Purchasing - Article Review

MRO sourcing goes global Avery, Susan . Purchasing ; Boston  Vol. 138, Iss. 2,  (Feb 12, 2009): 48-52.

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ABSTRACT  

Maintenance, repair and operations (MRO) goods and services buyers at other companies with worldwide

operations are taking different tacts and are equally successful. Some deploy sourcing strategies that are global,

regional, national or local with industrial distributors that serve customers from a base in North America and/or

other regions. Others negotiate pricing agreements with global manufacturers and buy through distributors for

those manufacturers. For the most part, these buyers select sourcing strategy for MRO based largely on

requirements of internal customers. However, supplier readiness and capability also play an important role in the

direction the buyers choose to pursue. Typically, purchasing professionals with responsibility for sourcing MRO

goods for sites located around the world say they aim for an approach that's global. The ideal is to find single

distributors that can serve their needs across the world. When they can't find them they look for distributors that

are regional or local. Results of Industrial Distribution magazine's 62nd Annual Survey of Distributor Operations

show that 72% of distributors conduct business globally or expect to in the next three years. The MRO sourcing

operation at IBM-and other companies-has a formal process for selecting a supplier to fill requirements of internal

customers, typically colleagues in operations or manufacturing. These processes are usually part of a multi-step

strategic sourcing process. FULL TEXT  

Purchasing operations at global companies are extending sourcing strategy to other regions of the world. The trick

is finding suppliers able to meet their rigorous standards.

On the face of it, developing and deploying sourcing strategy for maintenance, repair and operations (MRO) goods

and services for a company with facilities located all over the world appears complex.

But, when you get right to the heart of it, it's relatively simple, says Scott Singer, CPO at Rio Tinto in Brisbane,

Australia, explaining that setting strategy for a global buy is not much different from the approach a centralized

sourcing operation takes anywhere in the world. "You want a superior unit price, a fair and reasonable mark up and

a fulfillment model that provides the service you need," he says.

Singer, a member of Purchasing's editorial advisory board who was with United Technologies Corp. when it

received the magazine's Medal of Professional Excellence in 2006, is a year into his new post at the global mining

company and is working to hone its sourcing strategy.

While already sourcing some MRO goods globally, he and his team are considering taking more of an integrated

supply or outsourcing approach to the buy. UTC, Intel and other global companies have success with integrated

supply models, where they hire distributors or other companies to take over the purchasing process, integrating

the provider's technology with their own.

MRO buyers at other companies with worldwide operations are taking different tacts and are equally successful.

Some deploy sourcing strategies that are global, regional, national or local with industrial distributors that serve

customers from a base in North America and/or other regions. Others negotiate pricing agreements with global

manufacturers and buy through distributors for those manufacturers.

For the most part, these buyers select sourcing strategy for MRO based largely on requirements of internal

customers. However, supplier readiness and capability also play an important role in the direction the buyers

choose to pursue.

"It starts with taking a hard look at aggregating the spend and consolidating sources of supply," says Peter

Torrenti, regional vice president at Quadrem North America in Chicago. Once buyers take those first steps they

need to make sure suppliers can meet their requirements regardless of where they are located.

From his post at Quadrem, which hosts an online network of more than 55,000 MRO suppliers and 1,100 buyers

around the world, Torrenti says he sees more large buying organizations sending strategic sourcing professionals

out into the market and working with suppliers to evaluate them. "They are doing deep risk assessments to see

whether the supplier can fill requirements of their operations wherever they may be."

Strategy that makes sense

At Procter &Gamble in Cincinnati, the purchasing, or "purchases" operation, is organized by spend category. Each

category is called a spend pool and has an overall strategy and sub strategies for groups of like items. MRO is a

spend pool with a global strategy that's executed regionally. P&G has 145 manufacturing sites globally.

"We strive to consolidate our supply base, leverage spending to create savings, improve productivity and reduce

transactional costs," says Markus Hoff, global MRO spend pool leader. These efforts align with corporate

objectives and the company's strategy for managing its plant-based storerooms.

