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Category Profile (SPD-PS002a) Vendor Market Analysis MRO

Category Profile (SPD-PS002a) Vendor Market Analysis MRO. Issue Date 10/1/06. SPD-PS002a. Index. Section Page. Overview and introduction 3 Approach and Analysis 6 Example Vendor Market Analysis 12 .

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Category Profile (SPD-PS002a) Vendor Market Analysis MRO

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  1. Category Profile (SPD-PS002a) Vendor Market Analysis MRO Issue Date 10/1/06 SPD-PS002a

  2. Index Section Page • Overview and introduction 3 • Approach and Analysis 6 • Example Vendor Market Analysis 12

  3. Vendor market analysis is the first step of the strategic sourcing process What is a vendor market? • A vendor market is a group of firms that produce products that are close substitutes • The market (s) in which a Vendor competes • To develop a broad understanding of the vendor Market • To develop insight as to how the economics, business dynamics, and industry trends directly impact sourcing efforts • To understand the key dynamics of a particular vendor market and the competitive situation that the Vendors in this market face • To identify key players in the market • To make our sourcing strategy and negotiations tactics more robust Why do we study the vendor market?

  4. Vendor Market Analysis helps answer some of the key questions that arise when selecting sourcing strategies

  5. Vendor Market Analysis Section Page • Overview and introduction 3 • Approach and Analysis 6 • Example Vendor Market Analysis 12

  6. Completing a vendor market analysis involves gathering data, analyzing the information and drawing conclusions that can be applied to the sourcing strategy Data Universe Gather Facts Identify key relationships Synthesize insight Report for Bottom-line results Activities • Formulate data needs • Submit data requests to suppliers/SME’s • Develop key questions list for clarification • Obtain Vendor profiles from secondary sources • Study Industry /market segmentation • Analyze Porter’s Five Forces • Conduct • SWOT analysis • Economic analysis • Financial analysis • Develop view of overall market • Identify Vendor positions • Identify trends • Identify industry growth patterns • Summarize insights • Transform insight into an actionable plan and then carry out the plan to achieve results

  7. Fact Base The first step in vendor market analysis is to gather a comprehensive fact base Hoovers ProQuest

  8. MRO Example New Entrants Primary Category Covered PVF Electrical Safety Industrial Supplies Full coverage McJunkin Supply Grainger McMaster Carr Wilson Supply Supply Market Rivalry National Oil Well Suppliers Buyers Ferguson Product Breadth Graybar Electric Warren Electric Motion Industries GE Kern Electric Wesco Airgas Dooley Tackaberry Vallen Safety Substitutes Single Product National (US) Local Geographic Scope Next, analyze facts to derive key relationships and driving forces in the market Industry segmentation1 Porter’s 5 forces1 Target market Notes: (1) See Example vendor market analysis for details

  9. Vendor A Product portfolio Steel Industry Demand Steel Industry Trends Current Steel Trends: • Volume gains will be limited in 2005 • Construction industry shipments: increased ~10% (2004); expected growth 6-7% (2005) • Service center shipments: increased 5-6% (2004); expected growth 2-3% (2005) due to an inventory build-up in 2004 • Auto industry shipments: increased 6% (2004); expected decrease 2-3% (2005) due to a decline in motor vehicle production levels • Prices and profits will lag in 2005 compared to 2004 Sales Trend (MM tons): Forecast 20 10 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 Synthesizing insights expands overall knowledge that can be transferred to an actionable plan Industry analysis • Identify key industry trends • Growth patterns • View of overall market • Vendor’s position in the market Company Analysis Source: American Iron and Steel Institute (AISI) – Industry comparisons, Standard & Poor’s Report, A.T. Kearney analysis

  10. Lastly, a vendor market analysis report is created with all the elements that help drive bottom-line results in strategic sourcing Source: ATKPS Knowledge Management, September 2005

  11. Vendor Market Analysis Section Page • Overview and introduction 3 • Approach and Analysis 6 • Example Vendor Market Analysis 12

