduce the pressures upon them.
Rationalising your supplier network is vital. Changing the way that you work with suppliers can have far-reaching effects, such as reducing spending and improving contract compliance.
“Reducing operational and inventory costs requires careful management,” says England. “A co-ordinated supplier strategy is essential to achieving this. Too many organisations – particularly large ones working over multiple sites – have hundreds of suppliers but they don’t have a particularly close relationship with them.”
Work closely with your maintenance team
Cutting down their supplier network is something many procurement professionals say they want to do. However, this can prove difficult to put into practice, partly because change and ending long relationships with suppliers can be difficult to manage.
Consequently, the first step towards rationalising your supplier network is to work closely with your maintenance team to identify what they need from suppliers. England believes this is essential. “I think one of the challenges in this industry is that the procurement team are buying on behalf of engineering and maintenance professionals,” he says.
“If you solely look through a purchasing lens, which is purely concerned with product-related cost, you ignore some of the other costs and issues. “In reality, many stakeholders are impacted by purchasing indirect materials such as MRO, so the job of the buyer and of the supplier is to work out the real pain points, the areas that genuinely drive business performance and then to take a higher level view. “Working with a handful of good suppliers makes it much easier to achieve good results,” England continues, “but you have to work hard to show the benefits of removing legacy suppliers to engineering teams.”
Identify the right suppliers
The second step towards rationalising your supplier network is to identify suppliers that meet the needs of your maintenance team and overall business requirements.
“Organisations need to form close, collaborative partnerships with a small number of suppliers,” says England. “This trust and close working relationship are key to managing stakeholders away from existing suppliers and ensuring they work within framework agreements.”
It is also vital to select the right suppliers. “Ideally, an organisation should work with a fixed group of trusted suppliers that can provide all of the MRO materials they need and when their maintenance team needs them,” underlines England. “This reduces the possibility of off-contract spend, ensures controlled pricing and means that less stock has to be held onsite, since your supplier can be relied upon to deliver products quickly when needed.”
Choosing suppliers that offer eProcurement solutions will provide even greater spend visibility.
“Cost pressures and ensuring contract compliance go hand in hand with delivering an effective MRO strategy”Mike England, Chief Operating Officer, RS Components
Build long-term collaboration
Finally, building a long-term collaborative relationship with your supplier brings additional rewards. Working together, you can further improve the MRO procurement process.
Alder recommends taking a strategic view about costs, “part of which may be working more closely with suppliers to find new products, identifying unnecessary purchases, or reducing your inventory,” she says.
England agrees. “We’re finding at RS that more and more of our customers are looking to us to help them identify where they can take cost out of their indirect supply chain,” he says. “More businesses are starting to take a category management approach to buying because they realise that the process costs associated with MRO items are a big issue.”
Alder also believes that working with trusted suppliers is the only way to ensure procurement of ethical and sustainable products – and the peace of mind that brings. “First of all you need to risk assess your supply chain, then look closely at your supplier’s credentials and how seriously they take ethical procurement,” she advises. “The better you know the supplier and the closer you work with them, the more confident you can be of their values and how likely they are to check the products that they sell.”
Supplier rationalisation will therefore help give organisations confidence about the source of the products they buy. It can reduce costs, improve asset performance, boost contract compliance and increase spend visibility too, thereby addressing many of the most significant challenges facing procurement professionals today.