March 25, 2011 at 10:55 AM

Re-engineering the 3PMRO selection process

About $150 billion in MRO materials is purchased annually in the US. There are thousands of MRO distributors competing for these dollars.

The selection process MRO consumers utilize to procure those materials varies from simplistic to the sublime …. from attempts at structure to “Go Get It Yourself” …. from corporate dictates and audit trails to utilization of “P” cards.

Most companies pay little attention to MRO.  A major reason is that knowledge on “How to Improve” or “Why Change” is minimal.   A familiar refrain: “Let’s go out on quote and show price saving comparisons that satisfy management. Besides, MRO is only 6% of our spend; let’s concentrate on the other 94%.”

RFPs, RFQs, etc. often state that “Price” is not the major determinant in supplier selection; “Services” et.al. are the most important factors.

The RFQ/RFP (RF) process is extremely costly regardless of the side you sit on, supplier or requestor.  Committees are formed, meetings and webinars are scheduled to establish what data should be included; the various disciplines develop and share opinions based upon how it relates to their internal functions. This affects a long, costly and arduous set of requests and responses.

As mentioned above, these meetings exist and are costly and redundant for both requestor and responder. The time required to complete the process often drags out over six months to a year in some cases.  The data submitted gets old and stale leading to adjustment requests by the winning supplier after the contract is awarded. These adjustments are permitted because there is no alternative. You cannot go out and request a re-quote that only elongates the time where savings are not realized. The result is that the selected provider may or may not be the best source for your company. The truth is that the existing RF process is flawed and does not necessarily produce the “best deal”.

Why is the process the way it is? “Because,” managers will say, “this is the way we have always done it. There is no other way to satisfy management that we have the best deal and have them accept the results of the process as optimum…We have done our best.”

Well….This is just not so. There are alternatives.

In my next post, I’ll outline the necessary steps in selecting the right third-party MRO service provider.

George Krauter

As the originator of the concept that became known as integrated supply, George Krauter currently serves as Vice President for Storeroom Solutions, Inc.  Frequently spotted at industry events and various industry functions, Mr. Krauter brings a wealth of insight and hands-on experience to indirect materials cost recovery methods.

Mr. Krauter’s career began in Philadelphia and carried him through management capacities in all disciplines of the indirect materials supply chain.  Following his tenure as Vice President, Sales for a large industrial supply distributor, Mr. Krauter co-founded the first integrated supply company in the US:  Industrial Systems Associates (ISA). As an internationally recognized authority on innovative methods that define and eliminate duplications in the traditional supply chain for non-capital expense materials, Mr. Krauter’s concepts led to industry distribution procedures known as Integrated Supply, JIT II and other cost outsourcing techniques within the MRO supply chain.  Following the sale of his then multi-million dollar company, Mr. Krauter joined Storeroom Solutions first as sales consultant, then as Vice President working in sales and marketing.

An authority on innovative methods in distribution and MRO outsourcing, he has been published in several publications including Modern Distribution Management and Purchasing magazine as well as a featured blogger, most recently at www.mypurchasingcenter.com.  In 2011, he was selected as one of Supply and Demand Chain Executive magazine’s Provider Pros to Know. George participates as an industry practitioner teaching classes at Temple University in Philadelphia, PA and Howard University in Washington, D.C. He has held seminars on distribution cost recovery at MIT and Duke, presented internationally in Oslo, Puerto Rico, Mexico and Dubai and has served on the President’s panel for the Conference Board in New York City. He is also a frequent speaker at industry association events including ISM and APICS.

George has a BA in business administration from Temple University and an MBAA (MBA almost) in sales & marketing.