Where MRO Software Fits Into the Strategic Sourcing Process
MRO inventory procurement is a tricky business.
It’s a balancing act between what we can predict, and predicting the unpredictable. From sourcing the lowest cost materials and spare parts to finding ways to build an MRO supply chain that’s resilient in unpredictable times, building the right MRO inventory strategic sourcing process for your organization can be tough—but it is necessary nonetheless.
Luckily, there are a few strategies that can help you optimize upstream planning.
What is the 7-Step Strategic Sourcing Process?
Streamlining your MRO and indirect material sourcing strategy is an important practice for businesses across industries, especially during times of supply chain disruption. When organizations have to struggle to keep their heads above water, experiencing unplanned downtime is the last thing they can afford.
Different models have strived to optimize MRO sourcing processes, but there isn’t a one-size-fits-all solution. In a technology-driven marketplace, traditional techniques can still work, but they should be reinforced with purpose-built MRO software that is powered by AI.
Follow these seven steps to elevate your strategic sourcing process.
1. Spend analysis
To determine what’s working and what isn’t, start by taking a critical look at your current MRO inventory procurement processes and suppliers.
Efficient spend analysis occurs when companies proactively seek methods for gathering, analyzing, and categorizing expenditure data at both the facility level and the network level.
This is when you identify what you spend, where you spend, and the ROI for that expense. Spend analysis generates valuable insight that aims to decrease procurement efforts, optimize costs, and improve efficiency through better visibility into the MRO sourcing ecosystem.
It exposes spending with non-contracted vendors so that you can target maverick MRO spend or lost savings on non-negotiated price points. Spend analysis also enables you to pinpoint frequent expenses that don’t have a contracted vendor in place, or ways for you to consolidate purchasing contracts with a smaller list of vendors. It’s the starting point for risk elimination and MRO inventory optimization.
Be sure that the data you collect for spend analysis is clear and comprehensive. It should be collected in a consistent way across sites so that you can make sense of it from one location to another.
Because this first step is so critical for reaping the benefits of the next six steps, it’s important to get it right.
Conducting this level of analysis can be an arduous task if it’s done manually, and if—when you’re dealing with multiple plants and facilities—consultants require extensive time to bring back meaningful results. Try to sidestep the hassle and time constraint by using a purpose-built MRO software to get better results quickly by using your data as it currently exists. This will also help with the subsequent steps in the strategic sourcing process.
2. Market research
Market analysis for different MRO vendors and suppliers enables you to leverage existing research against existing contracts or identify new vendors.
Whether you go local or international, you want to look for a vendor with a reputation for being reliable, consistent, and high-quality. Look through existing partnerships and their presence in their respective markets.
You should also build an awareness of key cost drivers, including:
- Part costs
- Lead times
- Shipping costs
- Competition (depending on whether the industry is growing or shrinking)
- Potential political, social, and ecological concerns
Robust research allows you to construct accurate supplier profiles that can be assessed to identify potential pain points, areas of risk, and evaluate vendors’ market positions.
This information can help you uncover opportunities to renegotiate contracts, identify new vendors, or find more efficient suppliers. The more awareness you have of a supplier’s market, the better. This is ultimately what will help you most with upstream planning and avoiding potential bottlenecks.
3. Shop around
With a better picture of the market, you can start narrowing down potential strategic sourcing MRO vendors. Consider your organization’s compliance requirements, end goals, and performance objectives.
Having a clear idea about what you want from a vendor can help you in these two ways:
- It helps you narrow down your options in the supplier pool.
- It ensures that your selected strategy aligns with your business objectives.
Explore different options across the market by comparing new vendors to those you are familiar with and collect as much information as possible. Understanding where suppliers fit in your market helps you leverage contracts, so be thorough. This is also a great way for you to identify vendors who can consolidate some of your purchases.
Be sure to ask focused questions about bottlenecks in the market you’ve identified, fluctuations in pricing, and supply chain disruption responses. The information you gather will be helpful in building a framework for future contracts.
From there, start creating a comparative list of vendors based on factors such as:
- Financial performance
- Reputation
- Historical and current compliance with government and industry standards
- Reliability
- Creditworthiness
- Delivery and warranty policies
Being open to new vendors and thorough in preliminary research can significantly improve implementation as well as your relationship with suppliers.
4. Negotiate with MRO suppliers
Now that you’ve decided who you want to buy from, you can start building out potential procurement processes with your shortlist.
Ask strong candidates to submit proposals that include price points and delivery processes to start negotiations.
Unfortunately, the balance of power has shifted from buyers to suppliers in many industries. In some cases, MRO suppliers have eliminated competition by driving down costs or by developing disruptive technology. In other cases, sky-high demand and disruption has outstripped supply so much that many suppliers can charge much higher prices than companies have typically experienced.
Regardless, it’s important that you still advocate for your business. There are plenty of tactics out there to turn the deal in your favor.
For example, consolidating purchasing across units can help cut costs because it increases purchasing volume. Consolidating vendors, too, can work similarly. Some suppliers offer discounts for large orders, which can go a long way in helping you save on shipping costs.
Understanding manufacturing processes and industry standards also lends an edge in negotiation, so keep any research or relevant data close by. If your supplier knows that you’ve done your homework, you can start your relationship with them on more equitable terms.
