0:07 So I believe we’re live. Um just wanted to welcome everybody to the call and uh especially uh John Hansen and Livc. Um thank you so much for joining today.
0:19 What we’re going to be talking about is u MRO procurement specifically, but also how how it’s being revolutionized at the
0:27 moment and how things are affecting it out there in the geopolitical environment. So, um John, do you want to
0:34 go ahead and introduce yourself a little bit?
0:37 Well, you know what? You’ve been around a long time. I think almost everybody knows me. So, but John Hansen, uh I’ve been in high-tech and procurement for
0:46 over 40 years. I’ve the author and the founder of the procurement insights blog. I’ve had the privilege of being on
0:53 both the provider and practitioner side of the equation. Uh one of the very first projects initiatives I’ve worked
1:01 on was MRO for the department of national defense. uh and developed a uh self-learning algorithm AI nent AI
1:10 system in the late 90s that uh had some significant impact uh and ultimately
1:17 sold that company uh before the uh in the early days of the dotcom boom. So it’s it’s it’s it’s been a very
1:24 interesting journey and you know you put perspective on things when you can think back 40 years and and look at where we are today. It gives you a unique a unique view of the world.
1:35 I totally agree, John. Yeah, I can look back 40 years as well. Unfortunately or fortunately, I’m not sure which. Um,
1:43 Anders, you’re slightly younger. Not much, but uh, welcome as well. And I think probably most people know who you are, but just a brief overview would be great.
1:52 Yeah, so I don’t fortunately have 40 years of procurement experience, but I had 25 before I started focal point. So
2:00 I I’m the founder of focal point uh and we do procurement orchestration among other things and we do do a lot of
2:08 automation for very large companies that are have global needs. And before I I like I said before I started focal point
2:17 I spent 25 years in procurement. Uh you probably know companies like Fanny May QB insurance, Webster Bank and Citizens Bank where I built and ran procurement and also procurement systems. So yeah,
2:36 to get through. So um let’s let’s move on. So the first thing I wanted to talk
2:42 about today was um you know how MRO um is changing over the time. Um but if you
2:50 could first of all explain you know what are the main differences between MRO procurement and typical indirect procurement um and what are the main
2:59 challenges and you can compare and contrast to direct procurement as well if you want to but um really what what’s the difference between the two I would
3:08 suggest um John let me jump into you on that one okay well you know what what’s what’s interesting the dynamic indirect
3:16 material consists traditionally of OM operation resource management,
3:20 maintenance, repair operations. Uh I have the uh experience in the latter. Uh
3:27 you know, one of the main things is that MRO products are not like buying direct
3:34 products or even OM products. Give you an idea. When I started with the Department of National Defense Initiative, um they you could buy a part
3:44 an MRO part to support their IT infrastructure at 9 in the morning and it would cost $100. By 4:00 in the
3:52 afternoon, that same part could be $1,000. The price fluctuation, that’s where we came into over 10 years leading
3:59 up to that, identifying two distinct commodity types. dynamic uh flux which is MRO product where the prices change
4:08 uh very quickly over a relatively short period of time and then you have what’s known as the the historic flatline which
4:16 are prices that you can negotiate with a contract and they remain relatively stable with with very little variance over an exter extended period of time.
4:25 So once you have that you then are able to look at it and say okay what type of procurement processes are best suited to
4:33 manage that and one of the earlier mistakes was that ERP systems focused more on direct material would try a
4:40 pullth through of MRO negotiate contracts and then wonder why for example the government was paying $100
4:48 for a toilet seat. The reality is is you have to understand the commodity characteristics and identify either
4:55 dynamic flux or historic flatline and these trends and characteristics hold true today.
5:02 Anything to add on this? Yeah, I I will add to that too being as the R in MRO is repair. Oftentimes you can’t predict
5:11 demand which then makes it challenging to to actually plan in advance, right?
