Supplier Responsibility vs. Client Benefits

Published March 11, 2011

Premise: Should a distributor that supplies the majority of its client’s spend offer additional client benefits that could increase the distributor’s sales revenue but decrease net profit percent?

Here is a case study in point:

ABC Distributor is a national distributor of most categories of indirect-MRO materials. ABC has a client who buys most of their supplies via ABC’s version of Vendor Managed Inventory, more commonly known as VMI. The client is satisfied with the service and pricing. Although some SKU’s could be purchased cheaper, the overall benefit is recognized by the client. Senior management at the client is not asking for improvement, mainly because the MRO spend is relatively small and because they, and their middle management, are not aware of available improvement benefits (much less have the knowledge to institute change).

As a member of a professional organization, the client’s managers attended a professional development meeting that spoke of the benefits of 3PMRO storeroom management programs. The title of the session was, “You Can’t Be Lean with a Fat Storeroom” and it explained how outsourcing MRO to 3PMRO would operate and how the sustainable benefits could be realized.

After the session, one of the managers said to the presenter that they worked with ABC as their major supplier and offered to have them come on site. However, the client would have to tell ABC what they wanted and then ABC would tell the client how much it would cost. The client did nothing because they did not know what to do or what ABC could do.

The fact is that ABC does know what to do but did not act proactively to initiate improvements at the client location. WHY??? It is because those actions decrease the profitability that the client provides to ABC.

And the point is? The MRO supply chain is froth with duplicated costs and activities that maintain barriers and conflicts among the members of the existing process. ABC knows they could help their client by simplifying the process but they fail to act because of the need or desire to maintain high levels of profit margin. There are substantial benefits that can accrue to the MRO consumer if the supply chain members act responsibly and make contributions to cost reductions for manufacturers.

Contact Synovos with your MRO questions.