A Guide to MRO Supplier Consolidation: Benefits and Strategies

MRO supplier consolidation
MRO Supplier Consolidation

Procurement professionals are always looking for new ways to maximize profitability and minimize expenses to improve their company’s bottom line. Although implementing an MRO supplier consolidation strategy is an excellent way to do this, it’s also one that’s often overlooked.

In this article, we’ll break down what the benefits of consolidating your MRO suppliers, as well as a step-by-step procurement and supplier consolidation strategy that companies can implement today to stay ahead of the market.

The benefits of MRO supplier consolidation

MRO supplier consolidation is the process of amalgamating a company’s suppliers so that the company can shortlist them based on a thoughtful analysis that aligns with their specific requirements, relevant categories, prices, and other critical attributes. 

If done correctly, MRO supplier consolidation benefits can add value to operations by reducing risk and streamline procurement and MRO inventory management, all while helping to significantly reduce tail spend.

Reduced costs

When a company has a small circle of trusted suppliers, the company generally has more buying power. As a result, market leaders can negotiate for better pricing and terms and conditions. This eventually means significant cost savings, especially when sourcing spare parts in bulk, which often results in discounts through reduced per-unit costs.

The saved money can now be reinvested into other areas of the business that return a higher ROI. Furthermore, fewer MRO suppliers mean that procurement teams don’t have to allocate other resources to administrative processes associated with supplier-related processes, such as tracking invoices, managing free-text POs, or constantly waiting for RFQ responses that can take weeks.

Stronger supplier relationships 

Suppliers play an integral role in the success of any business. Having reliable suppliers means organizations can source parts on time, in the right quantities, and without sacrificing quality. 

Supplier consolidation makes it possible to lean into an established relationship with a trusted supplier for multiple needs. It helps businesses cultivate stronger relationships based on accountability and performance, which can translate to strategic pricing plans and delivery schedules. Your trusted suppliers benefit by gaining a larger share of your MRO spend, which ultimately leads to better service levels.

Improved quality control 

Every additional MRO supplier used by a procurement team introduces a new possibility for complication, and many companies rely upon hundreds of suppliers for the same parts. If not managed properly, teams can experience excess inventory, unmonitored spend, and data quality issues that result in missed customer orders, increased costs, or reduced quality. 

Having a tight-knit group of suppliers means companies can have direct lines of communication with fewer intermediaries in between. If there are any issues, these can be identified and quickly resolved before the issue amplifies into something bigger. 

This not only makes procurement processes more simple, but it makes them far more reliable, too. 

What to consider when consolidating MRO suppliers 

To maximize the benefits of MRO supplier consolidation, organizations should consider some factors to help make informed decisions regarding their consolidated procurement plan. 

Here’s how to start implementing a supplier consolidation strategy.

Determine the costs associated with each supplier, including not just the upfront costs but also ongoing expenses such as maintenance, support, and upgrades. Consider the total cost of your partnership over time, not just the short-term expenses.

Companies need to carefully review their contractual obligations as well. What are their terms and conditions? What action should be taken if they don’t deliver parts and materials that meet the desired quality on time? Evaluate the capabilities of each supplier to determine which can provide the most comprehensive services and support.

When consolidating MRO supplier, it’s important to consider their previous track record of services. Have they consistently delivered parts on time? Is the quality consistent? Is pricing stable? Are they able to  integrate with business-specific systems and compatibility with new technology?

Creating a supplier consolidation strategy

Determine your desired outcomes 

The outcomes of one company are not going to be the same for another. Therefore, before procurement teams rush into consolidating their MRO supplier network, it’s important that they take a moment to assess their specific goals. Prioritize what your company wants most and make a list of qualities you’re looking for from a supplier. 

This makes it simple to clearly communicate with suppliers about potential contract terms and KPIs. Companies with suppliers who fully understand their needs will experience reduced production downtime, lower costs, and reduced shipping delays. 

Use AI to analyze your data and provide insights

Purpose-built MRO solutions that are powered by AI can quickly analyze your exising data to provide insights on supplier performance. This allows your team to successfully navigate your supplier consolidation initiatives and make informed decisions to reduce tail spend and risk.

Unfortunately many organization still rely on outdated systems, processes, and data cleanse strategies to only find themselves falling further behind.  Not only are traditional systems slow and prone to error, but they simply can’t adapt to an industry landscape that’s changing rapidly. 

A purpose-built MRO inventory optimization solution can eliminate all these problems by not only eliminating outdated data practices but by also harmonizing all supplier-related metrics into a single AI and machine learning platform to provide supplier insights from day one. With just a tap of a finger, procurement managers can access data regarding cost, efficiency, lead time, delivery duration, and quality assurance. Better yet, managers can also easily identify gaps in performance and take corrective action. 

By utilizing AI to analyze data and performance metrics, organizations can make informed, data-driven decisions about which vendors to keep, which to consolidate, and which to replace.

Support your MRO supplier consolidation strategy and receive benefits with the right tools

MRO supplier consolidation is an effective method to add value to your company and improve its bottom line. Although it’s easier said than done, the right tools will allow market leaders to simplify the process of MRO supplier consolidation and reach their goals faster.

Learn how organizations can improve their MRO supplier consolidation strategies with a purpose-built MRO optimization solution.

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