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01 March 2018

Understanding ‘Integrated Supply’

To start with, let’s get the definitions clear: MRO (Maintenance, Repairs, Operations) parts are all the spares, consumables and other items that aren’t included in the finished product but are essential to keeping production going. The ‘long tail’ of Bill of Material parts includes the very large number of production parts that may be individually of low value, or only used in occasional product variants. Together these can be represented by many thousands of part numbers, generating vast volumes of typically small orders from a very diverse supplier base and incurring high administrative costs. As you know!

A difficult balance
With such parts diversity it is hard for a company to develop any expertise in these items and their supply markets. Low order values mean the best prices aren’t obtained. Demand can be hard to forecast so excessive ‘safety stocks’ are built up. Ironically, spare parts for example may have many potential users in several locations, and these stocks often can’t be found when they are most needed! Meanwhile, competent staff spend too much time firefighting. So, companies often get the worst of both worlds: they are paying more than they need, in item price and overhead, but still not eliminating the risk of production stoppages.

Broader benefits
Integrated Supply is an approach which brings together sourcing/procurement, logistics, and the various business processes, across all a company’s users, sites and facilities into a single coherent structure with common procedures and data and a ‘single point of contact’ for users. By using an external Integrated Supply specialist, the benefits of this approach can be gained across all these small order categories in a way that would be very difficult for a single manufacturer to emulate.

By working with many businesses with similar requirements, the Integrated Supply provider can develop deep category and market understanding; it can create purchasing leverage with the supply base while remaining brand-independent; it can develop business techniques and technologies that really work in the circumstances of a particular industry or sector; and it can bring its wider view to support continuing improvement.

Quick payback
Integrated Supply may involve significant cultural change, but the payback, whether measured in terms of financial savings or risk reduction, can be both quick and impressive.

For more information about Integrated Supply, download our White Paper: ‘What? Integrated Supply?’.

Dirk van den Hengel is CCO at MAG45

Dirk van den Hengel

Dirk van den Hengel is Chief Commercial Officer at MAG45. Dirk is a Supply Chain Management professional with a strong track record in business consultancy and project management. He co-developed MAG45’s international project management department and helped create the company’s value proposition. He holds a Master’s degree in Industrial Engineering & Management Science from Eindhoven University of Technology.