P&G buys off-the-shelf items through distributors. Hoff and his team consider U.S.-based companies with

operations in Canada, Puerto Rico and Latin America or branches in Western Europe or Asia as sources. They work

with Western European suppliers with capability in Central or Eastern Europe. For some operational supplies, P&G

is starting to an integrated supply approach through which providers purchase, own and manage the items.

Typically, purchasing professionals with responsibility for sourcing MRO goods for sites located around the world

say they aim for an approach that's global. The ideal is to find single distributors that can serve their needs across

the world. When they can't find them they look for distributors that are regional or local.

Brad Gray, global director, purchasing, at The Dow Chemical Co. in Midland, Mich., says, "We start out at the

highest level possible, a global strategy as the preferred approach, and then move to regional and then local." Dow

has customers in more than 160 countries and its strategic sourcing organization is global. Global categories

leaders in MRO set sourcing strategies that align with Dow business strategies and select the approach that best

delivers agreed upon results.

At IBM, Anna Dulik, global MRO strategic sourcing manager, and her team source in more than 150 countries for

requirements for the company's facilities and its Business Transformation Outsourcing (BTO) operations. The BTO

requirements, however, do not influence IBM's internal sourcing strategy. "The strategy we select," she says,

"depends on type of goods sourced, where the client facilities are located in relation to where suppliers are located,

level of support, cost and other factors."

And at Intel Corp., in Santa Clara, Calif., the materials operation has outsourced the buy to an integrated facilities

services provider in the U.S. and is evaluating taking the concept global to Asia and EMEA (Eurpean, Middle East

and African) countries, where Intel already is working with regional MRO sourcing companies. Tom Newcomer,

materials manager of facilities services, says they select a strategy to meet the company's technical requirements

for its manufacturing plants, data centers and office buildings.

Capability and challenges

Results of Industrial Distribution magazine's 62nd Annual Survey of Distributor Operations show that 72% of

distributors conduct business globally or expect to in the next three years. Twenty-one percent are setting up

locations internationally.

While distributors based in the U.S. are beginning to have a presence in other regions (and those based in Europe

and other areas are starting to set up shop here), there are still hurdles that can slow them down.

Among them are regulatory requirements that prevent a standard contract from being used across regions and

globally, says Dulik at IBM. Suppliers also may have excessively high shipping costs due to distance between

locations or delivery time that may be lengthy. And not all countries allow open purchasing from external (out of

country) suppliers and importing of supplies. Plus there are taxes and duties that protect local suppliers.

The MRO sourcing operation at IBM-and other companies-has a formal process for selecting a supplier to fill

requirements of internal customers, typically colleagues in operations or manufacturing. These processes are

usually part of a multi-step strategic sourcing process. The supplier selection process also has steps that

specifically address supplier capability.

For instance, global MRO purchasing at Dow has a detailed supplier approval process that it developed with the

company's manufacturing and engineering operation. Together the two conduct supplier audits, including site

visits, and put together recommendations that outline strengths and weaknesses of the supplier.

"Once the team is satisfied that our criteria, such as environmental health and safety performance, product and

service performance, lowest overall cost of ownership and reliability, have been met, we place them in our

approved supplier program," says Gray.

Especially important for providers of integrated supply services is systems capability, says Dave Dunny, director of

global facilities services at Intel. "Ability to source off-the-shelf is fairly straightforward," he says. "Providers also

have to be able to integrate with our site teams to procure items that are custom to Intel and be able to

competitively bid those and establish a cost reduction trend over time. Integration is the best way we've seen to

manage data."

For good suppliers that can't service their needs in certain countries, global sourcing operations at some

companies help them improve their capabilities or even set up operations in those countries.

A case in point is P&G. "Through our SRM process, we can create long-term strategic partnerships with the right

suppliers and together find growth areas in other regions," says Hoff. "We have projects in India that leverage a

supplier's capability and success in North America with its business strategy to grow in that country."

Another is Hartford, Conn.-based UTC, where the supply management operation uses an integrated supply model

for MRO at its manufacturing sites in the U.S. and Canada and is expanding the approach to Poland, Singapore

and other regions. In Poland, the company works with one of its North American integrators at its Pratt &Whitney

manufacturing sites. In Singapore, it does business with a second integrator at a Carrier facility.

