Strategic Sourcing MRO Case Study by Source One
Top managers at a large publicly traded mining and minerals processing corporation were searching for ways to preserve profit margins in the face of general economic turmoil and rising supply costs.
The company’s base of operations spanned 44 locations across 24 states and Canadian provinces.
While the company did have a central reporting system, individual plants independently made many of the purchasing decisions. As a result of this decentralized sourcing, the company was not able to leverage their entire spend or coordinate consolidated contracts.
After an initial cost analysis, an executive committee decided to target the company’s maintenance, repairs, and operations (MRO) spend. While data for sourcing consolidation and improvement in these areas did exist, the company did not have the resources to properly analyze the mountain of purchasing information that had been assembled from the inconsistent records of entries from the various plant locations. To overcome this obstacle and gain strategic sourcing expertise, the executive committee engaged Source One to augment their procurement efforts. The primary goal of the initiative was to gain more competitive pricing through leveraging corporate spend, strategic relationships, and marketplace competition.
The project included roughly 14 MRO spend categories. Some of the categories covered were general mechanical supplies, fasteners, electrical / electronic components, safety supplies, and lubrication products. In order to quantify and measure results, Source One conducted a spend analysis and created a baseline spend report. The comprehensive analysis and baseline report objectively identified historical purchasing patterns and revealed possible sourcing strategies that could eventually be further explored. The fundamental results of the baseline process helped management to understand what they were sourcing, from whom they were purchasing, their pricing structure and terms, service level requirements, and various proactive considerations.
Source One then proceeded to determine which spend categories presented potential savings opportunities. For each category, Source One conducted a market assessment and spend analysis. Preliminary results of the market assessment combined with the use of Source One’s proprietary databases indicated that material savings were achievable. The client’s executive committee and Source One agreed to conduct a full sourcing project in each of the fourteen categories.
Source One employed a unique strategy for each product category in order to create pricing leverage. Through a combination of the introduction of competition, utilization of strategic relationships with supplier conglomerates, and extensive negotiations, Source One managed to produce an average annual savings of 14%. Furthermore, the sourcing effort helped the client company’s managers hone their plant purchasers’ ordering, inventory, and reporting methods.
For each product category, the client, various suppliers, and Source One worked as a team to develop and implement an effective change management program. This collaboration helped the three entities to achieve supplier rationalization, successful implementation of new pricing and purchasing processes in each category. These new relationships, along with performance and compliance metrics that were enacted, helped the client company to develop better systems for understanding, monitoring, reporting, and controlling their spend for each product category. Source One continued to ensure the success of the initiative through internal process and supplier auditing well after completing the implementation phase.
Source One accomplished the initiative’s primary goal of creating cost savings without any major disruption of the client’s business processes. More than this, Source One provided the client with the tools, insight, and relationships necessary to continuously improve their sourcing procedures. As a result of this sourcing initiative, the client company is enjoying cost savings as well as better reporting systems, strengthened supplier relationships, and elevated control over total spend.
General Mechanical Supplies, Industrial Supplies, Fasteners, Safety Supplies, PVF, Lubes and Greases, Filters, Screens, Electrical Supplies, Pumps and Blowers, Heat Exchangers, Mills Parts, Materials Handling Equipment Parts, and Light and Heavy Vehicle Maintenance Supplies.
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