Harnessing the benefits of integrated supply helps manufacturing firms create bottom line savings

Manufacturing firms have a requirement to maintain both operational equipment and the facilities. And the process of sourcing and purchasing parts to meet those requirements can often be a time consuming and expensive one, even before the cost of the parts and the maintenance and engineering efforts to carry out the work is factored in.

The Maintenance, Repair and Operations (MRO) supply chain has historically been managed using internal resources where, in many cases, significant inefficiencies exist in the process. Duplications in process elements like invoicing and creating purchase orders and spare parts storage requirements, can result in unnecessary costs to the organisation. This is where ‘integrated supply’ – a concept developed by MRO cost reduction consultant and former vice president at Synovos (now RS Integrated Supply), George Krauter, – is emerging as an essential solution to help firms better manage the supply chain process and achieve tangible bottom line savings.

While Krauter’s concept, which was first implemented in a manufacturing storeroom in Philadelphia in 1971 by the pioneer himself, has evolved and become widely recognised in North America, it is deemed less so in the UK. The objective is to create shared benefits across purchasing, maintenance, production and finance, using tactics like leveraged purchasing, optimised inventory, improved maintenance and more efficient processing of purchase orders, invoices, payments and reconciliation. Krauter’s vision was to have this entire process outsourced to a third party, thus reducing the burden on manufacturing operators and facility personnel, leaving them free to pursue other business goals.

With the evolution of new technology, digital procurement systems and improved material tracking, any manufacturing firm not considering utilising the benefits of integrated supply could be missing out on real efficiencies that could yield significant savings.

Total Cost of Ownership (TCO) reduced with enhanced data and tracking capabilities

Integrated supply now uses data to track and analyse the Total Cost of Ownership (TCO) so that, instead of focusing on product price savings, consideration is given to other information in the decision tree like purchasing trends, frequency of use or issuance and inventory volume. It means manufacturers could see savings on transactional processing as high as 15 to 25 per cent of overall costs.

Those double-digit savings are difficult to achieve using in-house resources. This is due to a variety of factors including lack of resources and skills and visibility of all potential opportunities for savings and optimisation of indirect spend. Each purchasing transaction, whether a quote request, purchase order or invoice, comes with a cost. Outsourcing to a company specialising in integrated supply reduces the transactional burden, both financially and in workforce hours.

Firms should look beyond transactional processing

One risk when working with an integrator is the eventual plateauing of piece price benefits. Solely focusing on piece price stifles other savings opportunities.

According to management consulting agency McKinsey: “The transactional focus of many outsourcing relationships tends to inhibit a more strategic approach to optimisation.”

It is imperative manufacturers work with the integrator in developing a strategic approach over time, where value-added services and solutions are included.

One company RS Integrated Supply has worked with in the UK is an aviation manufacturer with multiple production sites which adopted the integrated supply concept a decade ago and has seen continuing success with since. The client recently conducted its own savings analysis and identified an impressive 62 percent return in savings, through avoidance of cost-to-serve costs, due to the integrated supply model. Those savings were not earned solely from more aggressive purchasing, nor did they happen overnight. It takes time to understand the demand for materials and drive savings by leveraging the improved visibility.

By employing a variety of solutions from strategic sourcing and transactional processing, through to storeroom operations management and data standardisation – like those within the RS Integrated Supply offering – firms can reach the next level of cost savings.

Using integrated supply to improve ESG performance

Environmental, Social, and Governance (ESG) is growing in importance for all organisations, and the inclusion of it in purchasing decisions is the logical next step in the evolution of an integrated supply approach. ESG is no longer the last part of the conversation: it’s now a frontline consideration and will continue to be a high priority for years to come.

Digital technologies are taking equal position, as Artificial Intelligence (AI) is an opportunity from a data and a transactional perspective. AI will be key in improving planned maintenance and leveraging people, processes and technologies to move towards a full predictive maintenance approach in the future.

AI and ESG make it clear integrated supply will continue to evolve, delivering value to industry through fully optimised and more strategic supply chain operations. Firms looking to achieve the Holy Grail of efficiencies and cost savings must embrace the benefits of integrated supply.

The full range of RS Integrated Supply solutions can be found here.