Realize Your Full Savings Potential
Most companies have not fully explored the capabilities of each of their MRO suppliers. Without access to this knowledge, they are prevented from tapping into value beyond what they can negotiate on parts prices.
Many members of corporate procurement don’t completely understand the situation on the plant floor:
When contracts are primarily cost-driven, companies are unable to form partnerships for managing their MRO spend, and they deny themselves an opportunity to achieve both straight-line cost savings and sustained relationship-driven value.
Transforming MRO: From Zero to Hero
Ensuring the Structural Integrity of Highly Distributed MRO
A leading building products manufacturer with $2.5B in annual revenue made the decision to bring their MRO spend under management once and for all. Their distributed North American facilities regularly purchased electrical supplies, safety supplies, lubricants, mills supplies, and more – a category of spend representing $25M a year.
All 45 sites were managing their MRO spend independently. There was little to no useable line item data, which served as a wall between the company and opportunities for improvement. Lack of governance had allowed the MRO supply base to swell to over 1,600 suppliers, with no standards for performance or inventory management.
The company established the following objectives for the effort – in priority order:
- Achieve consensus across the sites, no matter how hard that might be
- Reduce spend while increasing long-term value to the business
- Rationalize the supply base and put consistent supplier performance standards in place
Key Challenge – creating a critical, but elusive, company-wide consensus while also building a usable data set and rationalizing the supply base.
To meet the challenge, a “MRO Initiative Team” was created by elevating key players from multiple facilities to drive all communication, feedback and strategic decision making. They partnered with Tenzing MRO experts with deep experience in process, team communication and MRO category management to anchor the internal team.
The MRO Team achieved success by doing the following:
- The team included members with insight to mine field sites for quantitative information that would serve as the basis for strategic decision making in the absence of an actionable centralized data set.
- They worked collaboratively to build consensus around new supplier performance criteria, reining in the haphazard and inconsistent frameworks in place.
- The collaborative team established repeatable processes that recognized the priorities of each category and plant and equipped local management with pricing and inventory management tools.
Overcoming MRO Complexities with Strategic Analysis and Time in the Field
The company realized exceptional savings and value-based improvements across the entire MRO category:
- 18-22% savings on existing parts and approved substitutes
- 60% supply base reduction, consolidating the bulk of the spend and line items to a single primary supplier across 5 major MRO categories
- Redundant specifications were drastically reduced, emphasizing useful life and optimal performance. For example, safety supplies were reduced from 1,000 to 100 – without compromising the health and welfare of employees.
- The procurement process was streamlined to ensure control, guarantee pricing stability, and provide ongoing data visibility to help further reduce inventory levels.
With focused purpose and a robust team, the company optimized the MRO supply chain and created greater business value by capitalizing on internal customer input and investing in a fact-based strategy.