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Unless you have the right methodology in place for selecting your supplier, you could be wasting a lot of money.
Why are tenders for MRO/consumables and planned maintenance approached in the same way when the consumption pattern is different?
The risks and cost implications attached with choosing the wrong supplier are huge, when you consider the need to deliver five-year contracts within public frameworks and the financial penalties and negative connotations associated with failure to deliver expectations laid out by regulators and those of your consumers.
MRO (maintenance repair and operations) and consumables consumption has similar characteristics to planned maintenance and stores. Less than 20 per cent of products are purchased more than once, some rarely purchased annually in volumes more than ten, and only a small number of items purchased regularly. So, how do you plan and go to tender for such types of consumption?
“Basket of products” methodology for testing suppliers’ price and service has been used for many years. However, once a supplier has been chosen the same issues arise – products not being available, non-auditing of pricing against the contract due to range and visibility, alternative products being substituted, and ultimately contract leakage. This leads to increased cost of product, production and maintenance down time, increased source-to-pay costs and ultimately a non- performing contract.
The real cost in a MRO/consumables contract is the ad hoc one-off purchases; those products used only once which add up to a large total spend value, attracting the attention of a buyer or ops manager. These are then typically used as data points for a tender basket, which is the right thing to do if “planned consumption”. Successful MRO/consumables contracts are driven by service and not price.
Organisations will weight their tender on a service offer, but the quality of offer only gets tested after an award has been made. So why not test the service element on the basket?
A good approach would be a basket made up of parts purchased in volume (30 per cent) and those purchased only once (70 per cent) as a random data set. What you really need to test are many other elements as well as price, such as the sourcing and purchase method, product availability, average stock holding in the past 12 months, any distributors supplier changes in the past two years, any price fluctuation, etc. These elements test the real requirements and demands of your operational/maintenance engineers, who have to have the right product, in the right place and at the right time and the right price.
Chris Cruise, industry sector manager, RS Components
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