Getting a Handle on MRO Procurement

American Express applied its own experience on indirect purchasing to develop tools that improve compliance with established procurement rules on indirect purchases such as maintenance, repair and operations (MRO) supplies. Instead of a pile of catalogs or personal supplier preferences, the system relies on a master catalog which lists only approved products from authorized vendors. One of the big gains, says Darin Herring, vice president of purchasing services, American Express, is the elimination of "maverick buying." If the procurement process is too complicated, he explains, people will go outside the system and buy from a local vendor. This can prove costly not only because that vendor's prices may be high, but it can also keep the company from achieving volume levels that could trigger a new tier of discounts.

Catalog purchases have a high transaction cost, explains Herring. American Express put catalogs from multiple suppliers in a number of categories of spending into its master catalog. This makes it easier for users to find the right items and purchase at contract rates, he continues. The financial services company was able to extend the capability to multiple locations and to integrate with procurement modules in applications like SAP, Oracle, and Ariba which, in turn, establish rules and maintain security for access.

American Express began offering its solution, CatalogPro, commercially, along with a contract audit and recovery solution and an electronic invoicing and payment tool.

Citing industry figures that indicate as much as 20% "leakage" in contract procurement, Herring explains that users may apply the wrong price on the purchase order or vendors, looking at a complex pricing model, can apply the wrong price or discount level. Using data from the supplier, the audit system can identify and report anomalies.

Though American Express has used the tools for parcel shipping to monitor pricing and service levels, it hasn't looked at extending the application to the more complex modes.

The other facet of managing procurement, Herring concludes, is demand management. The best procurement cost is zero, he quips, when people aren't buying what they don't need.

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