Petrochem/Utilities Industry Trends

Making the Most of Strategic Sourcing With the Right Information

Issue Table of Contents

Making the Most of Strategic Sourcing With the Right Information Building a Better MRO Database A Story of Database Consolidation: Q&A with George Daniell Related Standards and Publications

As petroleum and petrochemical companies and utilities continue to look for ways to reduce costs, they’re focusing more often on their relationships with their suppliers, including those who provide parts for their maintenance, repair, and operations (MRO) activities. By acting proactively rather than reactively to their procurement needs and leveraging relationships with key suppliers through which they funnel the majority of their purchases, these organizations are not only cutting costs but also profiting from increases in service and quality.

Known as strategic sourcing, this type of initiative offers a number of benefits to companies. “It helps businesses because they now know they have a consistent supply of materials. This helps them ensure that they won’t lose time because of parts shortages,” says Jim Crouch, practice director for IHS Intermat Solutions, a leading provider of parts-optimization tools and services. “Also, by using strategic suppliers, companies are able to enter into long-term agreements that allow them to control costs. Their procurement activities become very predictable.”

Despite these benefits, however, the usefulness of strategic sourcing programs is often dependent upon the quality of procurement information that companies are able to provide to their suppliers. Unfortunately, many organizations, burdened by MRO inventory systems filled with inaccurate and inconsistent information and duplicate records, may be missing opportunities to save money and gain advantages on their MRO spending.

“The more detail the buyers give their suppliers, the better the price will be that they get,” says Jim. If, for example, a company tells its supplier it needs a ball valve, but doesn’t give many more specific details, the supplier will have to guess at the buyer’s specific needs, and may offer a bid based on the price of its highest-cost ball valve configuration in order to minimize its own risk. By providing very specific information, however, buyers ensure their suppliers understand exactly what they need and are able to provide an accurate price based on those details.

More specific information also helps buyers as they make decisions about their suppliers. If they know a part needed for a piece of equipment is available from a number of suppliers rather than from just one, such as the OEM, they will be able to go to the supplier with the best price and service offering, or bundle it as part of a blanket purchase from a strategic supplier.

Having a consistent methodology for classifying and managing these parts is key to strategic sourcing. It not only allows organizations to keep from getting locked into suppliers’ specific parts names—and therefore helps them avoid getting locked into buying from that supplier over the long haul—but it also helps procurement managers bundle purchases into larger orders.

“Effective MRO practices depend upon having the right part at the right place at the right price,” Jim points out. “The right place depends on the bill of materials, the right price on the relationship between the procurement team and the suppliers, and the right part is all about having an accurate description.”