Think long term to win the battle of total cost of ownership versus “we always want the lowest price possible.”
World-class industrial distributors of maintenance, repair and operations materials constantly face the dilemma of trying to prove to their clients that the lowest price supplier is not the lowest cost provider.
The difficulty lies in the job descriptions of the various disciplines involved in making MRO decisions. Let’s take a look:
- Procurement: The performance of people in these roles depends on reporting reductions in price. Buy it cheaper, and be rewarded.
- Finance: Yes, folks on the financial team want the lowest price available [not always measurable because of the high number of SKUs], but then they will argue that the company buy less. “We need to lower our inventory investment to increase our cash flow.”
- Maintenance: This team must ensure that asset reliability levels keep production humming without downtime. “I need the right part in the right quantity to perform my directed duties. I don’t care about ‘low price’ or ‘lower inventory.’ I must have these critical spares when I need them or there will be massive production losses for the company.”
- Engineering: Operating engineers aim to improve processes, assets and products for the company’s market. Many times the effect of their endeavors will cause inventory obsolesce and an increase in inventory through the addition of new SKUs.
It’s easy to see the potential for conflict that exists among disciplines where MRO spend and supply chain dynamics are concerned.
Yet, it is possible to apply total cost of ownership concepts and derive substantial savings. How can a company do this and still get buy-in from four departments? How can it satisfy the job requirements of each of these departments?
Here are two true stories that show how distributors sustained profitable TCO concepts for their client prospects.
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Good Article
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