7 Key insights
every CPO should know
These 7 MRO Insights cover fundamental strategies to help your company navigate the complexities of this category. The MRO market is estimated at $1.7 trillion annually - $200 billion of which is in the industrial segment – make sure you’re optimizing MRO for your company now and for years to come.
THE 7 INSIGHTS
EVERY CPO SHOULD KNOW
Insight 4: PPV is Not the Issue
Many companies have historically managed their MRO spend based on the belief that it is more important to keep production going than to pay the lowest price in town. This often leads to fewer, broad MRO supplier relationships that fail to recognize and leverage the unique capabilities of each supplier. But managing MRO on a more granular level does not necessarily mean that ‘PPP’ or the ‘price per part’ has to become the sole focus.
Beyond the Win-Lose Approach for MRO Suppliers
Historically, MRO procurement has focused on PPV (unit costs) at the organization’s national, regional and local levels. Because of this focus, MRO buyers have predictably managed MRO spend with a “Win-Lose” approach. Procurement would periodically take spend to market and “beat-up” suppliers for large unit price discounts.
This approach has negative consequences for the organization and production facilities. When a buyer’s primary goal is to continually push the prices down, the win-lose PPV events push suppliers to find creative ways to retain margin.
To ensure profitable margins, suppliers may cut service levels, reduce quality or lower support inventory levels. Suppliers may also de-prioritize the relationship, so they can focus on more profitable customers rather than make investments to improve product life-cycle performance or increase supply chain efficiencies that help lower total costs.
In other words, PPV MRO management is simply not a long term sustainable procurement model.
There’s an Easier Way
MRO — The Stuff You Need to Make Sure the Stuff you Sell Is Excellent
Facilities must have supplier relationships in place so that any needs that arise are fulfilled with minimal (translation: no) impact to production. Production must know who their suppliers are and when to use them. If procurement wants to be a hero to production, they should match suppliers and business needs. This ensures that the plant can live with the supplier selection and the company can meet their fiduciary responsibilities.
Companies should select suppliers that demonstrate a philosophy of going the extra mile for their clients. This, in turn, unleashes access to continuous improvement that can deliver far more return than a limited focus on PPV reductions.
World-class organizations excel by ensuring all teams (management, finance, operations, procurement, etc.) are committed and focused on the Total Cost of Ownership (TCO). The fundamentals of TCO transcend all areas of materials management including MRO.
The Stuff you need to ensure you can make the stuff you sell in the most competitive market position.
Most world-class corporations have implemented or are implementing a robust cost savings tracking system that rewards TCO performance across the entire organization including suppliers, not just procurement buyers.
Select MRO experts with deep experience with MRO suppliers and global MRO sourcing perspectives. They understand the MRO supply market and directly relate to MRO stakeholder requirements on the floor at the production facility.
Tenzing experts have global MRO sourcing perspectives and deep experience with MRO suppliers. They understand the MRO supply market and directly relate to MRO stakeholder requirements on the floor at the production facility.