5:16 And I I managed facilities in real estate for for a bank and trying to get
5:22 chillers for uh for facilities in the middle of July was sometimes challenging, right? So, you know,
5:28 maintenance part becomes much more important to make sure that you have the right maintenance for for for the things, but also sometimes things break
5:36 and then you need to to find these assets, you know, as and when they’re needed. And so, so that makes another thing that’s kind of challenging. It’s
5:43 like you can’t put it off. You need to fix it and then you’re at the mercy of the market at that point. and fi doing being able to find things like
5:52 replacement parts or finding substitution parts even is is highly um
5:59 important when you think about MRO you know could I just add to that if if it’s okay what’s interesting is with MRO
6:07 parts they have what’s known as the parent child skew nightmare you have a manufacturers’s part a service part a
6:15 warehouse part etc and of course when you go out to the third uh third party market, especially a lot of these are small medium enterprises.
6:23 What part are you dealing with? And the ramifications of that are significant.
6:27 For example, on a Friday afternoon at 1:30, we got a panic call from DND in Montreal saying they want to get a
6:35 $10,000 compact tape backup. Uh, and they needed it by Saturday. They couldn’t be without it. And so the cost
6:42 was going to go up. The cost of shipping was going to go up. But I had already started a parts compression function.
6:48 And it turned out that they had three units in the Montreal area just under different part numbers. And so what we
6:56 were able to do is avert them from ordering something on a rush. Meanwhile,
7:01 the stock and this is traditionally what’s happened with MRO is that you buy stock in anticipation to your point Anders of well we need it when we need
7:09 it. So if we have some on hand we’ll use it. Ultimately that’s like compound interest. it that stock because of the challenges with with parent child skew
7:18 uh and and and and and whatnot. Uh the inventory grows, it actually never gets used and it diminishes consistently in
7:26 value over over time and it’s not even over a long time. So, I just thought I’d add that in there.
7:32 Yeah, thank you so much.
7:36 Um I was going to move on, but there is a question came in. Maybe we could jump onto that. Um Oh, no. It’s about getting
7:44 into the getting into the show. So let’s uh so let’s uh let’s move on to the next question which is probably a lot of what people are interested in at the moment.
7:54 You know AI, machine learning, how can that transform MRO? Um and what are some of the strategies to enhance operational
8:03 continuity in the future? It’s it’s a big topic. Um everybody wants AI at the moment and everybody doesn’t want AI at the moment. So uh let’s jump into that.
8:12 I’m going to start with Anders on that one if I may.
8:15 Sure, you absolutely can. Right. What we’re seeing out there now are new technologies that are able to span, for example, marketplaces that have
8:23 availability of certain things and you know, let’s say you have three suppliers that provide MRO materials for you. Um,
8:32 they can scan the marketplace with these three suppliers and return to you the,
8:37 you know, the least costly but also the most available part. one a part that doesn’t have to travel particularly far
8:44 and and a part that is also relatively cheap with a preferred provider making the acquisition much more easy. The
8:52 other thing is is about figuring out what the demand is. So if you have facilities that are using the same types
8:59 of types of parts and you know two or three of them have started you know two or three parts are starting to break down in these machines then you can probably predict that the other ones
9:07 will as well. And it’s about building that reliability model of being to be able to predict when things should be replaced. And I think a lot of folks now
9:16 are putting sensors in machines to sort of, you know, sense the vibration and when the vibration meets a certain point, it’s time to go change something.
9:23 So I think MRO is going to change dramatically and I think we’re going to try to get out of the repair as much as as we can and get into much more
9:31 predictive maintenance of things as as things are moving on.
9:35 Makes sense. So internet of things is is important as well. Absolutely. John, what do you think?
9:42 Well, I I have to tell you it’s a variable. The IoT, the preventive maintenance, the prediction, you know, a few years ago, I did a study and they’re
9:50 talking about being able to identify and I think it was Fanning, which is the largest uh CAT uh manufacturer or dealer uh of the of the large machines there,
10:02 and they had predictive usage and trends. So they knew when to turn a system off, when to start it, when it
10:09 was going to they were actually pre-alerted to that. So honorish, to your point, the internet of things uh in that regard uh by having that remote
10:18 maintenance and having the immediiacy of that information gets you a little bit more proactive and I think that’s really a big part of what’s transitioning and
10:27 again it was it was I think it was called fanning uh and it’s it’s a cat.
