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A Closer Look At Procurement
In the same way that many business segments have seen major changes over the last few years, distribution maintenance, repair and operations (MRO) products has changed dramatically. Maintenance and engineering managers looking for product information have found expanded product offerings, more robust web sites, and a more savvy approach to meeting the needs of institutional and commercial facilities.
The forces driving these changes have been well documented, including the rise of so-called big-box retailers and much tougher competition from both large and small distributors.
But perhaps the biggest factor in the evolution of MRO distributors is within facilities. More than ever, managers who specify MRO products for their technicians have done more research into such key issues as price, delivery and reliability.
They have a deeper understanding of equipment and technology within their buildings and the parts and equipment needed to keep them running. In general, they’ve helped streamline the way their organizations make both large and small purchasing decisions and manage in-house inventories.
The result is a fundamental change in the way that managers do business to MRO product distributors.
Cutting the Base
Budget pressures in organizations of all kinds has forced managers to review all of their spending in order to locate potential savings. Inevitably, purchases of products and services from distributors come under scrutiny, and managers are finding substantial savings.
Kevin McKellar is procurement manager for Grubb & Ellis Management Services’ Microsoft account in Puget Sound, Wash., and oversees procurement for engineering and maintenance departments in more than 90 buildings nationwide with more than 10 million square feet.
He says his company has been able to negotiate lower prices by concentrating purchases with a few key distributors. The company has consolidated its distributor base over the last three years from about 800 down to 10 national firms and 80 additional distributors that provide the bulk of the needed specialty products. The winnowing process is not easy.
“That can be difficult to do in the MRO world because of the large number of specialty products in facilities,” he says. In addition to savings generated by concentrating purchasing with a smaller number of distributors, the company also benefits from better service.
“It’s better to work with a single point of contact that multiple points of contact,” McKellar says. “You get more consistent service.” And not all of the business has gone to big-name, national distributors.
“One-stop shops have their limitations,” he says, adding that, for example, a national distributor might carry a limited line of floor adhesives. “The one-stop shop will have some material, but they don’t have the range of materials that a specialty supplier would.”
Managers also are increasingly viewing distributors as a way to more cost-effectively manage MRO product inventory. In short, distributors are bidding to take over departments’ inventory management — at the distributors’ sites — and many managers are more than willing to let them.
“We want to be the best at our core business, which is maintenance and repair, not inventory management,” says Travis Luzney, manager of maintenance and repair with Milwaukee Public Schools. Luzney oversees the district’s program for MRO product procurement.
Like Grubb & Ellis, the district focused its procurement activities with a smaller number of distributors. The district recently contracted with a large national distributor to take over management of most of the district’s MRO products. The agreement is non-exclusive, and the district still keeps a small in-house inventory of products technicians might need in an emergency and those with long lead times.
Among other things, the change means technicians go to the distributors’ stores, not to a central stores area, for products. Also, they are free to shop around at other distributors for lower prices.
“The trades people have more responsibility for finding the best prices,” he says. “There’s more onus on them.” This change also has brought challenges.
“The change has been huge,” Luzney says. “We’ve had to help (technicians) understand why we don’t have an in-house inventory.”
Facing tough competition, distributors have expanded their offerings, both to generate additional revenue and to strengthen their relationships with in-house maintenance departments. For example, many now offer departments training on key issues.
Luzney says his department’s technicians have taken part in lockout-tagout training offered by a distributor. Technicians for Grubb & Ellis have taken part in distributor-led training on troubleshooting lighting systems, McKellar says.
Luzney says he knows the distributor’s offer of training is “an opportunity to grow their market share” but says the offer didn’t start out as a blatant sales pitch.
“It came up as our relationship developed,” he says. The distributor’s representative would pay a visit and start talking generally with Luzney about the department’s activities and challenges. From there, the two discussed training and other maintenance management issues.
“It’s nice to sit down with reps who have experiences with other similar organizations,” he says. “We didn’t have just a ‘group think’ with our in-house people.”
As the relationship between departments and distributors evolves, managers are looking to tap even further into both distributors’ technology and expertise to benefit maintenance and engineering departments.
Milwaukee Public Schools plans to work more closely with its distributor partner in order to benefit from the distributor’s technology, Luzney says. Specifically, the district wants to streamline the billing process to integrate MRO purchases more closely with the district’s billing system to allocate charge-backs to individual more accurately and to minimize hand entry of information.
Luzney says he also would like to take advantage of the distributor’s existing database technology to get more accurate information on purchasing trends and patterns of MRO products into the hands of front-line technicians making many of the purchases.
McKellar says he expects his company to participate in more internet-based reverse auctions, in which a customer posts the requirements of a project and solicits bids from qualified distributors. The benefit to the organization is the ability to more closely scrutinize bids and and compare bidders.
For example, a janitorial supply company won an internet auction because, McKellar says, they offered a broader range of supplies, provided an opportunity to hire a minority-owned company, and offered services that addressed specific company needs.
“When we select a company, it really depends on whether they can help us solve problems on a day-to-day basis,” he says. “We tend to lean heavily on their expertise.”
Among the challenges that lie ahead for managers is understanding as much as possible just how MRO product distributors can address their specific needs for efficiency and productivity. A visit to any distributor web site demonstrates that these companies have made great strides in recent years in putting their products where specifiers can research them easily, offering new products targeting facility challenges, and offering services that managers can tap into in trying to run their departments more efficiently.
Luzney points to inventory management as an area managers can effectively work with distributors to find benefits.
“I get the sense that people are tending to get away from in-house stores.” he says, describing the central issue in partnering with distributors this way:
“Do you want to invest in something that is not in your core competency, or would you rather focus on maintenance and repair?”
E-Procurement: The Net Returns
Ten years ago, the internet was going to change everything managers knew, especially when it came to buying products. Online procurement, manufacturers and distributors said, would revolutionize the way managers specified maintenance, repair and operations (MRO) products.
— Dan Hounsell