Primer: Choosing a Third Party On-Site Provider to Outsource Your MRO Supply Chain

Published February 24, 2017

You are tired of having MRO as 80% of the source of all your problems and concerns when MRO is only 5 % of the dollars you spend. You are tired of being blamed for downtime because of lack of parts while receiving complaints from Finance that you have too much inventory. And finally, you are tired of the burden of managing 160 MRO suppliers for little dollars, which leaves little time to develop the relatively few suppliers who constitute your major expenditure. YOU ARE TIRED OF BEING IN THE HARDWARE STORE [MRO] BUSINESS.

You decide to outsource your entire MRO supply chain to a company that can eliminate your MRO problems, guarantee savings, and satisfy the needs of all plant disciplines relating to MRO operations.

Using Google, you can find many distributors offering their versions of “Integrated Supply” which may or may not satisfy your goals, because these distributors do not offer MRO supply chain expertise as an area of core competence. You need to find a company [not a “distributor”] who has MRO management and adjacent functions…… as their sole sources of revenue.

Here are the Do’s and Do Not’s necessary for a successful MRO supply chain outsourcing project:

DO’S

  • Decide that change in MRO management is critical to your plant operations
  • Decide to set aside the time to effect the necessary change [or assign it]
  • Define existing problems and set goals to eliminate them
  • Select your provider. When qualifying, ask questions; inadequate responses require disqualification:
    • What is Master Data Leadership?
    • Does the company have a financial commitment to achieve asset reliability?
    • How should a CMMS function to support MRO processes?
    • What are the requirements necessary for excellence in supply chain management?
    • What is the company’s commitment and experience to provide “New Integration” to MRO management?
  • Assume your selected provider has the purchasing power to be price competitive and be willing to share costs
  • Agree on clear & mutual KPI’s with benefits and penalties for both parties
  • Write a Statement of Work [agreement] clearly defining the change factors that will achieve your goals; include personnel job descriptions from your company and from your provider
  • Critical: Obtain agreement from all disciplines to support your SOW with positive activities
  • Institute an action item-time schedule for implementation with assigned duties
  • Execute the agreement and implement; measure and report benefits to senior management
  • Review an annual plan for cost-out & continual improvement incentives
  • Realize happiness

DO NOT’S

  • Require prospective providers to participate in a “market basket” price analysis
  • Pick your provider based on perceived lowest price
  • Place unreasonable requirements on your provider; the provider must be profitable to sustain your efforts
  • Assume that all plant personnel are positive about the change process; beware of the existence of naysayers who will create situations designed to defeat your efforts.

The existence of a company-managed MRO storeroom represents a drain on corporate profits that is recoverable. It is not recovered via competitive price quotes and value-added programs from traditional MRO distribution. “New Integration” includes Master Data Leadership, Asset Reliability programs, personalized CMMS, and supply chain expertise will transport MRO from a profit drain to a profit contributor.