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Friday, August 22, 2014

MRO Procurement Grapples with Price, Quality

In 2013, MRO procurement professionals see the economy improving, and, with it, a marketplace that is becoming more competitive. They struggle with data — after all, they’re responsible for sourcing maintenance, repair, and operations items almost too numerous to count. They have new concerns about quality and are figuring out how to forecast pricing. They want suppliers to live up to commitments to deliver value to plant locations.

MRO items keep a facility up and running, and include such spend categories as industrial supplies; personal protective equipment (safety products); power transmission products; pipes, valves, and fittings (PVF); and electrical products, among others.

Value of Data

Talk to MRO procurement professionals and data is a word that comes up most often in conversation — managing data on all the products they source and inventory, the integrity of data on spending, and analyzing and understanding data. Clean, accurate data sets the stage for fulfilling relationships with suppliers and, they say, is key to helping meet challenges they face every day.

“It’s important to have good data when you develop your request for proposal,” says David Stockwell, senior corporate buyer, MRO, Verallia North America, in an interview with My Purchasing Center. “Otherwise you’re not bidding like product for like product. In our request for proposal (RFP), we include data such as manufacturer name and manufacturer part number so the supplier knows exactly what we need.” In his role, Stockwell is responsible for MRO sourcing and inventory management for 13 glass-making plants in the U.S.

Managing data on the MRO buy isn’t easy, although procurement’s use of spend analysis and management tools helps.

Michael Dennis, a procurement professional with years of MRO sourcing experience — most recently with a large petrochemical company — says that while MRO buyers have made some really big strides, “managing data is still a tough nut to crack.” To get good data on MRO spending at his company’s plants, he tells of conducting installed base analysis to get a read on parts used by the maintenance teams and then rerunning the analysis every year or so to keep it fresh.

Yurly Yavorovskiy, sourcing operations team member at DuPont, who has set the strategic direction for MRO procurement for six sites before moving to a new position, is taking a different tack to managing MRO. His team has opted to outsource management of the MRO storeroom, which he says should help the company get a handle on data of parts used on the plant floor that will help with commercial decisions.

MRO professionals are analyzing data to forecast prices and source supplies, such as pipe, more effectively. Credit: Renjith Krisnan

MRO professionals are analyzing data to forecast prices and source supplies, such as pipe, more effectively. Credit: Renjith Krisnan

“Outsourcing management of the MRO storeroom introduces discipline around parts management and enables better data that can be analyzed more accurately,” Yavorovskiy tells My Purchasing Center. “More accurate analysis helps us come to better sourcing decisions.” Another key to procurement success at managing MRO: Collaborating with maintenance to understand exactly what products they use and why.

Quality, Price

Having accurate data goes a long way towards helping MRO procurement meet some of its sourcing challenges. One of these is quality. More MRO procurement pros talk about suppliers trying to sell products that are not filling their exacting requirements. The recession may play a role in this, they say. Suppliers are substituting products as a way to manage their costs. But it can cause bigger problems down the line for operations and maintenance.

At Verallia North America, where safety is the number-one priority, Stockwell stresses the importance of ensuring that suppliers provide products that match the company’s specifications.

Using personal protection equipment (PPE) as an example, he points to employees who work with molten glass and furnaces that heat up to temperatures of 2,800 degrees Fahrenheit. These men and women cannot wear gloves that don’t exactly meet product specifications.

“It is crucial to analyze the data in detail,” Stockwell says.

At the petrochemical plant where he works, Michael Dennis has had similar experiences, also with PPE. He says his team works to ensure that specifications are properly documented and that there are testing protocols to validate standards.

“If you pay attention to the details before you buy and make sure suppliers pay attention and are held accountable, then you don’t have premature failures and unnecessary turns on goods that should last days instead of hours,” he says.

Another angle to procurement’s new concerns about quality stem from suppliers that source from low-cost countries.

“Purchasing needs to be cognizant of where their materials are coming from,” says Joy Tanner, purchasing manager at Altria. “There’s risk — reputation, financial — and there are environmental implications. It’s sometimes difficult for MRO. But it’s our responsibility as good stewards to make sure we try to identify and understand our supply chain.”

In her role, Tanner manages MRO sourcing for four plants in the U.S.; she uses data generated by the company’s SAP ERP system.

MRO procurement professionals also grapple with issues related to prices of items they source. Typically, most use cost-plus or list-minus models when they purchase through distributor suppliers. Again, having clean accurate data on spending helps. But it’s not enough for MRO procurement pros looking to forecast out usage and prices of the items they purchase. While some track commodity (steel, copper, energy) prices to determine what they could be paying in the months and years ahead, others see some limitations to using these tools.

At Altria, Tanner uses Bureau of Labor Statistics (BLS) data to forecast pricing of MRO services (labor) she sources. She’s also able to forecast usage and pricing of MRO items such as cleaning supplies that the company orders repeatedly. But, when it comes to maintenance and repair categories of spend such as electrical products, “realistically, using commodity prices is not very effective.

“We purchase finished goods through distributors,” she says. “It is unreasonable to look at breaking down every single MRO category into what percentage are composed of different raw materials.”

Still another challenge, some MRO procurement professionals say, is ensuring that suppliers meet all key performance indicators as specified in the contract, such as on-time delivery, and contribution of cost-savings and productivity improvement ideas.

Supplier management at Altria is assigned to the functional area accountable for the goods and services required. “The functional area is closest to the supplier and can most effectively manage the relationship and contractual requirements,” says Tanner.

At DuPont, Yavorovskiy looks for MRO suppliers that eagerly come forward with new ideas to reduce cost and improve productivity and encourages them to be proactive in delivering commodity expertise with the products they sell. “I am willing to pay a premium for a product if the supplier delivers value,” he says. “That value can bring huge benefits to a manufacturing operation.”

Also see the My Purchasing Center article MRO Storerooms: Rats in the Pantry.

 


Susan AverySusan Avery is Chief Editor 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 webcasts. Susan has more than 25 years experience covering procurement and supply management for Purchasing magazine and Purchasing.com.

This article was originally published at My Purchasing Center and has been republished with permission. For more stories, visit MyPurchasingCenter.com.

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