MRO Buying Gets Strategic
MRO buyers look ahead, and see more outsourcing, long-term planning, global buying and supplier alliances.
By Susan Avery — Purchasing, 3/13/2008
There’s no longer any questionâ€”the MRO buy is strategic.
Purchasing got an overwhelming response from readers to a recent survey on their role in the maintenance, repair and operations (MRO) buy. Of the purchasing professionals who responded to the poll, 88% say the buy is more strategic today than it was five years ago, and they provide evidenceâ€”success storiesâ€”to back up the statement.
Results of the survey show MRO purchasers have slashed the supply base and formed closer relationships with a smaller number of key suppliers. They’ve embraced technology for the procure-to-pay process; buyers at plant sites are placing orders directly with suppliers with which the company has national or regional contracts, often using online catalogs. For their part, MRO suppliers provide technical assistance to the plants, bringing in their suppliers (the manufacturers), when help with such activities as product substitution and demand management is needed.
It hasn’t been easy, and there are still obstacles to MRO excellence. Managing costs is a big challenge, survey respondents say. Working with internal customers and communicating purchasing policy is another. But, in just about every case, purchasing pros say MRO suppliers are by their side helping them achieve their goals.
The benefits to taking a more strategic approach to the MRO buy are many. Again, survey respondents point to costsâ€”this time in the form of savings. And streamlined processes, improved efficiencies and reduced risks are all ways in which purchasing now adds value to the MRO buy, say respondents to Purchasing’s survey.
So, what’s next? Where is the MRO buy heading? What is happening today at companies in just about every industry across the nation provides some indication of what’s to come for purchasing pros with responsibility for MRO, respondents say.
From their experiences, purchasing pros with responsibility for the MRO buy say the future holds more alliances with suppliers. Some MRO buyers are considering integrated supply arrangements or thinking about outsourcing the buying process to a third party. Either way, purchasing will be managing the agreement.
Other MRO purchasers say they expect to be sourcing for other divisions within their companies, and searching for suppliers with capability to provide goods and services to locations outside North America. Some seek supplier help with low-cost country sourcing efforts. Most of the survey respondents now are looking at MRO over the long termâ€”something relatively new for many purchasers.
The sourcing operation at BNSF Railway Co. started to look at its MRO buy with an eye towards the strategic about two years ago. Since then, sourcing has worked to standardize processes and data and taken steps to rationalize the supply base, forming relationships with fewer suppliers or integrators that can do more than simply provide products to the company.
Aligning goals of both purchasing and supply organizations is key, says Doug Keady, director of strategic sourcing and contract governance for BNSF in Ft. Worth, Texas. “I challenge suppliers every time we talk,” he says. In those discussions, Keady works to ensure suppliers understand the company’s business and are willing to offer up their expertise to bring new ideas to the table.
His biggest challenge? Like many respondents to the Purchasing survey it’s working with internal customers. “We have to build that relationship and be a partner with whom our internal customers want to do business,” he says. “I don’t think it’s unreasonable to say we have to do that every day.”
Looking ahead, he believes that sourcing will take an even more active role in the MRO buy. Sourcing at BNSF, he says, is setting itself up for the future which holds closer alliances with suppliers and integratorsâ€”and maybe some outsourcing of the MRO buying process to these partners.
At Consol Energy in Pittsburgh, Darryl Husenits, general manager, supply chain management, sees his role as purchasing pro with experience for MRO evolving to the point where he’s managing alliances with suppliers. That’s coming three to five years down the road, he says. Then, he will be doing more sourcingâ€”in other words, developing strategy, and less purchasing, or order placing. By 2010, he expects to be setting up agreements with suppliers and leaving the buying to his internal customers.
“We will be in a supporting role to ensure that the suppliers we have those agreements with are delivering value,” says Husenits. “On the other end, we will be a support to the supplier ensuring that we deliver what we agree to deliver.”
As recently as five years ago Husenits wasn’t looking at MRO purchasing that way. Since that time, he’s been working to improve and standardize internal processes. He’s also communicating benefits of taking a more strategic approach to the MRO buy to internal customers and suppliers. “We have better relationships today and are able to speak with one voice to suppliers so they understand we are serious about the changes,” he says.
Illinois Tool Works (ITW) in Glenview, Ill., started to look at MRO purchasing more strategically three to four years ago when management tapped Gary Anton to be vice president of corporate strategic sourcing. Until that time, each of the more than 700 business units at the decentralized company purchased MRO on its own. Anton’s job is to rationalize the supplier base and leverage some of that spending.
He and his team set up national agreements with 15 industrial distributors; each of the suppliers provides the company with specific categories of products such as electrical, power transmission, fasteners, and general industrial supplies. “We believe we have the right supplier partners going forward,” says Mike Kamradt, director of corporate strategic sourcing at ITW, who assumed his role late last year. He and Jeff Garing, MRO manager, are working to take these agreements to the next level. They’re asking for guaranteed savings which they expect suppliers to deliver through such non-price aspects of total cost as inventory reduction, product substitution and demand management.
ITW has come a long way in a few short years. While the company doesn’t mandate use of the preferred suppliers, Anton and his team are selling the benefits of working with fewer suppliers to the business units and are having some success. One of the company’s preferred suppliers is reporting a five-fold increase in sales. They’re also looking for suppliers with capability to provide goods and services in Europe. “We’re not there yet, but we think eventually we will have synergies with our brethren across the pond to work on some things together,” says Kamradt.
Chevron Products Co. takes a global view of its MRO spend. It’s the job of Bob Adams, local category specialist for MRO and equipment, global downstream procurement, at Chevron’s El Segundo, Calif. refinery, to implement strategy locally that’s put in place by the company’s global category manager for MRO. He’s also responsible for managing local suppliers that service the facility.
Adams is relatively new to MRO purchasing; he is a civil engineer and has a master’s degree in supply chain management. He says that after consolidating the buy, MRO has become more strategic at Chevron “through leveraged spending, strengthened relationships and more visibility soliciting feedback and actually incorporating feedback into supplier performance.”
Adams points to the company’s advanced supplier relationships as evidence. These relationships bring together suppliers and representatives from the company’s businesses to develop strategy that aligns with corporate objectives. This consists of creating business plans, goals, metrics and action plans. “The true defining quality of these relationships is that they create an open dialogue that allows the businesses to be more engaged in what happens financially and how we manage suppliers,” he says.
Suppliers are engaged as well. Adams asks that suppliers be visible and meet with his internal customers at least once a week. He also solicits cost-savings ideas. Next up is for the refinery to take a more regional approach to some of the buying it does locally.
- The MRO buy is more strategic than it was five years ago.
- Still, buyers have challenges, including working with internal customers.
- Suppliers help buyers meet their challenges and share in their successes. Cost savings is a big one.
- Next up is more outsourcing, more alliances with suppliers and more global sourcing.
Purchasing is asking readers to nominate purchasing professionals who demonstrate excellence at sourcing MRO (maintenance, repair, operations) goods and services.
From the nominations, the editors will select leaders of MRO buying based on their success at managing relationships with suppliers as well as their use of innovative programs to manage costs or improve plant productivity. Purchasing will recognize these purchasing pros for their accomplishments with a spot on the 2008 All-Star MRO Buy team.
Send nominationsâ€”names of MRO purchasers deserving this recognition to firstname.lastname@example.org. Purchasing will announce the team in an upcoming issue.