Procurement Outsourcing, MRO Spend, and Inventory Consignment
by David Gustin
from Trade Financing Matters on the Spend Matters Network
Many manufacturers buy MRO in their plants and factories, including spare parts, pumps, valves, instruments, etc. MRO can be a significant spend category. While it is certainly a category that can be managed by outside Procurement Outsourced providers, it takes additional value added services to turn into a consignment, or “pay on consumption” model.
In talking to companies that use this model for MRO, I have found the chief interest is not taking this spend off their balance sheet as long as possible, but the professional management of buying hundreds of standard MRO items and managing the procure to pay process so in essence the manufacturer only deals with one vendor.
The basic model is a firm specialized in this area will contact the suppliers, negotiate with the supplier, issue purchase orders to them, pay them, finance the inventory, etc.
This model is basically a derivative of the vendor managed inventory models of the past but with a few twists...
Monday, June 1, 2015