A value-enhancing initiative

 by Dr. Robert A. Kemp

This is the last article in my series on evaluating suppliers and benchmarking supplier performance to raise operational efficiencies and effectiveness. The previous articles are posted at www.mrotoday.com.

This article is all about you. Why should you bust your hump to evaluate and develop MRO suppliers?

The reason? We all want the same thing — job satisfaction. And, the highest forms of job satisfaction come from self-direction, decision-making, increased involvement and responsibility, achievement, recognition and communication. So, in essence, we should be busting our hump to evaluate and develop MRO suppliers to ensure both success and job satisfaction. We know how to evaluate the supplier, but we need to be better at understanding opportunities for building personal value from the process.

The chart on the bottom of this page demonstrates that MRO operations can have a profound influence on the bottom line, and how our actions create value for the organization. We have an operation where MRO is 20 percent of the total spend before our MRO supply managers make changes. The column titled “Before change” shows this and that net profit was $5 million with an earnings per share (EPS) of $16.67.

Now, let’s assume we conduct a series of evaluations and development activities with suppliers that provide high-cost MRO items and make several process changes to deliver a 10 percent reduction in the MRO spend. The column titled “After change” shows MRO falls to $9 million, or only 18.4 percent of total purchases. More importantly, the bottom line jumped 20 percent to $6 million. EPS is now $20. I can’t imagine a CEO, owner or stock analyst that wouldn’t be absolutely thrilled with the impact of this MRO cost reduction on the bottom line and earnings per share.

We’ve known for a long time that strategic organizational communication is almost always in financial terms. In supply management, we resist that idea. Hence, much of our conversation is tactical at best and often ignored. Get strategic and talk CEO-speak. My example shows you have a profound message — “EPS is up 20 percent!”

Several things can be done simultaneously to ensure success and promote enhanced value for suppliers, colleagues and organizations. Not everybody agrees to any list, but my top five recommendations ensure that organizational success enhances job satisfaction and builds individual value.

1) Establish clearly defined MRO objectives and metrics tied to organizational objectives and metrics that teams manage to success.

2) Define MRO supply management priorities in terms of strategic organizational goals.

3) Make teamwork meaningful by delegating authority and resources to multi-disciplined teams and expect successful execution.

4) Expand communication authority and eliminate boundaries that constrain team relationships with suppliers, customers or others, internally and externally.

5) Provide timely feedback and recognition concerning execution and successes. This includes access to requisite operation information online as well as all forms of recognition, from the “one-minute manager” to formal bonus programs.

In addition, do the following along with our work processes to enhance personal value and rewards:
• Set your own objectives and get buy-in from others.
• Establish your own priorities to earn respect and approval to include more authority.
• Build your own networks that expand your communication base and processes.
• And, provide timely feedback to leaders in their language.

You can be so valuable that they won’t think of living without you.

Robert Kemp is a consultant, speaker and the former president of the Institute for Supply Management. He can be reached at kempr@mchsi.com.

This article appeared in the December 2002/January 2003 issue of MRO Today magazine. Copyright 2003.

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