  12. Executive Summary MRO-Executive Summary • The MRO supply market analysis indicate that there is a large supplier base in a low growth, fragmented industry • National suppliers may offer more value than regional suppliers • Foreign suppliers should be considered in RFI/RFP/supplier negotiations • There is opportunity to improve buyer power by using other parts of the Value Chain (National Distributors or manufacturers) • MRO distribution market is estimated at over $350 Billion • Opportunities exist to modify MRO spending patterns to follow industry trends toward consolidation, specialization and total cost focus • Possibility to consolidate and leverage spend • The supply base has the capability to provide multiple product lines • Analysis of the MRO cost structure indicates many opportunities for improvements • Changing specifications can reduce cost

  13. 25% 25% 20% 15% 10% 5% 5% 0% A.T. Kearney Tangible Results Market Overview MRO-Current Situation in Marketplace Product Specification Improvement Volume Concentration Joint Process Improve-ment Best Price Evaluation Strategic Sourcing Relationship Restructuring Global Sourcing

  14. Primary Category Covered PVF Electrical Safety Industrial Supplies Full MRO Line McJunkin Supply Grainger Wilson Supply McMaster Carr National Oil Well Ferguson Product Breadth RedMan Pipe and Supply Graybar Electric Motion Industries Briggs Weaver GE Supply Wesco Warren Electric Kern Electric Wholesale Electric Supply Airgas Total Safety Dooley Tackaberry Vallen Safety Single Product Line Local National (US) Geographic Scope Market Overview MRO-Market Segmentation Source: A.T. Kearney analysis

  15. Market Overview MRO-Five Forces Analysis Key Take-Away Overall, the supply market analysis indicates that there is an opportunity to consolidate and leverage spend Force of Effect 1 Low 5 High Sources: Industry reports, A. T. Kearney analysis

  16. Expanding Product Lines Increasing Geographic Scope Number Of Products Offered Market Overview MRO-Vendor market trends Consolidation Among Suppliers Through Acquisition And Alliances Product Availability Differentiation Among Suppliers Based On Service And Technical Capabilities EDI/ Electronic Catalogs Technical Support Inventory Management Customer Focus On Total Cost Instead Of Price Customers Reducing Vendor Base • Procurement • Inventory costs • Service/availability • Price Number Of MRO Suppliers

  17. Distribution Market MRO-Distribution market U.S. MRO Distribution Market Top 100 distributors 10.8% 90,000+ distributors 89.2% Total market volume estimated at $350 B per year Source: Industrial Distribution Magazine, Modern Distribution Management, A.T. Kearney analysis

  18. Cost Structure MRO-Cost structure Total Cost Levers Total Cost • Compare “total” costs • Renegotiate prices and model “should-costs” • Unbundle pricing Unit Cost Reduction Labor Cost • Consolidate number of suppliers • Pool volume across units and combine volume from different commodity categories • Redistribute volume among suppliers Buying Power Leverage Indirect/MRO Overhead – 10 to 15 Percent Total Cost Process and Systems Costs • Conduct product value analysis and engineering • Substitute materials • Pursue system buying alternatives • Optimise life cycle costs Product/Service Specification Rationalization • Reengineer joint processes • Share productivity gains • Integrate logistics • Support supplier operations improvement Inventory Carrying Cost Business Processes/ Labor Efficiency • Establish/develop key suppliers • Develop integrated supply chain • Supercharge process with consistent technology platform Transactions/Systems Material/ Service Cost Compliance/Shrinkage • Monitor compliance through IT • Reduce costs further by increasing volumes Purchases of Material/ Service 85 to 90 Percent Total Cost • Identify means to reduce demand through rationalization and/or substitution Demand Management Redeployment of Inventory • Dispose of long-turn inventory to suppliers • Reduce downtime • Manage inventory across entities • Share inventory across sites • Reduce downtime caused by lack of parts Inventory Visibility Through IT Increased Use of Manufacturing Warranties • Implement process to improve warranty use • Reduce downtime through improved service Source: A.T. Kearney analysis 2005

  19. Major Players MRO-Example of major vendors and capability

  20. Vendor Profile MRO-Example Vendor ProfileGraybar Electric Company, Inc Canada US Puerto Rico Mexico

  21. Vendor Profile MRO-Example Vendor Profile W. W. Grainger, Inc. Canada US Mexico

  22. Vendor Profile MRO-Example Vendor ProfileWESCO International, Inc. Scotland Canada UK US UAE Mexico Nigeria Singapore

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