MRO Today - The Net's impact on the supply base, supplier relations

The Net’s impact on the supply base, supplier relations

by Paul V. Arnold

The Internet lets General Electric maximize its size. A tool like electronic auctioning can award business for a product or commodity group to one supplier that can cover many locations. This can save a ton of money.

But how does this impact a given General Electric plant’s supply base? What does it mean to the relationships that plant’s supply chain employees built with local or regional distributors? And, what does it mean to the maintenance worker who "needs a part tomorrow or it’s going to shut us down"? What if that preferred supplier is in England?

Lee Garbowitz, a GE Corporate Initiatives Group manager who helps oversee company e-procurement, provides his views.

Do e-auctions shrink or gut the supply base? "We’re still buying from 90 percent of the suppliers we’ve always had. This doesn’t shrink the supply base. In some cases, it brings more competition. Instead of awarding 100 percent of the business to one supplier, it might be more economical to break up the buy among seven."

Do these auctions help or hurt the relationships a plant may have with its traditional suppliers? "If a supplier has services that truly do add value to its customers, I think that’s obviously going to strengthen the relationship. The main question is, are the services that supplier offers a commodity or not? Is it truly a differentiator that gives you reason to stay with one supplier over a long period of time?

"We ask suppliers to demonstrate their value to us. Does it make sense for GE to go to seven different sources for supplies, or go to one? It’s always on a case-by-case basis.

"Two years ago, we might have 20 suppliers for a commodity. Now, we have the resources to aggregate that spend. The suppliers we move are the ones we had as convenience, not out of value-added service. The ones that truly have value will stick."

Have any distributors not been ready, able or willing to go the "e" route with you? "I don’t know of any. I’ll be honest; it helps being GE. The supplier who wants to be around on a long-term basis will hopefully leverage the same tools we have."

Does the e-procurement process create faceless, impersonal relationships with suppliers? "I don’t think so. If you can do away with the valueless task of having to make 14 calls to find out what the status of the order is, to be able to have that information online, there is value in that. That should free the distributor salesperson to do something that does add value. Digitizing the process makes the relationship more efficient."

What about that maintenance worker’s plant emergency? "Up front, the sourcing team responsible for that product needs to define what’s critical to quality. Hopefully in the definitive stage, it will come up that we need a supplier capable of one-day turnaround. We need the foresight to define the user group and what is important to those people."

This article appeared in the October/November issue of MRO Today magazine. Copyright, 2001.