Thus, he recommends being proactive with how data is
managed. “Ensure you are classifying suppliers as you’re
bringing them in, and require suppliers to provide line item-level detail in their monthly reporting,” says Croasdale. “Keep
in mind suppliers are naturally very knowledgeable about the
items they offer and most likely have a set classification and
categorization schema associated with them, so you should
use this to your advantage.”
What is the best way to use this insight from suppliers?
Croasdale recommends standardizing your classification
for MRO items based on their information and ensuring
consistency across all locations. It’s also a good idea to “assign
internal part numbers to recurring purchases, with a defined
process for purchasing these items that is clearly disseminated
across the entire organization,” he says.
Occasionally analyzing the market is also an important part
of managing MRO spend, Fernandez says. “We test the
market every three to four years to talk to other suppliers
and see what’s out there. Just because you’re an incumbent
doesn’t mean you’ll keep our business,” he says. “You want a
great partnership with suppliers, but you have to make sure
that partnership is always delivering value and meeting all
PREDICTING WHAT’S NEXT
As technology advances, managing MRO spend may evolve
as well. Tevelson says he expects to see “more automated
dispensing and replenishment of stock,” and Fernandez
believes predictive spend analyses will continue to help
procurement head off emergencies, especially regarding items
used repeatedly. “For example, we already consider things like
looking at mean times between failures on mechanical seals
on equipment. If the seal has been in place for 12 months and
the supplier knows the average life is 18 months, we can plan
to replace the seal beforehand,” he says.
Croasdale agrees that suppliers’ expertise on product life
cycles under clients’ normal use can help predict breakdowns,
which enhances forecasting for stock replacement parts and
just-in-time inventory. He foresees even more capability soon.
“Advancements in 3-D printing and scanning in the MRO space
will mean OEM replacement parts may be made on demand,”
he says. “New technology will enable greater spend visibility
through big data analytics and, ultimately, better planning and
forecasting. These elements all lead to a future MRO state
where you can either rapidly get what you need or already
have it.” ISM
Lisa Arnseth is a publications coordinator for Inside Supply Management®.
WHEN TO BRING IN AN MRO SERVICE
PROVIDER … AND WHEN NOT TO
BY MICHAEL CROASDALE
Third-party firms can provide spend analytics and ata aggregation, data management support, and strategic sourcing and procurement
transformation services to get initiatives moving.
An MRO service provider is a good idea when an
organization doesn’t have a solid grasp of its MRO
spend, lacks in-house expertise or cannot commit
to developing or hiring in-house resources. An
MRO service provider can help get data under
control, benchmark pricing, leverage buying power
and strategic relationships, streamline ordering,
reduce obsolete inventory and improve inventory
management. MRO service representatives may
make recommendations for alternative products
(for example, OEM part conversion, if applicable)
and ensure your facilities’ machinery is running
as expected. Contracts will need to have detailed
service level agreements (SLAs), KPIs and metrics,
but once you have all the elements in place, daily
and long-term operations should run smoothly.
Theoretically, when an MRO service provider is
working for you, you should no longer have to
worry about many elements of your MRO spend.
The key to success is establishing an agreement
with aligned incentives and clear KPIs.
On the flip side, you’re giving control to a third
party. There is always a level of risk when a third
party is brought in to handle crucial spend items.
Ultimately, an outside provider is going to do what’s
best for its organization — not yours — which could
mean paying for a service that you don’t necessarily
need. If you have enough spend to leverage on
your own, you’re going to secure lower costs than
an MRO service provider. Why? Because it is either
tacking on its margins to the piece price, applying
a service fee, or both. And of course, if SLAs are not
adhered to and KPIs fail to hit targets, you will need
to have associated penalties in place.
Organizations often think that because they don’t
have a solid grasp of their MRO spend, using an
MRO service provider is the easiest and most
effective way to reducing cost. However, there
are more effective alternatives — such as having
dedicated and well-trained supply management
staff, like category managers and analysts — if
you have time and resource constraints. Do your
homework and investigate the right solutions for
your individual industry and company.
Michael Croasdale is a senior consultant in the MRO practice
at Source One Management Services, LLC in Willow Grove,