10:31 You can you can pick it up on on on the case study on my blog. Here’s the interesting point. You still have to start off with understanding agent-based modeling versus equationbased modeling.
10:43 You cannot lead with technology and then fit the process to technology. What you need to do and I call it humanled is
10:58 When I was called into the D&D, the first question I asked, they said we want to automate our MRO procurement. I was asked, “Well, I what do you need to
11:06 know?” And and I said, “What time of day do orders come in?” And and they looked at me like I was talking a completely
11:13 different language. But the reality is is that the orders, if they came in at 4:00, they had a poor SLA delivery. They
11:22 were at 51% next day when they were supposed to be at 90% next day. Their cost went through the roof per the dynamic flux. And it it literally
11:31 created a series of problems when we looked at and said what time orders come in. What was the cause of the orders coming in? Later we discovered an agent
11:40 model which is an one agent is the service department. They were compensated, rewarded or incentivized by getting as many service calls as they
11:49 could in the day. So what they do is sandbag the orders and there’s a whole chain. So if you don’t enter if you don’t identify the agents beyond the
11:57 procurement department you are not going to be able to automate anything or as the old saying goes all you’ll do is make a bad process fast. I’ve con I I’ve
12:06 condensed that story considerably because of time limitations. But but but the reality is is before you talk tech
12:13 you have to have a firm understanding of agent the agent internally and externally to the organization and I
12:21 think that requires the communication collaboration that is missing in so many implementations.
12:26 Absolutely. Yeah. And thank you John that that was good. Um and I think it is absolutely critical. But let’s move on
12:33 to the next topic. um which is also a critical topic for many many people out there and you’ll see the beautiful windmills there. We’re talking about um ESG or sustainability.
12:45 Um you know this is more important in some parts of the world than others now.
12:51 Um but it’s it’s critical um for the for the world. So, how can MRO procurement adapt to support environmentally
12:59 friendly initiatives without compromising reliability of production systems?
13:05 So, um, who wants to jump in on that one? I’m not going to dictate this time.
13:09 I’m happy to go. Right. So, I think we’re doing this as a matter of fact, I think across all of our buying portfolios these days, right? So, we try
13:17 to minimize the the amount of waste in in in packaging and product. We try to um figure out how we can get stuff from
13:25 closers. We not we don’t have to ship things from the long boat from from Asia and to the extent possible buy as close
13:33 to home as as we can to support you know nearshore operations. And I also think now that we are you know in uncertain
13:41 times as it comes to political and and tariffs and those kinds of things uh we we also need to consider being able to get things from unsanctioned countries.
13:51 so so to speak. So it becomes more complex. Um but it is definitely something that we have to deal with and I think by and large by doing the right
14:00 things with local companies we reduce our carbon footprint and we are more sustainable by just doing the right
14:08 thing not necessarily for the sake of ESG but by doing the right thing locally we support ESG inherently.
14:17 Thanks.
14:19 I’m going to turn technical. I’m going to go now from agent-based modeling to the technical side. There’s a theory that the government of Canada funded of
14:27 mine called strand commonality where in seemingly disparit strands of data,
14:32 there are actually attributes that are related and collectively have an impact.
14:37 the AI, the early AI used back then and the AI that’s available today is evolving certainly, but the reality is
14:44 is you’ve got to be able to build in to the process or the system a way of measuring, tracking and consistently
14:51 measuring the performance on an ongoing realtime basis. uh for example uh in the simplistic side of the the the equation
15:00 you know there weighted importance put on things like historical performance like quality delivery performance all of these things and then current
15:08 performance well we can leverage AI technology to incorporate all of these things and leveraging self-learning algorithms what we can do is we can
15:18 actually get real time intelligence real time information that empowers us to make the best decisions at that moment.
15:28 And the system then is continually learning, continually improving,
15:31 continually updating. I mean, that’s the great potential of AI. But again, I’m going to go back and say this, you can’t get to that point until you get the
15:40 agent-based model structured and know who the individual agents are. That’s the gathering point because if you lose
15:47 one piece of the puzzle, uh you’re not going to have complete information and you could end up like Bombardier for example with their uh with uh their
15:56 building of the uh drones that ended up uh crashing in the Ukraine and uh the implications that that had for for for all the supply chain network. Mhm.
