Study Identifies MRO Supply Purchasing Issues

Availability of replacement parts tops list of important supplier services and offerings.

A 1998 survey of corporate purchasing decision-makers to identify key issues in maintenance, repair, and operating (MRO) supply procurement and management revealed that:<

  • The consistent availability of replacement parts is one of the most critical issues for most companies when looking for a supplier of MRO products.
  • Large companies are taking a closer look at integrated supply practices to improve their indirect materials management function and provide total costs savings.
  • Companies purchasing MRO supplies via the Internet plan to use it more, citing its speed and convenience as major advantages.

Survey procedures
This was the third annual survey commissioned by W.W. Grainger, Inc. A total of 600 telephone interviews were conducted among MRO purchasing decision-makers. The sample represented approximately 150 companies in each of four industrial groups: manufacturing; construction; transportation, communications, and utilities; and hotels/lodging, health services, and educational services.

The total sample was cross tabulated into three groups of approximately 200 companies each as defined by the number of employees: 10-99 employees (small), 100-499 employees (medium), and 500 or more employees (large).

Replacement part availability
The MRO purchasers reported that the availability of replacement parts for repair is critical in their selection of MRO suppliers. When asked to rate the importance of 13 supplier services, representatives across each industry segment consistently listed availability of replacement parts as very important (76 percent). Other services rated very important in selecting a vendor include just-in-time delivery (61 percent), technical support for products (52 percent), having a wide variety of product lines (51 percent), and emergency same-day or evening service (46 percent).

Additionally, when asked to compare business-to-business vendors and consumer retail outlets, more than two out of three respondents (68 percent) indicated business-to-business suppliers are a more reliable source for replacement parts.

Other categories in which business-to-business suppliers were rated superior to retail outlets include more knowledgeable technical support (77 percent); better product quality and selection (74 percent); a larger inventory of products in stock (61 percent); prompt, hassle-free service (60 percent); and the lowest prices (59 percent).

The study shows that regardless of size, all businesses want essentially the same things, availability of replacement parts; broad product selection; prompt, dependable delivery; and technical support, without having to run from vendor to vendor, Wes Clark, group president, Grainger, said.

Integrated supply for large companies
In their efforts to improve overall operations, many large companies, according to the survey, plan to improve their indirect materials management through a combination of product standardization, supplier consolidation, and outsourcing arrangements, three practices associated with integrated supply.

Nearly 8 out of 10 (78 percent) large companies said they plan to implement some type of product standardization in the next two years to improve indirect materials management. In addition, almost half (48 percent) plan to consolidate the number of MRO suppliers they use, and a quarter (25 percent) of the respondents plan to outsource at least a part of the MRO purchasing or management function.

Large companies are recognizing that integrated supply management practices can provide a significant reduction of total indirect materials costs, improved productivity, and the ability to redirect resources to other activities, said Pete Torrenti, vice president and general manager, Grainger Integrated Supply.

Jeff Baden, with Chicago-based marketing consulting firm Frank Lynn & Associates, added, For some companies, outsourcing MRO supplies and services can offer long-term savings of 3 to 15 percent, resulting in savings of up to $300,000 or more annually.

The survey suggests the number of companies with an integrated supply relationship is likely to grow in the next few years. While only 16 percent of the large businesses surveyed currently have an integrated supply relationship with an MRO provider, more than one-third (35 percent) said it is very or somewhat likely that they will initiate one within the next year.

Furthermore, the survey indicates purchasers are becoming more familiar with the elements of an integrated supply solution. Those with at least some familiarity (59 percent) with the term integrated supply describe it as: consolidation of MRO supply ordering, billing, and delivery functions; standardization of supplies; electronic ordering and billing; reduction in the number of suppliers; vendor responsibility for a reduction of total MRO costs; cost-plus pricing; and outsourcing some or all MRO supply functions.

Online ordering to increase
Just 8 percent of companies in the survey currently order MRO supplies via the Internet, with no change seen in the proportion using since 1997. But among current users, 85 percent expect to increase their use of the Internet for MRO ordering over the next two years.

And increasingly, larger companies will be using the Internet to order MRO supplies. Almost 4 in 10 (38 percent) large-sized companies expect to start ordering online within the next year. Smaller companies are less ready to make the jump online, just 14 percent of small-sized companies and 26 percent of medium-sized companies expect to start ordering online in the next year.

When asked about reasons for purchasing MRO materials via the Internet, two out of three respondents (64 percent) cited speed and convenience as the major advantages. Accessibility and accuracy of product information also were frequently mentioned as additional benefits of online ordering (25 percent and 20 percent, respectively).

Those experienced with it find it an effective and efficient way to purchase MRO supplies, said Daniel Hamburger, vice president and general manager, Internet commerce for Grainger. He believes use of the Internet for purchasing MRO supplies will increase as Internet access becomes more prevalent, the workforce becomes more computer literate, and more companies make the Internet an everyday tool for ordering supplies and services.

Lack of access, mainly to the Internet, but also simply to a PC, is the key reason most companies have not ordered MRO supplies online. According to the survey, 49 percent of those not purchasing MRO supplies online lack access to the Internet, with 10 percent lacking access to a computer. Other barriers to online ordering cited most often by non-users include perceived lack of convenience (15 percent) and the current inability to fit with policies and processes (9 percent).

The survey makes it clear that lack of access is a major barrier to the growth of online ordering, Hamburger said. But we believe the Internet is fast becoming a superior solution. Barriers will fall as companies gain Internet access and conduct their first transaction. Once they try it, they like it. MT

Information supplied by W. W. Grainger, Inc., 455 Knightsbridge Pkwy., Lincolnshire, IL 60069-3639; telephone (847) 913-7378; Internet