Being an avid triathlete; and sportsperson, I often find parallels between sport and business. For example, triathletes don’t only train for the three main disciplines. They need to focus on the transitions as well, such as getting out of your wetsuit and onto your bike as quickly as possible.
Have you ever tried getting out of a tight-fitting wetsuit after a long swim? It’s something I am still working on, but it already shaves valuable time off the main events. It’s also a frugal way to gain an edge: instead of paying $1,000 (R14 539,90) to get my bike 100 grams lighter, I could easily lose another kilo or two by adjusting my diet. That weight reduction can cut valuable seconds from my bike leg.
In business, this is called marginal gains. It has its roots in the Japanese word ‘kaizen’, meaning ‘Continuous Improvement’. It’s a philosophy that states change, no matter how big or small, is for the better. This was touted as the reason for the success of the British Cycling Team, according to their coach Dave Brailsford. He took the team, and British cycling as a whole, to some of the best results in the Olympics as well as the Tour de France.
In triathlon and any other high-performance sport, the difference between winning and not can be a couple of seconds. Those transitions between Swimming, Biking and Running are the thin wedges that widen the opportunity for victory. In business, particularly manufacturing, marginal gains hold the same promise of staying ahead of the competition. This is most evident in MRO Procurement.
MRO Procurement creates the winning lead
Collectively, manufacturers make MROP purchases – Maintenance, Repair, Operations and Production. These can be split into two categories: direct and indirect goods.
Direct goods fall under Production. These form parts of a final product, such as the screen on a smartphone or the battery in a notebook. This definition can also include raw materials that go into the production process to create the final product. On average, direct goods account for 75% of the value of MROP purchases.
Indirect materials are part of MRO. These are consumed in the process of manufacturing products. It could be solvent to clean machinery, a replacement switch on the production line, even a new screwdriver or light bulb on the factory floor. Even though such bits and bops only account for a quarter of the value of MROP purchases, they total on average 80% of the transaction volume.
This makes the MRO part of the equation ripe for marginal gains. But many companies don’t take advantage of that. Why? It’s because they don’t distinguish the two at a price and discount level.
Find marginal gains with the right partner
Commodities are easier to plan-you can anticipate production requirements and schedule demands. Like the main disciplines of a triathlon, you can apply a lot of forward-thinking. But when things are in a pinch – when you must change to cycling shoes or when a display breaks – you need to act quickly. In that scenario, price is not the driving concern. Overcoming the barrier is often done at any cost. Instead of losing a few kilograms, I buy a much more expensive bike. But did I really gain as much as I could have?
Indirect goods are unpredictable. In most cases, the product may not have been bought before or it might have been purchased years earlier. That makes negotiating price a challenge. Why would a supplier commit to discounts and low prices without the customer committing to a certain volume or predictability in demand, which they cannot. Yet if this synergy isn’t struck, many marginal gains stay out of reach.
What is the solution? MRO procurement should be a multi-stakeholder approach. A combination of strategies each delivering a small cost saving. Those marginal gains add up and could deliver up to a 35% cost saving. This requires a partner that you can collaborate with to uncover such benefits.
The best supplier is not just one that can compete on price but understands the importance of gains made through good delivery channels. For example, they can provide digital order platforms that your staff, through vetted channels, can easily access for immediate order satisfaction.
Not all suppliers can do this. They are still happy to treat customers’ emergencies as lucrative opportunities. But this doesn’t walk the road with their customers and certainly doesn’t help realise marginal gains in the MRO space. It frankly also doesn’t show respect for the discipline of modern manufacturing. Just like triathlon transitions, if you don’t respect the details and aren’t supportive about making manufacturing flexible, as a supplier you aren’t contributing to your customers’ success. For MRO procurement, this should be an absolute requirement for their supplier partners.