5. Create an MRO procurement contract
Now that you have research and negotiated price points on hand, you can begin to draft a procurement contract or reevaluate your existing one.
This is a critical part of streamlining your strategic sourcing process, especially if there are existing bottlenecks you want to address. No detail is too small to address, and no stone should be left unturned.
To help you target your needs, use collected data to write clear agreements surrounding:
- Terms and conditions
- Payment terms and price points
- Delivery terms
- Delivery delays
- Supply shortages
- Compliance
Getting the details out in the open helps avoid ambiguity and confusion at the start of your relationship, building a foundation of transparency and accountability. The benefits of reliable suppliers manifest themselves in a wide range of areas, from reasonable prices to shortened delivery times.
What’s more, contracts can be excellent tools to measure supplier performance as well. They communicate clear benchmarks with your suppliers and offer measures to keep them accountable when those terms are not met. For instance, you may choose to write in a rebate for late deliveries or create agreements for alternate sourcing in the event of backorder situations.
Your contract will give you something to measure data against, because ultimately, if you’re cutting costs through rebates for delayed deliveries, you may not actually be optimizing your MRO sourcing process.
6. Establish strategic relationships with your vendors
With your contract in place, you can begin to establish a strategic relationship with your vendor.
Onboarding your new vendor is a critical part of optimizing your MRO sourcing process, especially if you are moving on to a new vendor. You should address the concerns and needs of both vendors and team members responsible for interacting with the new MRO supplier.
Iterating the importance of using only contracted vendors while purchasing can help maximize savings and reduce duplicate spending. It’s best practice to do this by centralizing procurement processes and spending data so you can continue to conduct robust spend analysis.
Keeping your vendors and suppliers in the loop is also a critical aspect of the strategic sourcing process. Forge a resilient relationship with them by keeping them in constant communication and demonstrating their importance. They should be a part of relevant compliance meetings and made aware of strategic efforts to scale up so they can provide you with services that go beyond timely deliveries.
7. Evaluate MRO performance
Your strategic sourcing process doesn’t end after onboarding your suppliers, nor will it be perfect on the first go. Given the dynamic nature of the global market, conditions can change rapidly, making your MRO sourcing strategy a constant work in progress that always has room for improvement.
It’s important that your procurement team evaluates and measures the performance of your suppliers over time by collecting harmonized data and benchmarking supplier performance. This will shed light on areas that need attention, and you can quickly notify your suppliers before it snowballs into a bigger problem.
Make the process more efficient
The 7-step strategic sourcing process is widely used for optimizing MRO sourcing. The tried and true method has worked for many, and it may even work for you.
Luckily, some new tools can further streamline the strategic MRO inventory sourcing process. Coupling this well-regarded approach with technology can help your team see results faster.
Here’s how.
Streamline data collection and comparison
When MRO inventory data is scattered and fragmented across multiple sites, analysis can be extremely difficult. There may be too much disparate data for you to make sense of true inventory numbers, indirect material spending, and supply chain resilience.
Decentralized systems are susceptible to rogue spending, duplicate parts, and shortages of key materials. Even if sites are properly managed, small inefficiencies in spending across the board add up and can impact your bottom line.
Use an MRO inventory and materials management intelligence tool that will help you consolidate data into a single MRO software platform. Harmonized MRO inventory data returns true inventory numbers, tracks maverick spend, and helps identify the strongest and weakest links in your enterprise network. This ultimately helps reduce overall cost while simultaneously balancing risk.
Leverage MRO intelligence tools
MRO software that leverages artificial intelligence (AI) and machine learning can take your strategic sourcing process to the next level.
This technology uses historical data to derive valuable insights that are used to render suggestions and action items to optimize spending. Plus, this technology is smart enough to keep up with and integrate incoming data so that optimization is an ongoing process. This results in the highest possible ROI because it builds on current procurement strategies, rather than phasing it out in stages.
These MRO software tools also enable you to monitor Key Performance Indicators (KPIs) so you can evaluate suppliers based on performance. Not only does this give you the ability to hold vendors accountable, but it is also an excellent way to ensure that you reap the benefits of your negotiated contract.
Keep procurement strategies consistent
Investing in the right tool can make upstream planning simpler for everyone involved. For one, it makes negotiated contracts accessible across sites and mitigates the need for shopping around.
It also keeps MRO inventory purchasing to a minimum by keeping current inventory numbers front and center. Consistent MRO procurement strategies can help you increase purchase volume by consolidating spending across sites, ultimately allowing you to negotiate the best possible procurement contract.
Couple tried and true methods with new tech
Using AI-powered MRO inventory optimization software to streamline data collection and centralize procurement processes can help you see high-yield results from your optimization strategies.
These systems also make your MRO sourcing scaleable and can help you respond to unpredicted disruptions with informed decisions. In the end, the advantages of these new tools help you exercise as much control as possible in an ever changing supply chain. Traditional approaches to streamlining indirect material sources still work, but adopting the right tools to enhance those processes will generate faster and longer-lasting results.
To learn more about balancing efficiency and responsiveness through MRO inventory optimization software, download our ebook on overcoming MRO sourcing challenges today.