Despite its strong reputation, the UK automotive industry, including the Original Equipment Manufacturers (OEMs) that support it, needs to look at its supply chain efficiency as it faces several potential headwinds
The UK automotive industry has been one of the country’s post-financial crash success stories. It has enjoyed seven consecutive years of growth and the Society for Motor Manufacturers and Traders (SMMT) reported that UK car production reached its highest level for 17 years in 2016. However, this good run came to an end last year with the number of vehicles produced down 3%.
This blip has heightened concerns within the industry that the nature of the UK’s exit from the EU may impact automotive manufacturers, given their reliance on the export market. In November 2017, SMMT President Tony Walker called for the government not to undermine the automotive industry’s competitiveness, saying: “We will never stop striving to be competitive, but we ask government to help provide the conditions in which we can compete. Like every other industry, we need certainty now.”
One aspect of the industry that has been highlighted as an area for improvement is supply chain efficiency. A recent deal signed by the industry and the government includes £32 million to fund improvements in supply chain productivity and competitiveness.
While many may focus on direct procurement to achieve efficiencies, another important area where waste can be tackled and poor practices eradicated is in maintenance, repair and operations (MRO) procurement. Research by RS shows that for every £1 spent on an MRO product, £2 is spent on the MRO ordering process, showing that there are significant efficiencies to be made.
“Organisations don’t always understand what MRO is, and therefore do not see the need or value in having a strategy in place to deal with MRO,” says Helen Alder, Head of Knowledge and Product Development at the Chartered Institute of Procurement and Supply. “There are a number of reasons why you should have an MRO strategy, but probably the most significant is that among the products you purchase will be items that would cause your operations to grind to a halt if they fail and you can’t replace them quickly.”
Dealing with unplanned maintenance
This is clearly a risk that automotive manufacturers and OEMs supplying the industry should take seriously as unplanned maintenance can impact productivity and therefore their bottom line. The answer, says Alder, is to have “a reliable set of approved suppliers that you can trust to have the products you need in stock, at a price you are willing to pay and which they can deliver when and where you need them”.
"When people are not following an agreed MRO strategy and using approved suppliers, higher costs and inefficiency creep in"Keith Johnson, Industry Sector Manager, RS
One of the issues, as Keith Johnson, Industry Sector Manager at RS, explains, is that there is often too much attention given to price. “Procurement and senior management can be too focused on the prices on a spreadsheet, but what that doesn’t show are the overall process costs,” he explains. “When engineers or other people who make MRO purchases are not following an agreed MRO strategy and using approved suppliers, higher costs and inefficiency creep in.”
Tackling maverick spend
This type of non-approved or “maverick” spending is one of the biggest problems in MRO procurement, says Alder. “There’s the chance that buying parts from a non-approved supplier will cost more, and possibly take longer to source, but the biggest issue is the quality of the parts,” she warns. “It’s not unknown for engineers or other employees to search the internet and buy parts that turn out to be counterfeit or which don’t meet required quality levels.
"Procurement and senior management can be too focused on the prices on a spreadsheet, but what that doesn't show are the overall process costs"Keith Johnson, Industry Sector Manager, RS
“Similarly to consumers, there are people who will look up items online, see a ‘too good to be true’ price and not consider the possibility that it’s counterfeit,” she adds. “The only way to avoid this is to work with trusted, pre-qualified suppliers that can prove the quality of everything they sell. If sub-standard products are put into machines with moving parts, you have potentially serious consequences if they fail.”
Having established the need to consolidate your supplier base to a key group of approved suppliers, the next step is implementing that step and gaining buy-in from engineers. Maverick spending is commonplace, so a concerted effort is needed to break the habit and bring MRO spend under control of the procurement department.
First, says Johnson, the procurement team has to communicate with engineers to understand what products they need and to ensure that the approved suppliers they sign contracts with stock them.
The next step is to make switching to approved suppliers as pain-free as possible. “Through the use of integrated eProcurement systems like the one RS has, it's possible to make the ordering process really easy,” Johnson says. “By streamlining ordering through technology it is much more likely that the user will be willing to change their habits.”
By engaging with engineers and other employees who make regular MRO purchases, it’s possible to shift away from uncontrolled spend with random suppliers and channel the majority of MRO through approved suppliers. The business can then work with suppliers to review spending data, review stock holdings in store rooms and remove significant costs from the entire process.