Thought Leadership and the Demise of your Third-party Outsourcing Program: Part 3

Parts 1 and 2 of this series outlined some the pitfalls to anticipate and to avoid when your third-party MRO (3PMRO) program is in operation. This installment continues to explain how opponents to your outsourced MRO program, which I call “obstructionists”, try to derail progress and efficiency improvements.

Listed below are additional tactics to be aware of in order to avoid a situation where your outsourcing plans are either delayed or set up for failure:

  • Empire protection - Certain disciplines in the plant deem it important to have/manage an empire of people reporting to him/her in order to be recognized as important to the wellbeing of company operations.

A major cost saving benefit of 3PMRO is the recovery of the cost of unnecessary personnel. For some managers, this reduction in force means that there would be less people in their departments i.e., Procurement, Finance, even, at times, Engineering. Those who feel that their importance is lessened with less people in their organization chart are obstructionists to 3PMRO; they will find fault with 3PMRO functions to the detriment of the program.

Identify those who put personal goals above benefits to all.

  • This program will not work here” (a self-fulfilling prophecy) - Those who are averse to change in any form regardless of obvious benefits will make noises (loud or insidious), and will state unequivocally that the present tried and true MRO process is the best method to acquire parts.

Since these obstructionists have voiced their negative opinions, they would certainly look bad if your 3PMRO effort is proved to be more profitable than their present MRO supply chain. Therefore, they will employ various measures to make their prediction come true regardless of the loss of cost reductions that are inherent in properly applied 3PMRO operations

Be aware, in these situations, most of the negative actions from the obstructionists come from deliberate delays in answering requests…attending meetings, little positive input, and false generalizations on specific situations. They must fulfill their prophecy; they cannot lose

  • Erroneous and/or inadequate descriptions – Targeting the MRO services provider with misinformation is a tactic used by obstructionists to defeat your 3PMRO program. These actions are difficult to uncover and could have harmful consequences before corrections can be made.

For example, a new asset is introduced into production and spare parts are approved to be stocked in your 3PMRO storeroom. If the one in charge of establishing MRO stores inventory for spare parts is an obstructionist, descriptions can be deliberately altered causing your provider to order, stock and issue an incorrect part. When this incorrect spare is applied to the asset, the asset malfunctions or is shut down because the correct part is not available when it was needed. This causes downtime and idle workers…the bane of production managers.

Make sure that those who direct new parts to be supplied by your provider recognize the importance of accurate communications.

  • Require inadequate or excessive min/max stock units - An obstructionist who is able to decide min/max quantities for MRO SKU’s can cause stock outs as well as inventory excesses.

For example, min/max for SKU # 1234 is set at Min: 12…Max: 24.  Actual usage of this part is 48/month AND the unit of issue is six, because six pieces are needed to totally fix the machine. Obviously, the Min/Max should be Min 48 and Max 96. Incorrectly communicated low Min/ Max quantities cause low fill rates [this would be a KPI failure for the provider who commits to a 98-99% competition on all requests upon issue].

In the case of excessive Min/Max quantities, for example: SKU 1002 has a yearly usage history of 25; the unit of issue is ONE. The obstructionist will require a min/max of 25 and 50 which represents a negative inventory turn rate. This action causes inventory to increase to excess; since your provider has a KPI that guarantees an inventory reduction, a failure occurs.

In both of these cases (i.e., too low or too high min/max), there is a double negative effect:  first on your 3PMRO program, and second, on the incentive for your provider to continue to provide promised benefits.

Positive and continual communication is critical.

  • 3PMRO assigned to unqualified supplier- A light equipment manufacturer had an established and successful 3PMRO program in operation for over six years. Senior management, in corporate headquarters, decided to succumb to reciprocity pressures and reassigned the stores third party operation to a different supplier.

In the plant where 3PMRO existed for over six years, each function of manufacturing as well as plant maintenance had come to rely of the efficiencies of the initial provider and had profited from the year after year benefits. The new supplier was installed in the storeroom without communication among corporate, plant personnel, and/or the new supplier.

Note that the new supplier was “given” the contract; 3PMRO was not their core competency, but they felt that: “it is only MRO, how hard can it be”.

Many disciplines in the plant quickly saw the inadequacies of the new supplier’s operation, and felt that their MRO supply chain was in jeopardy. They decided to set their own stock areas in their own departments and drew out parts critical to their production needs. They by-passed the new supplier’s storeroom by using their P Cards to purchase directly from their supplier base. Prices were higher but were justified by assurance that the parts would be available when needed. The new store room was left with just stationery, loaner tools, and janitorial supplies. Plant management did nothing to stop the P Card usage because of a fear of production loss. Corporate ignored the situation and turned to more pressing needs.

Soon, the new supplier realized that there were not enough dollars going through their program and resigned the contract. The plant never went back to the efficiencies of properly applied 3PMRO; there were 100 plus suppliers added which created over 40,000 new transactions (as opposed to just 24/year from the previous 3PMRO provider), and uncontrolled inventory abounded throughout the plant.

Proper management of the MRO supply chain by a provider who can prove competency and long-term dedication to the 3PMRO agreement is critical to continuing profitable operations.

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