As UTC expands its integrated supply model, Scott Little, global commodity manager, says, "We look the supplier in

the eye and say, 'We need you to support us overseas.''' In one case, its integrator in the U.S. is leveraging

capabilities of its parent company to expand globally.

UTC businesses learn of the success of the integrated supply program through its global supply council and its

global operations council. Little presents results at council meetings, and members let him know they are

interested in implementing integrated supply at their facilities, helping expand the program.

The first thing for supply management is to convince the supplier that integrated supply is the right business

model. "We ask if the supplier is able to import from low-cost regions and source locally and establish

relationships with local suppliers. My concern is that we are able to function with the local supply chain and

develop it, with the understanding that the integrator is not a competitor but an extension of the supply chain. In

fact, the local supplier stands to gain more business."

Another challenge for UTC is that the integrated supply model isn't as developed or accepted in every country, he

says. "We have challenges internally. For instance, we don't need receipts for products when we use the

integrator's technology. We've taken the step out of the process and now manage receipt by audit." Little asks for

assistance from UTC operations in the U.S. to communicate changes and train colleagues overseas.

Beyond cost savings

Benefits of sourcing MRO globally are many, and IBM's Dulik and the other buyers expect these to be more than

cost-related. She lists some: supply base reduction, leveraged, consistent pricing and assistance with demand

management and standardization initiatives.

Global MRO buyers have processes in place that track performance of suppliers providing goods to facilities in

other regions. Informal processes consist of daily feedback; formal processes are often part of SRM programs.

Buyers work with internal customers to track metrics.

P&G has a formal structure that Hoff says "has as an objective continuous value creation through sustainable

competitive advantage and internal client satisfaction." Purchases leads the effort to assure cost savings and

issue resolution measures.

Intel uses report cards to track performance at meeting cost, quality, availability, delivery, technology and

responsiveness goals. It recognizes suppliers with Supplier Continuous Quality Improvement awards.

Sidebar

What it Means to Buyers:

Susan Avery

Purchasing operations at world-class companies take into account total cost of ownership when developing

sourcing strategy for MRO goods and services.

Sourcing strategy-whether global, regional, national or local-will depend upon capability of the supply base.

Like their customers, suppliers face a host of challenges associated with setting up shop in other regions of the

world.

Suppliers typically consist of industrial distributors, but also providers of integrated supply services and business

process outsourcing services. Some buyers negotiate pricing agreements with global manufacturers and purchase

through distribution.

As with MRO purchases in the U.S., the most important supplier selection criteria are ability to meet delivery and

service level requirements.

Supplier development and processes to measure supplier performance are key element of an overall supplier

relationship management (SRM) program.

Sidebar

Advice: MRO buyers should not try to force fit sourcing strategy

Susan Avery

Despite the challenges and risks, opportunities to extend sourcing strategy for MRO goods and services to other

parts of the world are too enticing for buyers to pass up.

Purchasing professionals who have a good understanding of the total cost of ownership (TCO) are among those

who will be most successful at it, says Dale Flanders, global category director for MRO at Accenture Procurement

BPO in New York.

In his work with purchasing professionals, Flanders helps source and deploy strategies across multiple regions,

and has seen companies have some success with integrated supply (IS) agreements and negotiating agreements

directly with manufacturing suppliers.

What doesn't work, he says, is trying to force fit a strategy developed for sourcing maintenance, repair and

operations (MRO) goods and services in the U.S.

One challenge is locating suppliers with regional or global scope.

"You have to be really careful about it, because if the supplier is not capable of meeting your needs in a particular

market, there can be real trouble," Flanders says. "MRO is non-core, but mission critical for many companies, and

because of that you have to be absolutely sure you have a supplier that can meet your service needs."

As purchasing professionals with responsibility for MRO goods and service, know, price makes up only about one

third of the cost. Remaining costs surround processes that deliver goods to the end user. So Flanders explains

that it is important for buyers to have a global MRO sourcing strategy that addresses how the company runs its

storeroom and makes improvements in its operation.

