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By Jennifer Engel |  July 27, 2017

Managing Total Cost of Ownership In the Electrical Supplies Category

Although each category of purchasing that falls under Maintenance, Repair, and Operations (MRO) poses its own unique challenges, electrical supplies stands out as one that appears to be tactical. However, it does grant the opportunity for significant cost savings and value enhancement when viewed from a strategic perspective. The “Electrical Supplies” umbrella covers a broad area of products, and depending on the needs of a particular organization, the level of complexity may vary particularly with wires and cables, automation supplies, lighting, and electrical distribution equipment. From a category perspective, there are opportunities to reduce costs when determining the preferred supplier base. These three strategies can help optimize the purchasing channels to achieve your category goals:

Seek Out A Supplier With Purchasing Power

When it comes to supplier consolidation in the electrical supplies category, opportunity grows exponentially when the supplier count shrinks. This category is particularly sensitive to supplier purchasing power due to the control that manufacturers have over cost, and the lack of substitutes in many applications. For example, a medical device company may have a specification for a Printed Circuit Board Assembly (PCBA) that calls for a particular safety disconnect switch from a large OEM. If the medical device company wanted to use an alternate engineering solution to substitute the switch, it may require oversight from regulatory bodies and a lot of legwork from the legal and engineering teams that could take many months and most likely will not be worth the headache. This allows the OEM to control the price that is available to their distribution network, and will offer specialized pricing to select suppliers that demonstrate a large volume of sales, and a high demand amongst their customer base. From a sourcing perspective, the most favorable opportunity for cost reduction is to seek a distributor with specialized pricing agreements for the highest volume, highest cost items being purchased.

Attempting to enter into a specialized pricing agreement with the manufacturer may also be an option if the purchasing power of a single organization is large enough. However, a likely caveat will be a volume commitment for the length of the agreement. Sampling the market through Request for Quotations (RFQs), highlighting these key high volume items and bringing manufacturers into the conversation is the best possible way to ensure that cost savings will not go unrealized.

Avoid Niche Suppliers Where Possible

The electrical supplies category tends to lend itself to more niche areas of purchasing than standard industrial supplies and hardware. While a supplier that can provide a particular brand of heater or sensor at a competitive cost may seem favorable from a product standpoint, the overall cost of the electrical supplies program may suffer. To maximize the purchasing power, electrical supplies programs should be viewed holistically and takinge the entire market basket (is this an actual procurement term) into consideration. Although some items may come at a premium cost based on the preferred supplier’s core competencies, the established category discount structures applied to the overall volumes will be greater. In industries where local, niche suppliers may be a requirement, there are distribution network groups that can be utilized to establish national programs. These networks link small, regional suppliers to enhance overall purchasing power, and allows organizations to have localized service where required.

Consider Other Areas of Overlap

The electrical supplies category often has overlap that goes uncaptured both with other categories under the MRO umbrella, and within other departments. Depending on use and volumes, there may be more opportunities to consolidate safety and industrial supplies vendors. Electrical supplies vendors are typically not the preferred purchasing channel in organizations with separate industrial and safety supply programs. However, if purchasing in these areas are relatively low mix, low volume or segmented amongst a decentralized supply base, there may be opportunity to use these items to boost volumes and improve the electrical supplies program opportunity.

The largest area of opportunity typically falls within the DataComm/IT departments, which often operate as a separate purchasing department. Most electrical suppliers possess capabilities to support both, and manufacturer overlap is common. Consolidating the overall volumes under one agreement will maximize opportunity for both departments.

Overall, the level of success in establishing a competitive electrical supplies program is the level of power brought by the customer to the supplier and the level of power the supplier can leverage within their extended customer network. In a category heavily influenced by manufacturer set prices, few substitutes, and quality of service, the reliance on forming a true partnership with suppliers should be emphasized to maximize program value.

 

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Topics: Procurement, Supply Chain

Jennifer Engel

Jennifer Engel

Jennifer Engel is a Supply Chain Project Analyst at Source One Management Services, responsible for executing strategic sourcing and process improvement initiatives for Fortune 1000 clients. Working directly with clients and their respective suppliers, Engel supports all stages of the strategic sourcing process, from data collection, through selecting and conducting go-to- market strategies, to negotiation and contracting and implementation.

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