The Evolution of Integrated Supply: From Piece Price to Total Cost of Ownership

Evolution of Integrated Supply

The phrase “integrated supply” has been in use since the early 1990s to describe management of the supply chain from a centralized perspective rather than individual departments, plants, or projects within an organization. This approach provides organizations, particularly manufacturers, the opportunity to make supply chain decisions that offer shared benefits. It is typically used in referencing the MRO supply chain, or the flow of spare parts and materials used in maintaining production equipment or a facility.

The reasons why businesses turn to external providers of integrated supply services have evolved since the term was first coined. “Deals were sold on cost reduction based on piece price and hiring an employee or two to help with customer’s storeroom and inventory,” recalls Janice Howse, Vice President for Strategic Accounts at global provider RS Integrated Supply. “This has changed over the last 10 to 15 years.”

More attention is now given to how integrated supply chain management reduces Total Cost of Ownership (TCO) by analyzing crucial information such as inventory volumes, frequency of issuance and purchasing patterns. Integrated supply providers also offer substantial savings opportunities on transaction processing, says Howse: “Our ability to take your purchasing-to-procurement process and automate it using our digital procurement marketplace saves an average of 15% to 25% of overall costs.”

Prioritize core capabilities

This is difficult to achieve in-house. As management consultancy McKinsey reports, “Many companies lack the necessary capabilities to address all of the potential opportunities and capture full value from optimizing indirect spend.” Moreover, is it in a company’s best interests to develop such non-core capabilities even if they could?

Each purchasing transaction, whether a quote request, purchase order, invoice, or something else, has an associated cost. Allowing an integrated supply company to manage that process reduces a company’s transactional burden, both financially and in workforce hours.

“Think about the time and effort spent managing suppliers when your primary objective is to manufacture a product in say healthcare or food,” says Howse. “We give you back time so your engineers, production, manufacturing and sourcing team members can focus on plant operations rather than transactions.”

“Should you be in that area of the business?” asks Jim Haddow, a supply chain management expert and former professor at the Howard University School of Business, in Washington, D.C. “You should be focusing on your core business and outsourcing other pieces of it, such as Maintenance, Repair and Operations (MRO).”

Maximize efficiencies

Businesses benefit from using integrated supply specialists in other ways too. “Outsourcing providers can bring important capabilities and assets to bear,” notes McKinsey, “Such as domain and functional expertise, knowledge of the market, process discipline, and updated sourcing technology.”

RS Integrated Supply, for instance, offers strategic procurement, along with storeroom management and value-added services. “We can manage and optimize your inventory,” says Howse. “Then we can talk about other services that can improve efficiency, such as Kanban and kitting, which reduce walk-and-wait times by bringing products closer to where they’re needed.

“We leverage our technology to provide end-to-end processing, visibility to inventory, and easy access via mobile technology. We partner to provide a consultative view and improvement approach to your organization.”

One of the risks with using an integrated supply provider is that the benefits plateau within a couple of years because, states McKinsey, “the transactional focus of many outsourcing relationships tends to inhibit a more strategic approach to optimization.” These complementary value-added services and solutions, however, promote the development of a more strategic approach over time.

It is a step-by-step process, explains Costi Campi, Senior Vice President for Global Procurement at RS Integrated Supply. “When we get a client on board, it’s about making sure they continue to receive the goods when they need them,” she says. “We reduce the number of transactions to optimize cost. This is the minimum requirement to gain trust. Then we can introduce additional value propositions.”

Once trust is established, RS Integrated Supply can collaborate with the client to introduce additional inventory solutions and value-added services, such as data standardization, enrichment, and inventory optimization, that drive further efficiencies and savings. “We transform from a tactical approach to a strategic one,” observes Campi.

Understand supply chain emissions

Integrated supply providers that are taking measures to improve their own Environmental, Social and Corporate Governance (ESG) performance can support clients with valuable expertise in this sphere as well.

Take efforts to reduce Scope 3 emissions, those that occur in a company’s value chain, as an example. “If providers track information from their suppliers, they can help demonstrate the overall impact of the supply chain and then bring down emissions,” says Haddow. Furthermore, he continues, “They are well positioned to do that without the repetition of effort if every company was asking the same question, especially going down the tiers of the supply chain. There’s a lot of value that they can add here.”

Howse agrees. She sees how positively clients respond when they discuss RS Integrated Supply’s sustainability commitments. “ESG isn’t the last part of the conversation, it’s on the frontline,” she says. “We provide details about our science-based targets and where we are with progress on ESG measures upfront. It’s important to who we are.”

Improve continuously

ESG will undoubtedly be high on corporate agendas for years to come – as will digital technologies. “Artificial Intelligence (AI) is an opportunity from a data perspective and a transactional perspective,” enthuses Campi. “This is one of the next steps we’re working on. How can we maximize use of AI within procurement?”

It is a question that RS Integrated Supply clients are asking even if their current operations are yet to be fully optimized. “It’s exciting to have access to AI and all these technologies. Customers want to get together in a room and talk about them,” says Howse. “Our job is to discuss where you’re at with MRO today, help to improve your planned maintenance and leverage people, processes and technologies to move towards predictive maintenance in the future.”

“There are different levels we can work at: operational, tactical and high-level strategic,” she concludes. “It’s not easy, and it’s a multi-year commitment, but it’s important that we put a roadmap together to deliver site reliability, reduce downtime and drive productivity. Our approach improves access to MRO parts, eliminates non-value add activity and reduces a client’s TCO.”

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