By George E. Krauter
In the late sixties, there was a method of MRO supply called “Systems Contracting,” initiated and applied by the Carborundum Company who required their suppliers to follow Systems Contracting directions when suppling MRO parts. When Systems Contracting was is operation, it reduced paperwork to just four copies [a requisition] and a consolidated monthly invoice thus generating substantial savings on costly transactions for low value MRO materials.
In 1971 a company was formed called Industrial Systems Associates (ISA) by a group of noncompeting MRO suppliers that was able to provide all categories of MRO requirements. ISA sold the cost benefits of the concept as a sole source of revenue; they did not take purchase orders, and they were successful.
A simple brochure entitled, “The Nine Steps to Profitable Systems Contracting” consisted of their total marketing effort. The nine steps were laid out as follows:
This was the Systems Contracting that reduced MRO TCO in the seventies. It served as the forerunner of total MRO outsourcing to third party providers; it initiated changes in how some MRO consumers acquired and accounted for their MRO consumption. Thus, changes occurred starting with Systems Contracting, up through vendor managed inventory (VMI), and then on to electronic purchasing, until the optimum level of the evolution was reached: elimination of the MRO distribution business entirely.
Although multiple changes have occurred in the MRO supply chain, these nine steps are, in general, still followed. In 1849 Jean Baptiste Alphonse Karr coined the phrase “The more things change, the more they stay the same” which still holds true today.
I see procurement managers that attempt to make the change from an MRO cost drag to MRO as a profit contributor. Many times, they are only partially successful because of the limited support they receive from senior management. Lack of success effects a return to the old ways. I see situations where profitable procedures have been installed only to have uncooperative plant personnel see to it that the “new” process will fail [there are multiple ways this can happen].
I have also witnessed instances where a purchasing director hired a third-party MRO provider and changed a storeroom from a total disaster that caused downtime and workers to be idle to a world class MRO operation effecting maximum return on investment. A new plant manager was hired and said, “This storeroom runs fine; why do we need the third party? We can do it ourselves.” The process of doing it “ourselves” added 80 suppliers, increased inventory, decreased request to fill ratios, increased prices paid, and grew the level of transactions by over 600%. The status quo returned.
In MRO, with many notable exceptions, the more things change, the more they stay the same.
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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