Applying Lean to MRO Spending
Being married to a Six Sigma Black Belt can be a nightmare. For example, my office desk is a mess -- the way I like it -- but every time I can't find something, I get a lecture on the amount of time I waste (or rework, as she calls it) on digging. Personally, I think that process-driven people like her just don't understand that it's in the moments of desperation searching for your keys, that you're most likely to come up with an ingenious idea. Nevertheless, even though I personally don't follow a lean or Six Sigma regimen in my personal activities, I know enough about the subjects when it comes to sourcing and Spend Management to know how valuable they can be. In late December, Grainger penned a self-serving piece in Reliable Plant about how companies should approach their industrial MRO purchases from a lean approach.
In the article, Grainger notes that "many organizations have strategic sourcing initiatives in place, but they do not extend to the indirect purchasing categories, specifically MRO." The venerable distributor then goes onto argue the value of spend consolidation and lean approaches to MRO Spend Management. Overall, it's a worthwhile read, even if it's clearly penned out of self interest. But personally, I find it quite useful and refreshing when suppliers like Grainger invest the time in thought leadership to educate the market rather than relying on traditional sales and marketing tactics.
- Jason Busch
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Second, Jason, listen to your wife and clean your desk.
Third, although somewhat self-serving, we find the Grainger article is fairly accurate. It's residual of the way companies plan their MRO spend, which is basically the same process they use for direct spend...identify the items you plan to acquire in the forthcoming contract year (e.g. tough enough task), negotiate a discount for the highest volume items, or family of items, at the SKU level. Ask for a general discount on the rest of the planned items, sign the contract and then implement the e-catalog (if using a typical Ariba, EBP, iProcure-type e-purchasing system). As we know, compared to a well-specified direct spend, MRO is a lotta stuff and much larger from a SKU perspective!
The result is the buyer having, for example, a Grainger e-catalog (or punchout site) with say, 15,000 SKU's. Problem is Grainger offers over 300,000+. Some companies also ask for an across the board discount for unplanned SKU's, but some companies won't do this because it's termed as "non-complaint".
What usually happens on the floor is as follows...as soon as the requisitioner needs a SKU not in the e-Catalog (which Grainger's data shows happens 40% of the time), it's considered a non-contract order and has a different process for ordering (quote?). But in reality, often it's an emergency item, breakage item, or non-inventory item and the buyer just gets it from the quickest source regardless of price (rational is often the cost of downtime, etc. is more important than saving a few bucks). Or they quote it, add the new SKU of SKU's to the contract, PAY THEIR E-PROCUREMENT PROVIDER TO UPDATE THE CATALOG, and now it's available in the e-catalog for next time! If this happens a few times a month, that's one thing, but if it's happening 40% of the time, it's a problem as sourcing resources are wasting their time quoting non-strategic items, and that quoting process is manual, e.g. not taking advantage of the Ariba, etc. systems (and the catalog updates are a nice revenue stream for the e-catalog provider).
Bottom line, MRO purchasing is still a bit of a "black-hole" in many companies, and instead of trying to make the "uplanned spend" go away (it's not), embrace it, or more appropriately, address it.
One inhibitor? One roadblock to this is the way most providers do catalogs - ETL...RFEC (Extract, Translate, Load...Repeat For Every Change). The bigger the catalog, the costlier, harder to maintain, etc., or to a lesser extent, XML Punchout, where the supplier's web site is the Requisitioner's catalog and the buyer has no control.
The real answer? MRO supplier contracts that address high volume SKU's but also entire product lines.
How can providers deliver it cost effectively? A catalog search technology that can use suppliers web site catalog data real-time (avoiding the slow, costly, error-prone ETL...RFEC process) but still gives the buying organization control of user catalog access and pricing (a major issue with XML Punchout).
Now for the blatant vendor self promotion...this solution exists today and some very large, well-known companies are using it successfully right now (readers...pls contact me for more info)!
Gary W. Hare
www.vinimaya.com
ghare (@) vinimaya (dot) com
Reach out to him. The product is very impressive!
See: http://www.economist.com/printedition/displayStory... ... apparently the cost of searching for that lost paper every once in a while is about the same as taking the time to file and index every document in your office.
This isn't to say that you shouldn't clean your desk, just that Six Sigma desk cleaning may not be necessary.