MRO Buying gets strategic

MRO buyers look ahead, and see more outsourcing, long-term planning, global buying and supplier alliances.

By Susan Avery — Purchasing, 3/13/2008

Following are excerpts from Susan Avery’s article in Purchasing which point out some interesting trends as they relate to offshore manufacturing and outsourcing. 

There’s no longer any question—the MRO buy is strategic.

Purchasing got an overwhelming response from readers to a recent survey on their role in the maintenance, repair and operations (MRO) buy. Of the purchasing professionals who responded to the poll, 88% say the buy is more strategic today than it was five years ago, and they provide evidence—success stories—to back up the statement.

Results of the survey show MRO purchasers have slashed the supply base and formed closer relationships with a smaller number of key suppliers. They’ve embraced technology for the procure-to-pay process; buyers at plant sites are placing orders directly with suppliers with which the company has national or regional contracts, often using online catalogs. For their part, MRO suppliers provide technical assistance to the plants, bringing in their suppliers (the manufacturers), when help with such activities as product substitution and demand management is needed.

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So, what’s next? Where is the MRO buy heading? What is happening today at companies in just about every industry across the nation provides some indication of what’s to come for purchasing pros with responsibility for MRO, respondents say.

Other MRO purchasers say they expect to be sourcing for other divisions within their companies, and searching for suppliers with capability to provide goods and services to locations outside North America. Some seek supplier help with low-cost country sourcing efforts. Most of the survey respondents now are looking at MRO over the long term—something relatively new for many purchasers.

More outsourcing

The sourcing operation at BNSF Railway Co. started to look at its MRO buy with an eye towards the strategic about two years ago. Since then, sourcing has worked to standardize processes and data and taken steps to rationalize the supply base, forming relationships with fewer suppliers or integrators that can do more than simply provide products to the company.

Aligning goals of both purchasing and supply organizations is key, says Doug Keady, director of strategic sourcing and contract governance for BNSF in Ft. Worth, Texas. “I challenge suppliers every time we talk,” he says. In those discussions, Keady works to ensure suppliers understand the company’s business and are willing to offer up their expertise to bring new ideas to the table.

Global sourcing

Illinois Tool Works (ITW) in Glenview, Ill., started to look at MRO purchasing more strategically three to four years ago when management tapped Gary Anton to be vice president of corporate strategic sourcing. Until that time, each of the more than 700 business units at the decentralized company purchased MRO on its own. Anton’s job is to rationalize the supplier base and leverage some of that spending.

He and his team set up national agreements with 15 industrial distributors; each of the suppliers provides the company with specific categories of products such as electrical, power transmission, fasteners, and general industrial supplies. “We believe we have the right supplier partners going forward,” says Mike Kamradt, director of corporate strategic sourcing at ITW, who assumed his role late last year. He and Jeff Garing, MRO manager, are working to take these agreements to the next level. They’re asking for guaranteed savings which they expect suppliers to deliver through such non-price aspects of total cost as inventory reduction, product substitution and demand management.

ITW has come a long way in a few short years. While the company doesn’t mandate use of the preferred suppliers, Anton and his team are selling the benefits of working with fewer suppliers to the business units and are having some success. One of the company’s preferred suppliers is reporting a five-fold increase in sales. They’re also looking for suppliers with capability to provide goods and services in Europe. “We’re not there yet, but we think eventually we will have synergies with our brethren across the pond to work on some things together,” says Kamradt.