Distributors have ample opportunity to take the lead (and build stronger customer relationships) in creating leaner and more productive supply channels. Author Joel Roth says he wrote The 20% Solution, some of it excerpted in this issue, to address the frustration of purchasing professionals who have difficulty dealing with MRO procurement. He gives the following recent example of how corporate buyers can go amiss:
A well-known international manufacturer of building materials tried for 15 years to install an effective integrated supply program for MRO. Three costly attempts failed. Their fourth attempt led to the following Request For Quotation: Time allowed for bidders to respond -13 working days. Total corporate spend on miscellaneous mill supplies -$1.2 million (probably going down sharply due to current market conditions and production cutbacks). Number of plants -26. Average annual spend per plant -$50,000. Number of SKUs in market basket -1,395. Average spend per SKU per year -$860 across 26 plants with no usage per item per plant. Percent of SKUs with annual spend of less than $100 -81%.
In addition to seeking lowest prices on the market basket, the RFQ asks for the following services, with no additional supplier compensation: Uniform pricing to all plants regardless of volume. Prices firm for one year, plus not-to-exceed pricing for three years. Same pricing structure on all items purchased whether stock, specials, emergency. Right to award an agreement nationally, by plant, by region, by commodity group or not at all. Discounted payment terms or net 60 days. Electronic invoicing and remittance. No order minimum. All product f.o.b. delivered at vendor’s expense. Adequate sales and technical support at all locations within 48 hours. Monthly usage reports by item by plant. And more!
Clearly, this company has no concept of the basic cost-profit relationship between buyer and seller. As a result, their likelihood of achieving a successful result is minimal. Unfortunately, this approach is too common in MRO procurement.
So how can you change the outlook of customers who might resemble the above example? Go to this link and download the electronic version -for free -for MDM subscribers. The 20% Solution is aimed at educating corporate purchasing management so they might achieve a better outcome than is likely here. It is well-written and offers a lot of value to your customers. And please thank Joel when you use it!