While many organizations have successful procurement strategies for their direct materials, 15-30% of revenues are spent on indirect supplies. This can include anything from marketing and IT to capital equipment and the essential maintenance, repair and operations (MRO) supply.
While indirect spend and MRO and PPE are mission critical to production reliability and facilities management, even the most sophisticated procurement organizations are only managing half of their indirect spend at best. This is because there are hundreds of subcategories of indirect and tail spend, each with nuanced characteristics, that hundreds of individual buyers spread across the organization are purchasing. MRO strategic sourcing is difficult because of the fragmented nature of the categories including in this supply chain. On average, organizations buy only 30% of the same MRO items year-over-year. Typically these are items that are fast-moving. The remaining 70% of MRO items are non-stock or slow-moving spot buys where the purchase price is not leveraged.
While having a team of procurement generalists and automating the requisition and PO process can help, in order to get the best performance and lowest cost across the supply chain organizations should address the three major obstacles in MRO sourcing strategy to drive significant value.
Generalists apply a one-size-fits-all approach. Using procurement generalists costs an organization half of the savings opportunity, because they manage less than half of this spend professionally. The biggest roadblock is gaining access to the spend. Organizational budget-holders don’t trust that the procurement team understands their business problems and objectives, and as a result 50-60% of spend is off-limits to the procurement team.
Gaining access to the spend areas that are usually off-limits to procurement requires building strong partnerships with the functional stakeholders in the organization. MRO strategic sourcing builds that partnership by demonstrating a nuanced view of the business objectives of the stakeholder and deep understanding of the spend category.
Knowledge of the goals of the business combined with insight into the supply market, due to continually running sourcing events in the market, allows MRO strategic sourcing experts to become partners with the stakeholders – and earn you access to 90 percent or more of spend, doubling the organization’s potential savings opportunity.
Market Insight and Data Analytics
To effectively negotiate and innovate requires real-time insight into market dynamics. This comes from having an MRO sourcing strategy that leverages industry experience, research, frequency in the market and deriving insights from data. Having access to intelligence on supply, demand and pricing allows organizations to partner more strategically with their supply base. Additionally, advanced analytics in MRO supply chain enables access to all data, connecting structured and unstructured data from multiple data sources and ERPs, making it scalable and distributable. The most valuable data analytics platforms like ZEUS have frequent refresh rates that enable near-real time decision making and give clients the ammunition to ask the right questions and act on that information.
Driving More Spend on Contract
Negotiating savings is one thing, but achieving those savings is another. Implementing a connected, end-to-end process helps stop leakage. Having the data analytics and tracking spend as it occurs can ensure savings are realized and pricing is accurate. SDI’s center-led structure and compliance model ensures the strategy set up by sourcing—whether ours or yours—is the one implemented throughout the source-to-pay process. MRO strategic sourcing and managing tail spend through a more connected process allows clients to realize savings of 30% or more over spot buying and rogue spending.
In fact, one custom program designed for an SDI food & beverage client achieved nearly 100% compliance—double what they were seeing previously—reducing consumption as well as saving them 12% off their spend.
To learn more about how an SDI MRO procurement strategy can help your organization achieve greater transparency and measurable savings with significant cost reduction enterprise-wide, contact us today.