"If you have good spend data that shows what you're buying and who you're buying it from, you still can drive

tremendous value without that single integrator or distributor across different regions of the world," he says. "Best

practice companies are trying to drive common practices that address the other two thirds of MRO costs."

Integrated supply is one approach MRO buyers are taking.

Under an integrated supply agreement, providers work closely with MRO buyers to eliminate and/or streamline non

value-added activities in the process of acquiring and disbursing indirect items.

Other buyers are extending sourcing strategy for MRO to other regions by negotiating agreements with global

manufacturers, a practice that isn't common in the U.S., where purchasing views distributor suppliers as partners

and relationships between the two tend to be strong.

"Purchasing understands the value of distribution," Flanders says. "It's not like that in other parts of the world.

Typically in the U.S., buyers don't purchase MRO items direct from the manufacturer. But a company based in a

European country that has a significant spend will go directly to the manufacturer."

He cites cutting tools and bearings as examples of products that lend themselves to this strategy. "Manufacturers

will want to negotiate agreements for each region," he says. "But depending on leverage, a buyer can push back on

this." As in the U.S., buyers then can purchase the items through distribution.

Sidebar

IBM, Dow, P&G cite skills needed for global MRO purchasing

Susan Avery

To learn what it takes to succeed as a global MRO buyer, Purchasing spoke recently with individuals who hold

these posts at three world-class companies: IBM, Dow Chemical and Procter &Gamble. Here is a look at what they

have to say on the topic:

"Understanding total cost of ownership (TCO) as it relates to MRO is essential," says Anna Dulik, global MRO

strategic sourcing manager at IBM. "Practical knowledge of ERP/MRP, lean techniques, SAP, integrated supply,

vendor managed inventory (VMI) and consignment are all key areas of expertise," she says.

In the MRO sourcing organization at Dow Chemical, Brad Gray, global purchasing director, looks for category

leaders who are both capable and comfortable working and thinking in a strategic environment where their market

understanding is deepened through the use of business skills and tools.

At P&G, core sourcing skills (industry analysis, negotiations, commercial agreements, competitive inquiry, supplier

analysis, etc.), the ability to influence and drive internal decisions, a global mindset and a good SAP process

understanding are the necessary capabilities for success in the MRO spend area.

"In addition, an MRO buyer needs to be able to mine data," says Markus Hoff, global MRO purchasing leader at

P&G. "We have 145 manufacturing sites globally, thousands of parts and thousands of suppliers," he says.

Sidebar

Distributors follow the leaders

Susan Avery

In 2008, 54% of industrial distributors responding to Industrial Distribution magazine's 62nd Annual Survey of

Distributor Operations said they have customers who have moved operations to China, up from 41% in 2006.

According to survey results, 21% are setting up operations in other regions of the world.

Regions where U.S.-based industrial distributors are establishing branches:

Canada 58%

Mexico 54%

China 30%

Southeast Asia 16%

Japan 4%

DETAILS

UK 16%

Germany 5%

Eastern Europe 12%

India 12%

Latin America 5%

Other 4%

Subject: Multinational corporations; Corporate purchasing; Repair &maintenance services;

International markets

Location: United States--US

Classification: 9510: Multinational corporations; 5120: Purchasing; 8300: Service industries not

elsewhere classified; 9190: United States; 9180: International

Publication title: Purchasing; Boston

Volume: 138

Issue: 2

Pages: 48-52

Number of pages: 1

Publication year: 2009

Publication date: Feb 12, 2009

Section: Features; How They Buy

Publisher: Reed Business Information, a division of Reed Elsevier, Inc.

Place of publication: Boston

Country of publication: United States, Boston

Publication subject: Business And Economics--Marketing And Purchasing

ISSN: 00334448

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CODEN: PURCES

Source type: Trade Journals

Language of publication: English

Document type: Feature

Document feature: Tables Photographs

ProQuest document ID: 214453931

Document URL: https://search.proquest.com/docview/214453931?accountid=32521

Copyright: Copyright Reed Business Information, a division of Reed Elsevier, Inc. Feb 12, 2009

Last updated: 2014-05-26

Database: ProQuest Central