As an avid triathlete, I find parallels between sport and business. Triathletes don’t train only for the three main disciplines, but focus on the transitions as well, such as removing your wetsuit and swiftly getting on your bike.
In business, this is called marginal gain. The philosophy states change, no matter its size, is for the better. In any high-performance sport, the difference between winning and not can be split seconds. Transitions between swimming, biking and running are the thin wedges widening the opportunity for victory.
In business marginal gains hold the same promise for staying ahead of the competition. Manufacturers’ MROP (maintenance, repair, operations and production) purchases are split into direct and indirect goods. Direct goods are production and form part of a final product, such as the screen on a phone.
The definition includes raw materials creating the final product, with direct goods accounting for 75% of the MROP value. Indirect materials are consumed in the manufacturing process and can be cleaning solvent or light bulbs. While accounting for only 25% of the MROP value, they are 80% of the transaction volume.
This makes the MROP side ripe for marginal gains, but companies don’t grasp its advantage. Why? Because they don’t distinguish between the two at a price and discount level. Direct commodities are easier to plan. One anticipates production requirements and schedule demands.
Like triathletes, apply forward thinking. However, when in a pinch, acting quickly is vital and price is not the driving concern. Overcoming the barrier is often done at any cost. Instead of losing weight, I buy a more expensive bike, but did I gain what I could have? Indirect goods are unpredictable.
Product may not have been bought before or purchased years earlier. That makes price negotiations a challenge. Why would suppliers commit to discounts and low prices without customers committing to volumes or predictability in demand? Yet if this synergy isn’t struck, marginal gains stay out of reach. What is the solution?
MROP procurement should be a multi-stakeholder approach – a combination of strategies each delivering a small cost-saving. Those gains can add up to a 35% cost-saving, but it requires a partner to uncover the benefits.
The best supplier is not just one who competes on price, but also understands the gains made through good delivery channels. They can provide digital order platforms accessible for immediate order satisfaction. Not all suppliers do this and are content to treat customers’ emergencies as lucrative opportunities.
This doesn’t help realise marginal gains. Just like triathlon transitions, if you don’t respect the details and support to make manufacturing flexible, you aren’t contributing to your customers’ success.
● Andrew is managing director of RS Components South and sub-Saharan Africa