Simon Fletcher, Sales Director for the UK at RS, welcomes evidence from recent research that a strategic approach to indirect procurement is becoming more commonplace
When it comes to Maintenance, Repair and Operations (MRO) procurement, there are two main camps: those that are purely operational and those that are more strategic. While the former typically are more operational and tend to source and purchase products, the latter adopt a more strategic approach to managing the category and suppliers; they’re clear about what they want to achieve as a business and how they’re going to do it.
Although maturity levels vary between organisations and the more transactional approach continues to linger, the most recent RS and Chartered Institute of Procurement and Supply (CIPS) survey of indirect procurement professionals contains clear indications that the strategic approach is coming to the fore.
Here are three factors that play a role in this shift and why it’s crucial that those responsible for MRO continue to move in this direction.
1. Ongoing challenges – and new ones too
According to the 2022 RS and CIPS report, those responsible for indirect procurement are facing a range of challenges. Among survey respondents, 53% cited reduced operational budgets as the top business pressure, followed by sustainable and ethical procurement (47%) and the need to reduce inventory costs (47%).
They also highlighted five significant procurement challenges that they anticipate facing in the next twelve months, including inflation and higher costs (82%), supply chain disruption (76%), managing risk in the supply chain (63%), global political uncertainty (63%) and recovery from Covid 19 (33%).
“A transactional mindset, with easy to implement solutions focused solely on price points, is no longer sufficient.” Simon Fletcher, UK Sales Director, RS
How does this affect strategy development? Put simply, procurement professionals need a strategic approach to respond effectively to these demands. If you’re trying to manage supply chain risks, ensure sustainable and ethical procurement or reduce overall inventory costs, a transactional mindset, with easy to implement solutions focused solely on price points, is no longer sufficient.
2. The central role indirect procurement plays in business transformation
There is further evidence of a move from transactional to strategic within the RS and CIPS report too. Its findings reveal the important role that indirect procurement professionals play in driving change within their organisation. Sixty percent of respondents shared that they felt confident in this area and, furthermore, the survey results show that procurement is one of the main departments involved in change and transformation practices, coming second only to operations (77% compared to 82%).
One area of change in which MRO professionals are heavily involved is digital solutions, with 70% of respondents recognising that digital procurement services provide better spend visibility. More than half also regard management information as a benefit (59%).
“All too often some organisations get deep into the weeds trying to control what are very minor costs in the grand scheme of their business spend” Simon Fletcher, UK Sales Director, RS
The data produced by digital solutions allows procurement professionals to get clear about what’s critical to their business, what they should control and what they don’t need to focus on. Supplies for MRO is a complex category, there is very often a long tail of products, many of which are infrequent purchases. All too often organisations get deep into the weeds trying to control what are very minor costs in the grand scheme of their total MRO spend. That’s not where they should be.
3. The partnerships emerging from supplier rationalisation
Managing the category is difficult. According to the 2022 RS and CIPS report, on average a business uses 88 suppliers for MRO. Getting visibility of spend and being able to leverage this spend can be a challenge for professionals if the category isn’t managed in an effective way. It’s possible organisations and procurement teams can get overwhelmed, but, as the RS and CIPS report shows, almost half (49%) of indirect procurement professionals are now pursuing a policy of supplier rationalisation as a means of improving efficiency.
This is vital. If you want to focus on the total cost of ownership rather than purchase price, you’ve got to be brave enough to bring procurement together and use a smaller number of suppliers. You then gain visibility and control, meaning you can better manage the process and consolidate products – no more buying 57 types of gloves that do the same job.
Consolidating spend provides a huge saving, regardless of price point, as well as opportunities to identify further inefficiencies. The greater control and visibility that come with a consolidated supplier list, for instance, allows those responsible for MRO to introduce key performance indicators (KPIs) to monitor the performance of suppliers. The RS and CIPS report states that eight in ten businesses have such measures in place, with the top three metrics being delivery on time (63%), quality (57%) and availability (49%).
Finally, supplier rationalisation allows you to develop more of a partnership with suppliers – and therefore move even further from a transactional approach to a strategic one. Working with a smaller number of suppliers makes it easier, for example, to identify organisations who you can trust and whose values are in alignment with those of your business. This is particularly important now that ESG is a priority and a major KPI for many companies.
When your supplier is a trusted partner, you can learn from their industry expertise and they can provide insight and innovation that just isn’t possible in a transactional relationship. As Global Head of Indirect Procurement, Kate Davies at RS Group, advises, “Describe your problem and let them [suppliers] 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.”
At RS, we have a huge amount of experience that we can share. We can shine a light on how customers are operating, identify their areas of inefficiency and explore how they can operate differently. Take digital solutions. Most of our business is transacted through digital channels and we can share learnings from how other organisations do this with customers. We can make that change seem possible and support customers as they move along that journey too.
To find out more about how to embrace change and transformation within MRO, check out our further analysis of the 2022 RS and CIPS indirect procurement report.