Published May 13, 2011
Some time ago, I wrote about how a new broom (new management) sweeps clean (changing MRO procedures). I cited a food processor that had a 3PMRO company on site that achieved KPI goals year after year. These included requests to issue fill rates over 98%, price reductions, 45% inventory reductions and elimination of over 60,000 transactions per year. Additional benefits included inventory accuracy, kitting, warranty control and systems information visibility and compatibility.
Who would want to change that?
Well … here is the kicker – the contract called for open book, known cost information flow with a fee on top of the 3PMRO provider’s best cost of goods (not the user’s cost). A new CFO came on board, saw the fee and proclaimed that he could save this fee for his company by “doing it ourselves.”
When the existing 3PMRO provider was not renewed, and the company took the process back in house, this is what was added to the company’s burden:
- Three more people
- 70,000 transactions
- 30% more inventory
- 136 suppliers
- Plus no price savings or measurement
The new broom swept clean and claimed savings from the 3PMRO provider’s fee. However, there was no mention of the additional margin that was paid to the 136 suppliers. So … the new broom swept the real facts under his financial carpet, and the company was none the wiser.
Now, another client of that 3PMRO provider experienced similar benefits from that same 3PMRO provider. Watch out, here come new brooms in finance and purchasing; they are sweeping clean [improving processes]. Soon, they get around to looking at the 3PMRO contract and see the open book fee…”Why can’t we do it ourselves?”…SAVE THE FEE!!
With true, objective due diligence, the new purchasing director realized that “sweeping clean” was not a wise choice for the existing MRO process. He re-established new KPIs and some positive process changes with all affected operations personnel and with the existing 3PMRO provider. Increased value was presented to the new CFO and to the corporate CEO. All agreed that the 3PMRO process, especially when updated with input, was the optimum position for the company.
In this case, the new brooms updated and improved but did not have to sweep subjective decisions under anyone’s carpet.
Contact George Krauter with your MRO questions at email@example.com.