Mapping integrated supply

by Dr. Robert A. Kemp

This article, the last in my series on integrated supply, will establish a map and benchmarks to plot and measure your progress toward integrating your MRO supply functions.

As you will recall, integrated supply management means that we have merged organizational supply processes from the supply chain with joint strategies, collaborative planning, cooperative processes and effective teamwork. Firms that integrate their MRO functions are reaping the benefits of this process every day. They claim return on investment benefits of 15 to 30 percent of their MRO spend and more efficient operations.

The example at the bottom of this column shows calculations that demonstrate the possibilities for huge impact to the bottom line. Even if you manipulate the numbers down with “what if” questions, the example still provides significant impact. For example, if you reduce the projected MRO cost decreases to just 5 percent, the bottom line impact is $2.7 million, or about 10.8 percent. I expect that many CPOs and CEOs would be delighted with even that contribution to the bottom line.

The steps to integrate your MRO processes are well established from our knowledge of supply management and leading change. The map on the right of this page includes nine clearly defined steps that ought to be carefully completed with documentation to support review and analysis. I firmly believe that process supports success when we are making significant organizational change. I classify the movement to integrated supply as one of those significant process changes that must be done correctly to prevent or reduce delays, resistance and preclude failure. Changing MRO processes involves people, information, power and organizational structure; hence, it can be fraught with problems and resistance.

From this map, it is clear that the steps required to study the integration question are relatively straightforward supply practices. Moreover, it is clear that the data and information for the decisions, with the exception of total MRO spend, are probably readily available. Similarly, we should have data on the major commodities included in the MRO spend. We need (and I am stressing this point) a senior steering team and approval with active participation from senior leaders to start the process and keep it going.

Baseline or benchmark data that you will want and need include the traditional supply management data available for MRO programs. These data points include these factors:
• The number of suppliers in the MRO database to include minority business enterprise (MBE) and local businesses.
• The total MRO spend ranked across suppliers and commodities by Pareto techniques.
• The number of buyers, expediters, clerical, supervisors and others in MRO functions.
• The primary users and inventory sites for MRO activities.
• The number and cost of MRO transactions ranked by size.
• Asking ourselves, “Do we use procurement cards or long-term contracts with existing MRO suppliers?”
• Asking, “What level of service do we receive from suppliers?”
• Asking, “What are other companies similar to ours doing in the MRO market?”
• The potential of our MRO people for other assignments.
• The level of internal satisfaction with current MRO operations.

These benchmark points serve first to compare and analyze supplier presentations. But more importantly, they will serve to compare with costs and generate comparisons of progress once the integrated system is installed.

We know that all systems can be better and that we seldom work near perfection. We also know that we should be working to move our MRO process to the integrative supply stage for cost reductions and enhanced efficiencies and effectiveness. Similarly, we know that most of us are aware of the barriers that make us reluctant to lead change even when we know the changes can be beneficial.

Integrators come in many forms with diverse capabilities. You will have many opportunities to integrate your MRO supply functions in order to take advantage of leaner operations. I am convinced that we should educate and develop our people to create learning organizations that are willing to integrate across organizational boundaries to create cost reductions and positive contributions to the bottom line.

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

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