The unpredictable nature of the Maintenance, Repair, and Operations (MRO) spend category creates numerous sourcing challenges. Developing a "market basket" is a common best practice industry-wide. The term refers to the process of creating a representative sample that allows you to evaluate the competitiveness of a supply base. Typically, this involves applying the Pareto principle, more commonly known as the 80/20 rule.
Economist Vilfredo Pareto suggested that there is an “unequal relationship between inputs and outputs, stating that 20% of the invested input is responsible for 80% of the results obtained.” When applied from a sourcing or procurement perspective, this typically means 80% of the spend is within 20% of a company’s supply base.
The reduced market basket allows the supply base to focus on the items that are most important to your organization. This will allow you to effectively drive negotiations and center contracts on what really matters.
Read the full story, "To Effectively Prepare for MRO Unpredictability, Develop a "Market Basket" Approach," on news.thomasnet.com.
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