Pursuing the elusive promise of e-procurement

With the 'dot.com' bust and a slowing economy I suspect that some of the bloom has faded from the blossoming maintenance, repair, and operations (MRO) e-procurement business. The promise of the e-commerce revolution that last year seemed so vivid for both MRO supply buyers and sellers, now probably appears less clear and certain for many.

By Tom Singer Contributing Editor, Principal, Tompkins Associates, Oak Brook, IL July 1, 2001

With the ‘dot.com’ bust and a slowing economy I suspect that some of the bloom has faded from the blossoming maintenance, repair, and operations (MRO) e-procurement business. The promise of the e-commerce revolution that last year seemed so vivid for both MRO supply buyers and sellers, now probably appears less clear and certain for many. Some e-procurement solution providers are beginning to alter or scale back their growth strategies. Some are even folding up shop.

Perhaps the positioning of business-to-business (B2B) electronic commerce as the main vehicle to achieve MRO cost reduction was more hype than reality. But new technologies generally start out with a lot of hype. It takes a while to build the infrastructure and tune the business model for any new paradigm to produce consistent positive results for all parties involved. Anyone dismissing the potential impact of e-procurement on maintenance and MRO management is not taking a close look at its value proposition. Maybe some of the hype is overblown, but MRO e-procurement is definitely here to stay.

The current state of the economy and e-commerce troubles have caused some buying and selling organizations to put their MRO e-procurement plans on hold. I expect that this delay is temporary and that activity in this arena will pick up shortly. Once it does, the road will not be without its bumps. There will be many success stories. But there will also be some failures.

In the face of this uncertainty, many companies contemplating MRO e-procurement are hesitating. This caution will undoubtedly be reinforced by the myriad of MRO solution providers and e-marketplaces that will continue to grow. Even the most rabid proponents of the technology must admit that there is a limit to the number of players that can succeed in the MRO e-procurement arena.

Even so, organizations need to recognize that optimizing their MRO supply chain is going to have a significant positive impact on their bottom line. They also need to consider that:

1. E-procurement can be a key tool in realizing significant savings on MRO expenditures. I didn’t have to resort to industry analysts, case studies or academia to come to this conclusion. Years of working with maintenance departments, purchasing operations, and storerooms have taught me that there are a lot of inefficiencies in the MRO supply chain.

In most situations this isn’t the result of neglect or malfeasance, it is just the nature of the beast. Even in the best run operations there are inefficiencies inherent in the way MRO material is bought, stored and used. This is partially due to the intensely manual nature of MRO procurement. Anything that can be done to help automate procurement processes should generate considerable savings.

Some e-procurement initiatives focus primarily on the savings that can be obtained by pooling demand to leverage better prices with suppliers. Electronic marketplaces are viewed as a mechanism to obtain volume discounts or squeeze the best price quotes out of vendors through “reverse auctions.”

This approach may work in certain situations. But I think the real savings potential of MRO e-procurement lies in the labor savings and better inventory control it can help generate. Companies spend inordinate amounts of time buying MRO supplies. This time isn’t restricted to the purchasing department. From requisitions to invoice approval, maintenance is an integral part of the process.

While CMMS/EAM, inventory management, and purchasing systems support MRO procurement, most operations still rely on paper catalogs, telephone calls, faxes, and data entry to buy spare parts and supplies. This is a very labor-intensive proposition. E-procurement helps automate the process by providing an electronic link between supplier and buyer. When integrated with other business systems it provides the potential for ‘push button’ purchasing from requisition generation through invoice matching.

This not only saves labor but it can also help get parts to the job much quicker. Shrinking the cycle time between requisition generation and available-for-use should allow most operations to make considerable reductions in their inventory levels. Because it takes so long to procure material, maintenance storerooms usually have a lot of safety stock. This ties up working capital and provides the basis for tomorrow’s obsolete stock.

2. E-procurement alone cannot generate these savings . How a tool is used dictates its effectiveness. E-procurement is just one of many tools that can be used to optimize MRO purchasing and usage. Implementing an e-procurement solution without making corresponding changes in the way an operation does business is probably not going to generate significant savings. Automating a flawed procurement process is still going to produce flawed results. Shrinking the procurement timeline is not going to help a maintenance department reduce inventory levels if most of its jobs are unplanned.

In order to be truly successful, e-procurement must be accompanied by procedural and philosophical changes. This means an operation must take a close look at its MRO purchasing, management, and usage processes, looking for any improvement opportunities. E-procurement should be done as part of an overall re-engineering of all MRO-related operations.

A maintenance department with a reactive approach or an under utilized CMMS/EAM is probably going to be disappointed with the return on investment that can be obtained from an e-procurement initiative. E-procurement can only live up to its full potential if it is implemented in an organization that has a well-defined PM program, effective planning and scheduling, and a sound CMMS/EAM parts catalog.

3. MRO supply chain optimization is a continuous process . Viewing any MRO improvement program and e-procurement implementation as a one-step process is a mistake. The parts we buy and the way we use them are constantly changing. Also, it is unrealistic to think that all the inefficiencies can be squeezed out of any supply chain in one fell swoop. Any organization pursuing MRO e-procurement needs to take a long-term view. This means having the management commitment and necessary resources to constantly seek out improvements.

4. Maintenance must be part of the equation . MRO e-procurement and supply chain optimization is not the sole providence of purchasing and materials management. It is not merely a ‘buying’ proposition. As the ultimate end-user, maintenance must play an integral role in the process.

This may sound obvious to maintenance professionals, but it can be lost on management and purchasing. In many organizations there is a tendency to view MRO procurement and maintenance operations as separate processes. Some attempts to improve MRO procurement view maintenance solely in terms of unit cost and inventory turns. They fail to examine the how and why portion of the MRO equation. They focus only on reducing the amount of time purchasing spends procuring MRO parts without looking at maintenance’s involvement. This approach is shortsighted and destined to leave money on the table. It cannot achieve effective reductions in MRO inventory levels or improve maintenance service levels.

For many organizations, purchasing is going to take the lead in MRO e-procurement and supply chain optimization. In this event, maintenance must make sure that its needs are known. Maintenance cannot be silent about its requirements and the need to improve MRO procurement.

In the new economy, the penalties for waste and inefficiencies are severe. Their impact also occurs more rapidly. Collectively there is a lot of waste and inefficiency in the MRO supply chain. Organizations looking for a competitive advantage ought to take a close look at their MRO procurement and management. If they do so, then MRO e-procurement will probably play a significant role in their future.

Author Information
Tom Singer is an information technology consultant who specializes in designing, developing, and implementing systems solutions that meet client operational needs. He has worked both as a developer and integrator of CMMS solutions. He is principal of Tom pkins Associates, a total operation consulting firm headquartered in Raleigh, NC. He can be contacted by phone at 630-472-1524 or by e-mail at tsinger@tompkinsinc.com