16:09 And that’s a good bridge I think into the next the next question which is you know there’s a lot of potential at the
16:16 moment for supply chain disruption um how can we enhance resilience and ensure the uptime of operations um
16:26 considering you know geopolitical pressures at the moment I’m going to say the tariffs word um because that’s
16:32 really important to MRO as well um but also you know other things that are going on out there in the world how can we ensure that resilience and ensure the uptime. I I’ll let you keep talking,
16:43 John. Maybe it bridges straight into what you were just talking about as well.
16:47 Well, I think what it what it comes down to obviously is is is that first of all, tariffs are nothing new. You know,
16:53 again, this is the whole thing. You go back to the the Smooth Hoggins 1930, you go back to the biamerican, etc. We’re always going to find volatility in the
17:02 marketplace. Uh and there’s going to be things that happens. are going to be things like pandemics which you know refers to the Pelatin case study. But
17:10 the reality is is what you need to do is resilience is in the ability to understand who or what all the agents
17:19 are involved because you can’t track you can’t measure what you don’t recognize.
17:24 And I think what we have to do is remove those operational silos and realize the impact beyond the procurement department. We have to look at the
17:32 suppliers. We have to look at the couriers. We have to look at the the shipping. We have to take into consideration uh the port strikes and the trouble there. We have to take into
17:41 considerations things that aren’t in our control. And you have to be able to have the systems and the technology is there if you have the right foundation of
17:49 information. The technology is there to decide it. I I’ll tell you one story.
17:53 Cheryl Yuskovich, I I I had a panel discussion and we were talking about Pelatin, how their sales went through the roof when the pandemic hit, but
18:01 because of the the the shipping lanes being shut down, the ports or or whatnot, they couldn’t fulfill those orders. And I had asked this simple
18:09 question. Uh what if they had the information that would have given them the heads up? And she said they had the
18:17 information, they just didn’t know how to read it. And that’s really the key.
18:21 You’ve got to understand your agent-based framework and and platform and and and all the interconnecting
18:28 parts. Otherwise, you’re you’re only you’re working in a silo and that affects resilience. We there’s no reason
18:35 to not have a resilient supply chain within the agent-based model framework.
18:39 I don’t know if that answers your question, but that’s my two cents. Yeah, that’s good. Thank you. Ananders,
18:45 what do you think? I mean, John is right on, but I want to go back to sort of motherhood and apple pie, right? Like ultimately the relationships that you
18:53 have with your suppliers and the your ability to have, you know, real discussions with them about how how they
19:02 can help you become more resilient and how they can use their innovations to help you be more resilient. It’s not necessarily a sales trick all the time,
19:10 but you have to be open to feedback.
19:12 just because you’ve been doing something this way for a long time means is right anymore. And and opening up to to
19:20 suggestions and and so on from people that do this for a living every day is actually not a bad idea. And also when you talk about MRO, a lot of folks
19:28 actually outsource a lot of these things, right? So incentivizing suppliers with with uptime like you would a service provider like Focal Point also helps significantly,
19:39 right? So then it becomes h what’s your downtime? was your meanantime to repair and start start managing that more holistically. Uh obviously that could be
19:47 more costly but at the same time I think you know if if critical parts and components and systems is very valuable to have that kind of visibility into it.
19:57 Mhm. And one more thing to add if I could, you have to manage the entire process.
20:01 With the D&D, we understood supplier sources. Uh they were small medium enterprises. They had no idea of of how to clear c prepare customs documents,
20:13 way bills and whatever else. And so you link in all the players. UPS worked with us. Then the the the the uh the the
20:20 Canada Revenue or the the the uh uh border service worked with us. So that when we gave the order to a supplier the
20:29 incentive voice all they had to do is pick and pack making it easy for them to do business and in turn uh it it tracked
20:36 the whole order right through to fulfillment and I think that’s really the key part as well is is is is being able to engage to that level to your mom and apple pie pointers. Yeah,
20:47 absolutely. And the answer is not just to get more inventory, right? I I remember working with somebody many years ago who had $80 million worth of
20:55 MRO that they had not touched in five years.
