Procurement Models
Spot Buying Model
Spot buying involves purchasing MRO spare parts on an as-needed basis, often for urgent or one-off needs.
Procurement
Customers make individual, on-time purchases for MRO parts based on immediate, stock replenishment or emergency requirements.
Cost Benefits
Flexibility to buy only what’s needed. No long-term commitments or contracts. Ideal for urgent needs or small, infrequent orders.
Acquisition Time
Quick turnaround for immediate or emergency procurement.
Marketing Focus
Emphasize speed, flexibility, and convenience for customers who need to act quickly.
TCO Considerations
While it offers flexibility, spot buying can often lead to higher prices due to lack of bulk purchasing and supplier discounts.
Blanket Purchase Agreement (BPA) Model
A Blanket Purchase Agreement (BPA) is an arrangement where a supplier agrees to provide goods or services over a set period, typically with agreed-upon terms such as pricing, quantity, and delivery schedules.
Procurement
Long-term contract between the supplier and the customer that allows for multiple deliveries over time.
Cost Benefits
Discounted pricing for long-term commitments. Reduced administrative costs by streamlining the ordering process. Predictable supply chain and inventory management.
Acquisition Time
Faster procurement for recurring needs since parts are pre-negotiated and available for immediate order.
Marketing Focus
Highlight the cost savings, predictability, and ease of procurement for customers with ongoing MRO needs.
TCO Considerations
Reduces procurement and administrative costs, but requires careful forecasting to avoid overstocking or understocking.
Fixed Fee Model
A fixed fee model is where a customer pays a fixed percentage of fee (preagreed) in exchange for an agreed set of MRO spare parts or services over a set period.
Procurement
The customer pays a fixed fee for access to a defined set of parts or services, often including maintenance and support.
Cost Benefits
Predictable costs with no surprises. Potential for discounts on bulk purchasing due to the fixed nature of the agreement. No need for frequent purchase orders, as the fee covers regular needs.
Acquisition Time
Steady and predictable, as parts and services are available as per the contract terms.
Marketing Focus
Emphasize cost predictability, long-term relationships, and peace of mind with a fixed cost structure.
TCO Considerations
While it provides cost certainty, customers may end up paying for unused parts or services, so careful contract management is essential.
Punchout Catalog Model
The punchout catalog model integrates an online supplier catalog with the customer’s procurement system (ERP), allowing for seamless ordering and management of MRO spare parts.
Procurement
Customers access the supplier’s catalog directly from their procurement system to place orders.
Cost Benefits
Streamlined ordering process and reduced administrative overhead. Direct access to the supplier’s full catalog of parts at negotiated prices. Enhanced control over procurement with real-time pricing and availability.
Acquisition Time
Fast, as orders are placed directly through the integrated system, reducing delays.
Marketing Focus
Highlight the ease of integration, streamlined procurement, and time savings with direct access to the supplier’s catalog.
TCO Considerations
Increases efficiency and reduces errors, but may require an upfront investment in system integration and ERP customization.
One-Vendor Model
A one-vendor model involves consolidating the entire MRO spare parts supply chain with a single supplier for all parts and services. This can be applicable for Initial 2-year operational spare parts or Street Buying to cater to day today needs
Procurement
The customer relies on one supplier for all their MRO spare parts, consolidating orders and deliveries.
Cost Benefits
Bulk purchasing and consolidated orders lead to lower prices and better supplier terms. Reduced administrative costs with a single supplier. Simplified logistics and supply chain management.
Acquisition Time
Steady and predictable, as parts and services are available as per the contract terms.
Marketing Focus
Emphasize cost predictability, long-term relationships, and peace of mind with a fixed cost structure.
TCO Considerations
While it provides cost certainty, customers may end up paying for unused parts or services, so careful contract management is essential.
One-Time Purchase Model
A one-time purchase model is used for customers who require specific, non-recurring MRO parts or bulk supplies that they don’t anticipate needing again. This could be due to various factors often lead to terms and conditions not agreed between buyer and seller.
Procurement
Customers make a single, one-off purchase of MRO spare parts, typically for equipment repairs or upgrades.
Cost Benefits
No long-term commitment or ongoing contract. Allows customers to purchase exactly what they need, with no obligation for future purchases.
Acquisition Time
Fast and responsive, as parts are bought based on immediate needs.
Marketing Focus
Position this model as ideal for customers with occasional or specific needs who don’t want to be locked into long-term contracts.
TCO Considerations
Although it offers flexibility, one-time purchases may result in higher prices per unit due to lack of volume discounts and the absence of ongoing supplier relationships.
Vendor Managed Inventory (VMI) Model
Under the VMI model, the supplier manages the inventory of MRO parts at the customer’s site and restocks it as needed based on consumption.
Procurement
The supplier monitors stock levels, places orders, and ensures that the customer has a continuous supply of MRO parts, often based on real-time usage data.
Cost Benefits
Reduced stockouts and excess inventory. Supplier takes responsibility for inventory management, reducing customer overhead. Potential cost savings through better forecasting and reduced administrative costs.
Acquisition Time
Efficient, as parts are proactively delivered when stock levels are low.
Marketing Focus
Highlight the efficiency, reduced risk of stockouts, and the elimination of manual inventory management tasks.
TCO Considerations
Saves costs related to inventory management and procurement, but may involve slightly higher parts pricing to cover inventory management services.
Progressive Pricing Model
The progressive pricing model offers discounts based on the volume of MRO spare parts purchased by the customer. As the customer buys more, the price per unit decreases. It is often combined with fixed fee model or VMI model.
Procurement
Customers are incentivized to buy in larger quantities to secure better pricing.
Cost Benefits
Significant savings on unit costs as order volumes increase. Encourages forward purchasing to lock in discounts.
Acquisition Time
Typically, slower if larger orders are needed to hit pricing tiers.
Marketing Focus
Emphasize the savings and incentives for customers who can commit to larger orders or long-term purchasing agreements.
TCO Considerations
While it offers substantial cost savings at higher volumes, customers need to ensure that larger purchases align with actual usage needs to avoid overstocking and tied-up capital.