MRO Strategic Sourcing: The Expensive Table Scraps!
Have you ever heard the old saying, “Money left on the table?" That’s exactly what North American organizations are doing when they fail to use strategic sourcing activities to source MRO materials. Conservative estimates have shown effective strategic sourcing has led to reductions in spending ranging from 15% - 25%. Furthermore, la
rger companies place more emphasis on sourcing strategies for office supplies rather than critical spares. I have yet to visit an organization that carries more ink cartridges and post-it notes than the value of a typical MRO Storeroom.
Here are a few things to think about and review before heading down the path of strategic sourcing.:
- First and foremost, establish an accurate Equipment Bills of Material (EBOM) within your Computerized Maintenance Management System (CMMS). Everything we purchase, store, and use is driven off the equipment bills of material. Less than 20% of organizations that I work with have any confidence in the accuracy of their EBOM’s or legitimacy of the data.
- The second thing to verify is the data in the CMMS. All time and materials should be captured on work orders. The best-of-the-best organizations capture both these critical pieces of information to drive business improvements and capture equipment history. From this data collection we can review spending patterns and clearly identify where the money is going.
When you have achieved the two items above and are ready to implement a process for strategic sourcing, follow these 7 fundamental steps:
1. Assess current spending, where and with whom
2. Research the sourcing providers in the market
3. Review of total cost of ownership (total acquisition costs)
4. Identify & select qualified suppliers
5. Negotiate contract supplier agreements
6. Implement strategic sourcing strategy
7. Assessment, audit, and measure
Experience has shown that effective strategic sourcing can reduce inventories by as much as 60%, increase customer service levels (or fill rates) of 50%, and significantly reduce expedited freight charges. Companies that have implemented strategic sourcing policies in the MRO procurement process have also shown significant reduction in Mean Time To Repair (MTTR) and Mean Time Between Failures (MTBF) measurements; which at the end of the day improves throughput, production availability, and overall equipment effectiveness (OEE).
So, what are you waiting for?
I would love to hear feedback from those who currently have an effective strategic sourcing process in place. How is it working? What benefits have you noticed?
From those who are interested in strategic sourcing, what other questoins do you have?