20:59 Um and and most of it wasn’t useful anymore. So yeah, completely agree. So moving on and actually expounding on
21:06 something that Anders was just talking about with uh with topic five here. um talk about how we can work better with
21:13 suppliers. You know, talking about, you know, how you can you can innovate is something you just spoke about and do you want to expand on that a little bit?
21:22 Yeah, I think as procurement as a profession, I think we tend to cut all suppliers over with the same cloth so to
21:30 speak. So, I think what we need to do is figure out figure out which suppliers are critical to the operation and treat
21:36 them as such, right? So you know you the good old crawl matrix right what’s the risk and what’s the criticality of any supplier and then you sort of say well
21:45 if they really are critical to operation then we need to manage these suppliers as you know as as critical so then doing things like measuring SLAs sitting down
21:54 and having real discussions with them on a regular basis you know bring back the quarterly business review and and really
22:00 sort of have a birectional discussions about how you can work together in improving your operations
22:07 goes a long way and you know we we start seeing more and more of these now especially as becomes more and more
22:15 regulations. So Dora just got enacted it in Europe and now you know they they they require an executive sponsor you
22:23 know on the buy side and they need to have you need to have QBRs right so it’s like you know so we see a lot more of this happening now and it’s you know
22:30 it’s making comebacks treating your suppliers as as a relationship as as a strategic partner rather than a vendor so to speak
22:39 um absolutely again heard apple pie Well, you know what I have to say?
22:48 There’s a major US retailer uh back in 2005 who asked to asked me to fly down.
22:54 Um when you come to MRO Parts, what they did, they’re supporting the IT infrastructure is they said, “What we’re going to do is we’re going to do a
23:01 vendor compression strategy. We’re going to instead of having hundreds and hundreds of of suppliers, we’re going to pick the top 100, negotiate a volume
23:11 purchasing discount. It’s a new form of It’s an external form of inventory, by the way, Matthew. I’ll get into that in
23:18 a moment. But we’re gonna do that and we’re going to cut down our administrative costs because we only have to deal with 100 and we’re not dealing with so many different
23:34 they said, you know, the savings don’t seem to be as robust. I we’re missing some. We don’t know what it is. And so did an analysis.
23:41 Their truth, their truth was limited to those 100 suppliers which moved them further and further away from the whole
23:49 market. And they found they were paying 23% 22% above market price because remember we’re talking about dynamic flux. The price keeps going down. Well,
23:59 suppliers aren’t necessarily not in some cases not intentionally, some cases yes, aren’t going to call you up and say,
24:05 “Guess what? This dropped.” And many of these MRO contracts, they’ll go in low knowing full well that the margin will
24:12 be big on the end. And so what we looked as we said, you’ve got to broaden your scope of engagement. In other words,
24:19 your your your source of truth is only 100 suppliers in a market of 10,000 suppliers. The key is how do you create the automation but the processes before
24:28 the automation to understand how to engage those suppliers. And that was very critical for them because what they
24:35 were able to do then is say we’re not treating MRO like direct material. We’re what we’re going to do is we’re going to create a robust capability that allows
24:44 us to not only source but also uh be able to track and influence from start to actual delivery and and and that’s
24:52 really the key and and that goes to I think Hunter’s point. You just can’t apply one rule and one sizefits-all especially when it comes to MRO.
25:01 Absolutely. Thank you. Yeah. So, the last topic I wanted to to discuss is um is very close to my heart because I’ve
25:10 got this sign up above my head here saying focal point, but um you know, how can focal point help companies to better
25:17 manage and enhance MRO and operational management procurement? Um John, I’m actually going to jump to you first on
25:31 Okay. Well, you know what? Let me let me tell you something. Um, I dropped about 90% of my client base last year. I I I write for practitioners and providers.
25:41 I’ve written for uh procurement foundry,
25:43 for SIG, all of these organizations. And I said, you know, the generational initiative failure rate over the last
25:51 many decades consistently hovers around 80 88%.
