By George E. Krauter
The CEO of a large multi-plant corporation sent a memo to the procurement CPO instructing him to reduce the company’s expenditures by 22% in the coming year. The same memo was sent to the operations COO requiring a 30% reduction in operations costs. Both called their individual staff members to meetings to determine how to reach these cost/spend reduction goals and still meet their job requirements.
After an analysis of his procurement area, the CPO determined that MRO held the highest opportunity to meet the 22% reduction requirement set forth by the CEO. From past experience, the CPO had determined that the existing plant personnel would not be able to reach cost cutting targets internally; there were too many disciplines involved that had conflicting goals for MRO management.
However, an opportunity for change was presenting itself. The CEO was firm in his stance to cut expenditures… “Do it or get out!” The opportunity for the CPO to extricate his company from the MRO business finally existed; the CPO would oversee the outsourcing of the entire MRO supply chain to an expert MRO management company with a proven track record of on-site success. The predicted return on investment for the CPO would be a major part of the 22% spending reduction required by the CEO.
However, this changeover could not be achieved without the cooperation from the COO and the operations team. The MRO provider delivered a presentation to the COO’s team regarding the values that could be attained by maintenance and operations by utilizing the programs offered by the MRO expert. All within the operations department agreed to proceed with the outsourcing program. However, the COO’s team wanted to take credit for the cost cutting benefits that would accrue as a result of the outsourcing of the MRO function.
The MRO provider was in an enviable position; it was not whether or not the company would sign a contract (both procurement and operations were in agreement); it came down to whom would be able to claim credit for the outsourced program.
A real battle ensued; it was procurement vs. operations and the potential ROI suffered from the delay. Finally, the MRO provider took the problem in hand by defining the cost benefits that would accrue to each discipline. Direct financial benefits were to be defined, measured, and credited to the CPO (i.e., price, freight, inventory reductions); the indirect benefits were to be defined, measured, and credited to the COO (i.e., no down time, worker efficiencies, through put increases).
All disciplines realized that they would be satisfied with the effects of the change in MRO procedures; as a result, positive cooperation occurred and the entire cost recovery program was successful…and still is.
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.
The cost and revenue synergies from any M&A activities are always derived from multiple pockets. Companies do plan meticulously to achieve the savings from all departments such as operations, procurement, sales and marketing, general and administrati… Read More
George E. Krauter
In my first installment in this series, I pointed out how those within organizations opposed to outsourcing of the MRO function erect obstacles to success. Read More
Procurement has made strides in moving from a back office spend center to becoming a strategic business partner by driving process improvements, cost savings, and enhanced customer and supplier relationships. Read More
Staples Advantage is the one supplier that offers all the business solutions you need, all with the expertise of a specialty vendor. Read More
It started in 1972 with an idea, a new concept in distribution. Today, Digi-Key Corporation is one of the fastest-growing electronic component distributors in the World. The stimulus for this growth is Digi-Key's customer-centered business philosophy… Read More
Procurement and supply management leaders have a seat at the table, and management’s expectations are high. But what do CEOs really want, and is purchasing delivering on these expectations? This webcast looks at how procurement and supply management … Read More
At world-class companies, purchasing’s influence touches just about every area of spending. But, how exactly do procurement teams get to the point where other departments approach them for help with sourcing such indirect categories as human resource… Read More