How can maritime procurement teams get the most out of their equipment supply chains? Sam Tulip investigates
From engine parts to safety equipment, the range of supplies that a ship owner or manager may require keeping a vessel in service is immense. Typically, it is hard or impossible to forecast demand: when the part will be needed, or where.
The maritime sector is not unique. Across manufacturing, transport, mining, construction, procurement, and operations, managers struggle to bring order and efficiency to MRO (maintenance, repairs, operations) supply.
A recent White Paper from RS Components with the UK’s Chartered Institute of Purchasing & Supply surveyed MRO professionals. Their overarching priority is to reduce downtime and the major impediments are long lead times for spares (65% of respondents) and the sheer age of assets (48%). Sound familiar? At the same time, there is great pressure to reduce operational budgets and cut inventory costs while ensuring technical and contract compliance, a lack of spend visibility, and deficiencies in the people, systems and technologies to control this sort of purchasing.
What solutions are available? The RS White Paper says “In terms of lead times and availability, insight from data is critical to knowing what organisations are using and buying. Using suppliers that can create a dynamic inventory profile will help”.
It isn’t all about suppliers though – one of the major impediments to a successful MRO procurement strategy is a lack of stakeholder alignment. Often, procurement responsibility is split – head office, local agents, the ship’s master; all with different priorities. At best, control is compromised, at worst the ship may receive sub-standard or even counterfeit supplies.
A longer-term solution addressing the ageing asset problem would be retrofitting sensors to enable predictive maintenance and smart asset management technologies and upgrading ageing assets so that they take current rather than obsolescent parts.
But if we can’t change the equipment (and of course MRO is about much more than just spare parts), can we change or optimise the supply base? The favoured approaches include supplier rationalisation/vendor consolidation, which almost half the survey sample are pursuing, followed by identifying value-added services, increasing supplier responsibilities, introducing spend management systems, and using online marketplaces for tendering and ordering. “Once they’ve consolidated supply, it is about looking for those vendors that not only have the product range, but also the digital platform and services so that process costs are reduced”.
Adam Green is Group Head of Procurement at Peel Ports, the UK port centric logistics provider. He says “One of the best qualities a supplier can have is agility, but this can be very hard to achieve. We try to build agility into our contracts, so we can flex the cost base to match demand. Choosing suppliers is actually very difficult. We pick partners that we think will collaborate, with whom we can develop a relationship of trust over time. During the tender process, part of the assessment involves how well we think we will work with them, but we also have to look at our own behaviours – we have to be flexible as well”.
Green says “If we are buying a crane with a 15-year life, we need to lock in the support as well. In the past we haven’t always done this; we need to think more about the whole life cost and servicing of our purchases”. Whilst the ideal is to strike group-wide framework deals with a few suppliers, “this isn’t always possible – a single supplier can’t support the whole geography, and where we operate older assets, parts may only be available from specialists. So, we use a mix of group-wide contracts and local suppliers. The word ‘urgent’ can be over-used, but it’s the nature of the business that a lot of things are urgent, reactive, or a genuine emergency, so we need local suppliers who can react quickly.”
Bob Thompson and Gary Entwistle are Principal Consultants at procurement specialists Xoomworks. Thompson insists that transforming MRO purchasing has to be based on proper demand and spend analysis across the fleet. “You need to build up the scale and level of information around the requirements over time, and at part number level – otherwise you can’t even use a catalogue properly”. But, he warns, “This is a massive amount of work – it could take years”.
However, armed with this, says Entwistle, you can start to understand the market. What is the competition? Can you run a tender for likely future needs, or at least get indicative expressions of interest? “You should also try to develop relationships with incumbent suppliers. What else can they offer? Are they interested in becoming a strategic partner (for instance if you are upgrading your fleet)? Giving them visibility of your current and longer-term plans may lead them to offer innovations. “With your key suppliers you should be engaging at senior level, developing relationships and a mutual recognition of importance. Make the relationship more important, closer, evolutionary”.
Peter Masonbrook, National Supply Chain and Performance Manager at Faithful and Gould, the programme management arm of the WS Atkins group, agrees. “You should consider tiering the supply chain, so that you can approach Tier 1 (high risk/value/volume) with a strategic approach and Tier 2 with a more tactical approach. ‘Strategic’ would mean reduced stock holding and distribution costs for both supplier and client; greater ability for suppliers to plan ahead, thus reducing lead times; improving purchasing process costs; and this should create a more flexible approach from the supply chain and a feeling of their being ‘wanted’”.
MRO supply has three pillars: sourcing, logistics, and process, says Marc van de Ven, Operations Director at MAG45, an MRO supplier keeping production lines running in sectors such as FMCG and consumer electronics. Sourcing is about who you buy from, where from (global or local), how you balance price, and availability.
Logistics, he says, is about what and how much you want to keep in stock, or have someone stock for you, and where to stock it. For really critical items that are hard to obtain but may stop a ship from sailing, it may be worth investing in inventory yourself. Other items may be so readily available that you can rely on local availability. Or it could be worth outsourcing to a third party specialist, especially if they are doing the same for other clients with generally similar needs. “The further back you can push stock, the fewer the stock points and the more optimal the inventory. But, the more critical the part, the closer it needs to be to the line, or in this case ship, but a ship can’t carry spares for everything. So, if supplies are small, light, cheap and important, stock them on the ship. If not, don’t”.
The third pillar, says van de Ven, is process. How do you get MRO from the supplier to the end user as efficiently as possible? It has to be as easy as possible to identify the requirement, find the supplier, place the order with necessary assurances on delivery, compliance, and so on. E-commerce and automated systems may be relevant here (although, as Peel Ports’ Green warns: “A lot of good local suppliers are not used to such systems – if insisting on e-commerce puts them off quoting, then e-commerce loses its value”). Do existing systems allow, say, a Captain in mid-ocean to order his requirements ahead? Has a master, or a local agent, effective access to globally negotiated contracts? Can supply be simplified by creating ‘kits’ of parts to cover common situations so that you are ordering one part number from one supplier rather than a dozen components from different suppliers?
Even if the shipowner can institute global contracts, life is not all plain sailing. Jacob Biemond is Procurement Director at Damen Shipyards, who build, repair and support vessels in locations worldwide. “We have agents around the world to fulfil our procurement needs. For major equipment, we are usually required to buy spares from the OEM so for more complex and valuable parts we try to select companies with appropriate regional or global networks. To prevent being tied in to OEMs with, potentially, consequential high pricing we strive to secure availability of spare parts at competitive price levels when we initially contract for the equipment”.
MAG 45 and Xoomworks have the advantage that they supply many companies with similar machinery and supply requirements, so they can aggregate ‘big data’. “If shipping companies could share information with someone like us we could optimise supply for all customers. But individual customers would still have insight of what is happening with them”, says van de Ven. Third-party supply organisations could offer a solution, agrees Peter Masonbrook. Advantages could include world-wide capability, deep experience and category knowledge, an approach independent of previous relationships and, critically, the time to do it and do it right, to seek out lowest total cost, to look at improvements and innovative ideas, and to really get to know the client’s requirements and ensure the supplier understands these.
There is no competitive advantage in maintaining individual, inefficient supply arrangements when changes are possible that could benefit the entire industry. Could there, Thompson wonders, be a role for IMPA in promoting a mechanism that will allow data aggregation on maritime MRO supply? Or is there scope for the creation of neutral thirdparty procurement agencies specialising in maritime MRO?
This article was originally published in the Marine Trader, IMPA’s official journal for maritime procurement and supply chain management, in issue 01 of 2018. Head over to www.impa.net to find out more or simply read new issues on the go with the MT Journal app.