25:56 It’s not a technology issue. The technology is better than ever before.
26:01 It’s a matter of understanding the agent-based model. It’s the understanding of the practical expertise and experience behind the technology.
26:10 So, I made a decision. I was going to work with a half dozen uh procure tech solution providers who actually got the agent-based idea who understood the power of self-learning algorithms, AI,
26:21 and all these other elements. And one of the one of the six I chose was was was Focal Point because I look at Focal Point as being an AI operating system.
26:32 And you know, we’ve had this discussion beforehand, but the reality is is you need to connect all of those elements
26:39 and components together. Uh you need to be able to do it in real time. And we’re not talking about a technology integration. You know, that’s S SOA,
26:47 serviceoriented architecture. Remember those days? It was going to change and revolutionize everything. It doesn’t.
26:53 Technology does not revolutionize. It enables revolution evolution, but it does not do it in and of itself. So,
27:01 you’ve got to look at the people behind the company and what is their expertise.
27:04 And that’s where, you know, I I got excited about focal point in in in in a couple of other companies too. Um, but
27:13 you’re unique and so you understand agent-based modeling, you understand MRO, you understand the business and
27:20 technology is an extension of your experience and expertise, not the definition of it. I don’t know if that helps, but that’s that’s that’s my Thank you, John. And Anders, obviously,
27:32 you know more about focal point than anybody. Hope so. Five years on. Yeah, five years in today, actually. So,
27:40 yeah. So what what I will say is we like to set up the process that makes sense for for our customers, right? So in this particular instance, if you do an MRO
27:48 process, it can start with the you know I need something signal that could come from a system that feeds it into focal
27:55 point or it can be uh someone entering in something into focal point and say I need something. The first thing we will do is guide those folks to a
28:02 self-service channel. And if they can’t find those what they need there in the self-service channel, then it follows a process that is predetermined depending
28:10 on what’s what’s being bought, the value, the price, whatever the case may be. The first stop along the way could be do we have does someone have this in
28:17 inventory. Uh and then from there, if they don’t have it in inventory, then it will go down the happy path of of acquisitions and doing whatever the
28:25 process is, two bits in a buy, look at the marketplace or whatever the case may be. But the beautiful thing about this to the to the end user is that all of
28:33 these things are real time available and reportable to the customers. So not only do we set up processes that allow folks
28:41 to, you know, minimize the amount of acquisitions that they have, but also doing at the low that the quickest pace and the lowest price. And I think that’s
28:50 what we ultimately want, right? I you know the pizza tracker helps a lot because customers can see where where the thing is in the process of when are
28:58 they going to get it. So that’s you know I don’t want to drone on and on and on but the whole idea here is really all the data together and using that as part
29:06 of the process to get things done in the most effective and efficient way.
29:10 Um great.
29:11 Yeah. Can I just add one more thing here? Mark Berlin asked an interesting question about inventory owned and controlled and whatnot. May I suggest,
29:19 Mark, that you contact Anders and I’ll sit in on the call because the New York City Transit Authority project uh was
29:28 one which used time zone polling to access uh live inventory in in strategic stocking locations that reduced
29:36 inventory coverage and actually helped the suppliers turn their inventory faster. And that’s the kind of creative thinking I see at Focal Point. So
29:45 anyway, I’d like to invite you to to do that because Mark, there is an answer for that.
29:50 So Mark, Mark and I actually go back some so we can definitely connect again.
29:53 Absolutely. Absolutely. I was going to say you I’m sure you know each other. I know both of you. So and uh yeah, thank you Brent and Mark for your comments
30:02 during the the session as well. Um if if anybody out there wants more information, I hope you do. Um please uh
30:11 contact any of us on the call. um literally if you want a more independent view then then contact John. Um but um
30:20 otherwise our next uh our next webinar or uh or podcast is going to be um talking together with market dojo in a
30:28 in a few in a few weeks time. Um the link is there. Please register now. And thank you everybody for joining. I really appreciate your time and effort.
30:37 And thank you John. Thank you Anders. Thank you guys. Bye-bye now.
Sync to video time
