By George E. Krauter
Re-Engineering the 3PMRO Selection Process
In my last post, I discussed the most common reasons for a long, drawn out selection process for third-party MRO service providers. Here I’ll identify some concrete steps decision makers can take to smooth out the process and shorten the time frame to achieving program savings.
What is an alternative that will achieve the best sustainable benefits and satisfy all disciplines?
Step One: Develop a scope of work and key performance indicators around a third-party MRO program (3PMRO) that will optimize your MRO storeroom operations to meet your needs and goals. The scope reflects the wish list of those involved in indirect materials – Finance, Engineering, Facilities, Purchasing, and Plant Management. Include your implementation time line schedule and implementation costs. Scope of work needs to have an accurate accounting of annual material spend to be included and for existing inventory dollars.
Step Two: Select your supplier. Typically, only a few have the capability of managing your scope of work. Pick the one best for your program and tell them what you want. Visit the supplier’s CEO [no less] and obtain commitment to provide:
• Total focus on your program
• Adequate financing to sustain the process
• Experience in on-site operations
• Established implementation process
• Compatible systems capabilities
• Open book cost sharing
• Purchasing power leverage
• Willingness to perform to KPI’s and productivity programs.
Step three: Establish a price level reflecting your saving goal for the program. There should be an 8-10% price savings available to you and still have enough margin for the supplier. If not, you have the wrong supplier. The chosen supplier must be able and willing to obtain site specific pricing from their manufacturers who set the pricing structures and be willing to share all pricing data in an open book policy. Tell your supplier the price you will pay; no need to quote. The price savings would be a part of your ROI goals.
In review, many companies assign personnel to control the MRO spend and even try to control / optimize MRO inventory. The quest to find the “best” provider takes the form of the RFQ, the RFP or other RFs. The larger industrial MRO consumer utilizes these processes to its advantage, asking MRO distributors what services would be provided to achieve corporate goals in coming years.
It begs the question - if price is not a major factor, why does the market basket dominate the RFP? Why are the vagaries of the market baskets not recognized as leading to little value and wrong decisions? To this point, the approach has been to use GAP, General and Accepted Principles.
Time is long past when a process is justified by, “This is the way we have always done it”.
Now is the time to recognize that you need to “Tell…Don’t Ask.”
George Krauter, former founder and president of Industrial Systems Assoc. [I.S.A.] has retired as vice president of Synovos.
Currently, he has initiated, "George Krauter Consulting [GKC]" for effective reliability and cost recovery for consumers of MRO materials. George is a recognized authority on the management of the MRO supply chain and support for maintenance reliability programs. His book, "OUTSOURCING MRO...FINDING A BETTER WAY" is available from Amazon and from Reliability Web.com.
He is published in Uptime, Modern Distribution Management, and Supply and Demand Chain Executive. George has conducted seminars across North America, in Europe, and in the U.A.R. as well as a guest speaker at Temple U., Howard U., Duke, and MIT.
George is a graduate of Temple University; he lives with his wife, Joyce, in Bucks County, PA. All grand kids live within eating distance. He can be reached anytime: firstname.lastname@example.org.
George E. Krauter
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