By Matthew Saviello, Performance Consulting Associates

MRO purchasing is often overlooked by procurement professionals, and opportunities are masked by the transactions themselves which are high-volume but low-dollar. Resources are often allocated to other areas, and responsibilities for the purchasing function are transferred to maintenance or the storeroom where procurement capabilities are limited. In addition, the imperative for rapid repairs drives immediate, reflexive action and prevents the development of long-term strategic initiatives.

I worked with an organization in the pulp and paper industry that had found itself in this position and was experiencing these same challenges. The firm had just completed a two-year improvement deal with a global Fortune 500 firm that specialized in management consulting and professional services. After executing the RFP, the Fortune 500 firm had collected data and calculated that it could shave two percent off the organization’s purchasing costs.

The pulp and paper company had proceeded with the agreement, but after speaking with PCA and seeing how our process worked, the firm fired the global consultant. “They never even sent consultants onsite to our facility,” the customer’s teams told us. “We need more help than just being left to do this independently.”

Suspecting that PCA could achieve far better results than a 2% savings, our experts coached them to design a program to gain more effective management of an important MRO purchasing category. The project not only netted the firm benefits ranging from significantly improved payment terms to cost reduction guarantees; measurements after the effort indicated savings 10 times higher than the earlier estimates from the global consulting firm!

The company achieved these results with a combination of training and education, strategic sourcing using cross-functional teams and rigorous project management. Following is a timeline and description of the activities that resulted in this amazing outcome.

Training and Education

The project began with a series of workshops to establish a baseline of skills and capabilities for the team members. Two-day workshops explored basic supplier negotiation concepts using the Harvard Business School Model of principled negotiations. Live negotiation exercises were conducted with scoring and immediate feedback.

Starting with basic, one-on-one negotiations, the workshops progressed to complex, multi-issue, team-based negotiations. At each step the PCA mentors introduced tools and templates. After the workshops, participants indicated that the knowledge they gained proved exceptionally valuable for supplier negotiations.

Strategic Sourcing

Additional workshops were held to train the teams for strategic sourcing using a step-by-step-process methodology. Each step served as a “gate,” with evaluation and approvals required to continue the project. The process steps included: Business Case, Supplier Profile Development (RFP), Supplier Presentation, Profile Review, Supplier Site Visit, Supplier Negotiations, Supplier Selection and ongoing Supplier Management.

Results

Total project savings were 20%, more than validating the effort and serving as a great example of the power of cross-functional sourcing. Additional benefits included negotiation of significantly improved payment terms, development of KPIs to reduce lead times, annual rebates and incentives, and cost reduction guarantees.

Although the economic benefits of this project were considerable, the firm expects to enjoy even bigger benefits down the road as cross-functional teams collaborate with the supplier to improve MRO inventory availability, standardization and increased reliability.