MRO Direct launches procurement/sourcing service

Some experienced executives at both ends of the supply chain are launching MRO Direct, Inc., Pittsburgh, PA, an MRO direct sourcing option targeting Fortune 500 manufacturers. The company hopes to change the structure of the MRO industry with a new business model and an old value proposition: Lower the price of indirect materials procurement with a focus on reducing invoice and order processing costs. The group is developing a supplier network that to date includes TruServ Corporation, United Stationers Supply Company, AirGas Direct Industrial, SecureRite, Production Tool Supply, and Lagasse Inc.

The company says it is unveiling a new business model for Fortune 500 manufacturers seeking to increase their earnings by lowering the costs associated with MRO procurement. The model is a combination of mark-up on sourced indirect materials as well as fees from its engineering services group to help improve procurement processes in large corporate environments. The company, currently with 20 employees, has raised $2 million funded by management contributions and private investment.

Principals of the new company include former TruServ Corporation executive Don Belt, president and CEO of MRO Direct; Ned Meyer, executive vice president, business development & marketing; and Tom Riley, executive vice president, engineering services. Meyer developed an e-commerce network for industrial supplies through his former business, Maintenet, which was acquired by MRO Software in 1998. MRO Software is the developer of MAXIMO software, which many large companies use to manage their assets, production lines, and MRO maintenance requirements. Meyer has extensive experience helping Fortune 500 manufacturers improve their MRO procurement and supply chain management. Belt has extensive experience managing supplier relationships and joint ventures in his roles at TruServ and Servistar.

The principals are hoping to leverage their respective industry relationships to provide an enhancement to integrated supply offerings by providing a large breadth of product on a manufacturer direct basis. As a direct sourcing option, the company says it can reduce a company's indirect material spend by redirecting purchases through its exclusive Vendor Product Index, which aggregates more than three million SKUs. A differentiator for the company, Belt said, is that it can be more flexible and efficient in its direct sourcing and inventory management at the plant level by leveraging technology tools and process improvement. In other words, it can minimize the time product sits or gets touched in the channel.

Short term, the company is focusing on getting the top 500 manufacturers of indirect materials online with its program, and building out its customer base, Belt said. 'We have received a strong response from companies that they need to have better control of procurement at their plants. They recognize that we can help them be more strategic, rather than tactical, in their MRO spend. We can provide a low-cost model at the factory level.

'Comparatively, consolidation has already occurred in the retail hardware marketplace,' Belt said, 'where price discounts on hardware and home maintenance items have been driven by competition between large box stores (i.e. Home Depot and Lowes) and regional retail chains. Our concept is very much the same for industrial miscellaneous MRO items.

'Accessing a broad range of MRO products directly through cooperative buying groups and master distributors, MRO Direct provides customers with not only the best possible price, but also a localized custom electronic catalog, superior customer support and sourcing services.'
MRO Direct has selected Prophet 21 as its technology base, according to Belt. It has hit the ground running, with some pilot programs in place. It is currently purchasing 10,000 line items per week for customers in North America and for plants in Mexico and Guam.

In

September, the company announced an agreement with Commercial Industrial Supply, Willoughby, OH, to service all customer accounts previously served by that sourcing company. CIS customers include Precision Industries, General Electric, Setech and TRW, according to a press release by MRO Direct.

'We work with the end-user to establish usage and lead times, and then get as close to direct as possible for commodity items,' Meyer said. 'We can consolidate a lot of MRO transactions and be a low-cost provider by streamlining at each point in the supply chain. We can improve procurement processes at the plant level, consolidate purchases, and then leverage purchase volumes at the supplier level.'
The company says it will work with a range of manufacturers, master distributors and distributors to provide savings customers are looking for while maintaining service and support relationships necessary for technical and/or engineered products.

MRO Direct will take title to product it sells through its network, and base its revenue stream on the mark-up in a shared cost-savings model. A complementary revenue stream will be through its engineering services program, headed by Riley, a former MRO Software executive, to assist customers with process improvement.