MRO e-procurement: Where is it now?
I first became enamored with the proposition of purchasing maintenance, repair, and operations (MRO) parts over the internet at a trade show five years ago. Here was a technology that could make a significant impact on both purchasing and maintenance management. It promised to reduce MRO procurement costs, order lead times, inventory stock levels, maverick purchasing, and maintenance time spent procuring and stocking parts. I was certain that it would sweep over the maintenance management world like a wildfire. I wasn’t alone in this belief. Solution providers, industry analysts, and other consultants were equally fervent in their outlook.
So what has happened to MRO e-procurement? While it certainly has grown and matured over the past few years, I doubt that its success has met the expectations of most early advocates. Perhaps my initial impression that it would become a major means of purchasing MRO items was a bit overly optimistic. But the technology was very attractive. It offered the promise of automating a labor-intensive process that, according to industry analysts, adds an average of $75 to $150 per purchase order to the cost of buying goods. Also, it would allow maintenance departments to reduce safety stock levels.
My maintenance storeroom experiences led me to believe that MRO e-procurement was a sure winner. I’ve seen too much shuffling of purchasing paperwork, obsolete inventory, and wasted wrench time not to appreciate a better way of procuring MRO items. But despite the apparent advantages of MRO e-procurement, I don’t need an industry report or white paper to know that paper-based purchasing is still very much the norm in the maintenance world.
Understanding the barriers
There are a variety of reasons why MRO e-procurement hasn’t made as large an impact in the maintenance management world as I had originally expected. The “dot com bust” and current economic downturn have certainly slowed the growth of MRO e-procurement. But these are surface issues that should shortly pass. To really understand the barriers and what it will take to overcome them, one should look deeper. I don’t profess to have all the answers, but I believe the following are key factors:
Supplier hesitancy — E-procurement is a two-way street. It requires both buyers and suppliers. Maintenance traditionally requires a wider supplier base than other business functions. Many maintenance parts distributors are small and lack the IT infrastructure or investment capital to dive into e-procurement. To be viable to a buying organization, an MRO e-procurement solution must provide access to a sufficiently broad distributor base that includes most of the buyer’s preferred vendors. Many MRO parts suppliers have yet to take the plunge into e-procurement.
Supplier hesitancy to embrace e-procurement is not unique to the MRO marketplace. Many suppliers view e-procurement with a certain degree of skepticism, fearing that it is primarily a vehicle for purchasing organizations to squeeze extra price concessions. Given the focus of many solutions on leveraging communal pricing and auction-based quotations, this fear is understandable. But e-procurement offers both suppliers and buyers the chance to automate labor-intensive processes. This, combined with competitive pressures and the promise of reaching a wider audience, will continue to push more and more MRO distributors down the e-procurement path. This process will accelerate as the focus shifts from obtaining the best per-item price to achieving the most efficient supply chain.
Focus of the procurement process — Many organizations initially pursue e-procurement as a buying mechanism for production or direct materials. This is understandable, since direct materials typically represent their primary purchasing investment as well as their perceived lifeblood. Even enterprises that take the leap into MRO e-procurement frequently do so to purchase operations material like office supplies. Procuring maintenance and repair parts over the internet may not be a high strategic priority for many companies.
Any organization that spends more on production materials than maintenance parts will probably look first to improve its direct materials procurement processes. Purchasing departments may also feel that e-procurement works better for the more uniform process of purchasing production and operations materials than spot buying maintenance and repair parts from a much larger vendor base.
These perceptions do not take into account the true cost of procuring maintenance and repair items. They look only at item cost and the amount of time procurement agents spend on obtaining material. They do not account for crafts time spent in the procurement process, excess safety stock levels, and the impact on work order planning and scheduling. They will dissipate as more and more enterprises realize that improving the efficiencies of the maintenance side of their supply chain can pay big dividends.
Conflicting paths and solutions — Some industries have established e-procurement marketplaces primarily through the clout of dominant manufacturers. But MRO e-procurement still presents a fragmented picture with competing marketplaces and solutions. This causes some prospective end-users to pull back from making a decision for fear of selecting the wrong solution. Despite all the press, there is still a perception in some sectors that the technology is still too immature.
Many companies buy and sell MRO items over the internet. Successful application of technology requires that an organization do the homework necessary to pick the appropriate solution for its needs.
Backend integration opportunities — To reach its full potential for an organization, MRO e-procurement frequently requires integration to backend systems such as a CMMS, EAM, or ERP package. Few CMMS/EAM vendors support full “push-button” e-procurement within their packages. Some maintenance departments using these packages may choose not to employ their e-procurement functionality because it doesn’t provide access to their key vendors, or their purchasing department has elected to follow a different path. Many organizations cannot fully automate their maintenance procurement process because it is not practical to integrate their maintenance support systems to an electronic marketplace. But opportunities still exist to achieve some level of automation. Competitive forces will also continue to compel CMMS/EAM and MRO e-procurement software vendors to provide more options and greater integration between maintenance and procurement systems.
All of these reasons have played a role in slowing the growth of MRO e-procurement. But I think that there is another obstacle that has had an even greater negative impact. It is a belief that the mere application of this technology is a worthwhile goal. It is a mindset that I find myself embracing — MRO e-procurement is an end objective by itself.
Enterprises that view MRO e-procurement from a primarily technological perspective will tend to accentuate the barriers. E-procurement is merely one tool in the never-ending battle to achieve greater supply chain efficiencies. Many companies still waste considerable sums on inefficient MRO procurement practices.
Those organizations that approach this challenge as a strategic business improvement opportunity will frequently find themselves employing MRO e-procurement. It is this pursuit of savings that will propel e-procurement into the mainstream of maintenance management.