MRO buyers hear cost-slashing tips
By Staff -- Industrial Distribution, 9/1/1998
Austin, Tex.--Purchasers returned from the First Annual MRO Conference with hands-on tips to establish successful supplier alliances, reduce process costs and more.Nearly 70 purchasers, distributors and service company representatives attended the conference Aug. 3-4 at the Hyatt Regency Hotel, which was sponsored by the National Assn. of Purchasing Management. A two-day workshop on supply chain management followed. To add significantly to their firm's bottom line, participants were urged to cut administrative and indirect materials costs in conjunction with their distributors.
Highlighting that message were case studies of how a Wisconsin utility and a natural gas company formed successful distributor alliances, reduced vendors and cut costs for critical materials and spare parts.
In one example, El Paso Energy Corp. slashed its 3,000 vendors to 40 alliance partners for products such as pipes, valves and fittings. After El Paso adopted the program in each of its five divisions, the company saved $16 million, which included reducing 40 percent of the parent company's workforce.
Jack Jones, director of materials and contract measurement for one division, El Paso Natural Gas Co., said its alliance agreement saved $3 million a year in MRO purchases, including a reduction in "frivolous buying" of nine percent. Operating expenses in material warehousing were cut by more than half, as was MRO inventory, starting in 1996, he said.
Jones acknowledged that such moves to cut supply chain costs whittle down the number of purchasing employees. "The bottom line is it takes real intestinal fortitude to step up to the plate to do what we just did," he said.
Other highlights included tips to measure the carrying costs and manage MRO inventory from Lee Budress, a professor at Portland State University. He also ran a pre-conference workshop on negotiation skills. Other discussions detailed the impact of electronic commerce in reducing procurement costs and using common product identification codes to make Internet transactions work.
During a separate panel discussion, four members of the Industrial Distribution Assn. gave an update on key trends in MRO distribution. Among those are manufacturers moving to a just-in-time delivery strategy, decreasing transactional costs in the supply chain and continuing consolidation.
Management consultant Tim Underhill made several presentations including an in-depth look at how distribu-tors that provide added services help customers reduce costs, and definitive methods to measure that value.
Past NAPM President Robert Kemp also gave an overview of the future for supply chain management. Another conference is planned for next year.
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