By Susan Avery
MRO buyers are optimistic these days.
Amid a host of challenges--including an anemic economic recovery--procurement professionals with responsibility for sourcing Maintenance, Repair and Operations goods and services are looking forward to 2012 and are open to change, viewing it as opportunity for improvement.
That’s an outlook voiced by Aaron Hoover, Procurement Supply Manager at MillerCoors and echoed by MRO procurement pros at such other companies as Siemens Corporation and The Manitowoc Company.
“I’m optimistic because the opportunities to improve in MRO abound,” Hoover says. “We in procurement are changing and so are our suppliers. It all presents opportunity for us to take a look at what the possibilities may be.”
Hoover who has worked in procurement for three years at MillerCoors is implementing an agreement with a new power transmission products supplier. The company has an agreement with an integrator at four of its breweries in the western U.S. and is extending that to its four eastern breweries. The integrator will be purchasing power transmission products from this new supplier for MillerCoors.
Under an agreement with an integrator, a provider takes on responsibility for MRO purchasing, managing inventory and other related activities for its customer.
Consistent processes and lower costs are two benefits to this arrangement, Hoover says. The integrator also helps with one of his biggest challenges: Data.
“I am floored by the complexity of data surrounding all the parts and pieces of MRO,” he says.
Data can be inconsistent--causing a breakdown in the process, he says. “What’s really astonishing is that I don’t know anyone who really has a handle on how to effectively and efficiently manage it.”
Ron Casbon, a Senior Advisor with Greybeard Advisors LLC who helps procurement organizations develop MRO sourcing strategies, says data is an issue for most organizations.
“Spend data visibility, and, certainly, if you want to go to the next level, accurate spend data visibility, is always the challenge,” he says. “Most organizations find commonality of spend described very differently. Putting that together and understanding the spend is always a big challenge.”
At MillerCoors, Hoover encourages MRO suppliers to come forward with innovative ideas by inviting them to attend weekly meetings with the company’s asset care planners, employees who maintain equipment in the breweries. He also conducts business reviews with key suppliers quarterly or semi-annually. These meetings “open the dialogue.”
“I expect our suppliers to remain cooperative and understanding of our cost pressures,” he says. “Although the beer business is a little more resilient in a down economy, it certainly is not immune to economic downturns. We are under the exact same cost pressures, and suppliers are reasonable.”
At Siemens Corporation, Regional Commodity Manager Reggie Peterson whose responsibilities include MRO and integrated supply programs for North America, says he’s working on “Consolidation. Consolidation. Consolidation. My primary objective for this year is to reduce the supplier base by 25%.”
To achieve that goal, Peterson, who’s been in procurement for 13 years, is implementing integrated supply agreements at the global electronics and electrical engineering company’s larger sites. For its smaller to mid-sized sites, he’s working to increase leverage with current preferred suppliers. He’s also negotiating agreements with manufacturers of MRO items he purchases through distributors and installing vending machines at many sites.
Peterson’s big MRO sourcing challenge is contract compliance and influencing smaller sites to purchase through the company’s preferred suppliers. He looks to those suppliers to help meet this challenge.
“In the case of a very large organization with many sites, procurement mainly relies on the supplier to be an extension of its strategies,” he says. “Therefore procurement and the supplier must develop a strong partnership that extends to the local level. That way, the supplier receives valuable information from the sites that’s useful to corporate procurement to monitor and/or increase compliance.”
From his vantage point at Greybeard Advisors, Casbon says: “More progressive procurement organizations successful at encouraging innovation have holistic processes in place. Those achieving significant improvement in managing costs have some sort of loose partnership with the supplier that results in a common view of which costs can be impacted on either the supplier or user side.”
At Siemens, Peterson encourages suppliers to come forth with new ideas through constant communication.
Regularly scheduled meetings with high-performing suppliers “create an open environment for discussing all issues and projects in progress,” he says. “You’d be surprised how many times suppliers have answers for problems that face procurement. Often, these answers are developed in these recurring meetings.”
At the Manitowoc Company, Christian Widmann, Director, Indirect Commodities, is rolling out vending machines stocked with MRO items. Doing so is helping him to control cost, improve cash flow and reduce consumption by 30%. Manitowoc manufactures cranes and foodservice equipment.
Widmann, who has 27 years experience in procurement, is responsible for creating a sourcing strategy for MRO and other indirect categories and he has exacting standards for supplier selection. Capability at managing costs, servicing Manitowoc’s plants, and innovation are among the criteria his team uses to select a supplier. Also important is how the supplier approaches the relationship.
“We make sure the supplier is constantly engaging with people on the floor,” he says. “For instance, one supplier is at the plant every day meeting with me and then with our maintenance folks, working with them to help improve productivity and ensure that they’re getting the right part at the right cost.”
Assisting procurement by with new ideas is written into supplier contracts, he points out.
Widmann says he’s a firm believer in taking a team approach to sourcing. In fact, he says he sees himself as “a minister who marries suppliers and end users”. That approach serves him well. He asks end users for help with measuring supplier performance, and then meets with those suppliers that score below expectation for discussion and to create an action plan for improvement.
The team approach also helps with one of his challenges: Maverick buying. Greybeard Advisors’s Casbon agrees with Widmann that such off-contract buying is an issue for many procurement organizations.
The best way is for procurement to reduce maverick buying “is to get wholesome input from end users, the people who need the product, and satisfy their requirements by putting quality agreements in place,” he says.
Widmann’s thinking on teams extends also to working with suppliers to help mitigate price increases. After two years, suppliers are starting to seek increases on items manufactured from such commodities as steel, copper and cotton, he says. “My goal is to hold them off as long as possible. But, at the end of the day, I want them to make money too. If we don't achieve this win/win, some of our value-added service will be diminished. So we try to find a common ground and work with the increases.”
See also: Maverick Buying? Solicit Wholesome Input
Susan Avery is Editor-in-Chief at My Purchasing Center. She writes articles, blogs and white papers and manages and creates other content for the online procurement and supply management publication. She produces and moderates roundtable discussions, podcasts, webcasts and video interviews. Susan has 30 years experience covering procurement and supply management for Purchasing magazine and Purchasing.com.