The Sewing was Sent to San Salvador

By Guest Editor

June 02, 2017 at 3:20 PM

There WAS a company in southeast USA who manufactured private label sports clothing; they HAD five plants within a 10-mile radius of each other. The company CEO initiated a call to all plant disciplines asking for all cost reduction ideas to be implemented because of the threat of foreign competition.

The director of maintenance had been a long-time critic of the duplicated and unnecessary costs the company assumed from the internal MRO supply chain. All five plants had separate processes for ordering, receiving, and storing MRO parts; all requisitions went through “central purchasing” which rewrote the request on a purchase order and placed the order to a supply base of over 150 MRO suppliers. The maintenance director answered the CEO’s request stating that a considerable amount of savings could be made by consolidating the MRO buy and eliminating duplicated functions. This MRO project was assigned to the purchasing director who was directed to investigate the opportunity.

Purchasing put out a RFI to 50 of their MRO suppliers; most did not respond because they have little knowledge of companies internal cost let alone how to reduce it. Some of the suppliers offered ideas that had to do with price concessions, but only one understood the real financial and non-financial costs the company assumed when they consumed MRO…not when they purchased it.

This one supplier was an implementer and sustainer of the new MRO integration, not a distributor, and, as a result, maintained a process that defined the company’s total cost of ownership [TCO] and offered a program that would deliver what the CEO desperately needed. The program included utilizing master data leadership to define all parts consistently, a program to insure asset reliability, consolidation of the multiple stock locations into one storeroom staffed by the integrator and a CMMS system that would coordinate and control all necessary maintenance activities. The answer to optimum MRO inefficiencies.

But wait….here comes the rub. The program proposed also included cost reductions from the elimination of the standard purchase order process. All P.O.’s could be eliminated [not necessary to maintain the audit trail] and invoices reduced to two per month (a yearly reduction from over 15,000 to 24). This meant that it would be necessary to find other work for four purchasing clerks because there would be no more P.O.’s to place (another unnecessary duplication). When the purchasing director realized that he would lose four people from his staff, he felt that his position in the company would be lessened; he would not be as important. Therefore, he did not support the new change ideas that the company needed and reported that the present MRO processes were at optimum; in other words, he did nothing except report a five percent price reduction goal instead of a 25-30% guaranteed TCO reduction offered by the new integrator. In similar situations, when purchase orders are eliminated, staff personal can shift duties to accommodate increased plant activity; they rarely lose jobs.

Eventually, the company did not get the cost recovery needed and had to outsource the sewing function to San Salvadore; they closed the American plants. The purchasing director lost his job as did the people on his staff. So, the short sightedness of one director contributed to the unnecessary loss of American jobs including his own.

Would the MRO savings have made the difference? No one will really know, but it surely could have. The opportunity certainly should not have been denied simply to protect the short-sightedness of a single director. 

Tags: MRO MRO savings mro suppliers purchase order process central purchasing
Category: News Article

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