MRO Partnerships: A Case Study

Abstract

IN BRIEF Despite the increased attention procurement managers are giving MRO purchasing, success in managing MRO items has been limited. Increased awareness of MRO purchasing can be traced, in part, to the increased use of blanket contracts and procurement cards. However, blanket contracts and procurement cards address only one cost area of MRO purchasing, ordering, and processing costs. While firms save money through increased processing and ordering efficiencies, larger product application cost‐saving opportunities in MRO purchasing lie in improving stocking, receiving, distribution, and searching activities. This article discusses how Bethlehem Steel's Burns Harbor plant developed and implemented a new MRO purchasing strategy which achieved dramatic cost reductions in all MRO cost areas. By creating MRO partnerships, Bethlehem Steel decreased all of its key MRO cost drivers, increased internal and external customer service, and used MRO supplier expertise to create ongoing reduction efforts.

Business service sourcing: a literature review and agenda for future research

“…In particular, they investigated if this lead to reduced costs (Bechtel and Patterson 1997;Lacity and Willcocks 1998;Sohail and Al-Abdali 2005), and how effects on cost were influenced by different sourcing decisions. For example, Lacity and Willcocks (1998) investigated how several different sourcing practices were linked to cost savings.…”

Indirect Procurement: A Literature Review and Study of Trends

“…Both have very different characteristics and levels of importance, and require different strategies in order to manage properly. These strategies will differ based on their perceived importance to the firm (Al-Kaabi et al, 2007b;Bechtel & Patterson, 1997). Yu et al (2015) describe this component of MRO purchasing to include "low value, non-critical, high volume goods (e.g., office supplies), costly and specialized goods (e.g., electronic items, including printers and photocopiers), and services (e.g., security and cleaning)."…”

“…The purchasing of non-critical MRO items may not be completed by the purchasing department (Bechtel & Patterson, 1997;Segev & Gebauer, 2000). Since these purchases are typical of low-value, some companies seek to empower the end users of such products to make the purchases for themselves.…”

“…Van Weele (2005) found that indirect purchases account for 80 percent of all purchases, while representing only 20% of dollar value. Indirect spend, therefore, consists of a high frequency of low-value purchases, which requires significant time commitments from a large part of the organization (Bechtel & Patterson, 1997). An optimized indirect purchasing strategy would therefore result in significant time and organizational resources being saved.…”

“…These purchases are harmful to the organization because they circumvent established best practices, and make analyzing indirect spend more difficult (Sodhi, Sodhi, & Tang, 2014). Additionally, many strategies for indirect procurement tend to focus solely on minimizing purchase price, rather than looking at the costs to the whole system (Bailey & Helms, 2007;Bechtel & Patterson, 1997). Strategies must be tailored to each individual subcomponent of indirect spend, and will vary based on a firm's industry and value of the purchased item (Al-Kaabi, Potter, & Naim, 2007a;Hawkins, Nissen, & Rendon, 2014;Moon, Swar, Chloe, Chung, & Jung, 2010;Sitar, 2012;Thomas et al, 2015;van der Valk & Rozemeijer, 2009).…”