2025, ProcureCon MRO. Presentation_Sole & Single Source Suppliers: Navigating Supplier Relations

Announcer: And I know that we've touched on this in a lot of different places the soul and single source suppliers. And so now we're gonna get into it a little deeper and we are gonna do that courtesy of Dmitri ov. He is the VP of supply chain and operations at Cold Stream Energy. So let's welcome Dmitri to this stage.

Dmitriy Monakhov, Procurement Leader – Industry Expert: Thank you, Kelly. Thank you everyone. Thank you for coming. I there's definitely a bigger crowd than I expected. This morning I was in the elevator and the two guys were talking about, should they leave at 1130 or noon. So thank you for coming. And there was quite a few sessions already around, supplier relationship, how to negotiate with suppliers.

And most of the things that I present, I'm sure you guys know, so my job is try to package it well, so then you can take away some of the things back, to your job. So first of all, let me do a brief introduction. So my name is Dmitri Monko. I'm my engineer by the background.

I started in the field in Canada, but very quickly switched to supply chain. And I was pretty lucky to spend time in. Material management, inventory management little manufacturing planning, logistics. And last few years of corporate role I spent in supplier management. Some people call it relationship management.

Some people call it performance management. That was the idea, as we were working with Kelly, that brought me, to this stage for today. And then last few months, I was also doing consulting through on chain value. And just a few days ago, I took the role that you can see that I'm in, in now.

So our objectives today is pretty simple, but quite important. And we'll start with, how do we manage limited options? And there's a lot of you that are in procurement and probably half the rest of you in sales, but if you're in procurement, you don't complain about limited options.

You have to face the reality. And how you get to the practical negotiation tools around managing, a single source sold supplier. And a lot of the time, it's about leaning into dependency. So if you don't have any other options, what you do is, you put the step forward and you get into the discussion with your suppliers.

So that's what I'll walk with you over the next few minutes and. We'll see. Probably have some time for the question. So let's let's start with MRO classification if you wish. Is it a tailspin or direct span? For a lot of companies MRO is really small and it's really a tailspin when we're talking about, keeping the lights on.

So the building is operational having some consumables maybe. Safety equipment and that approach, for the company like that would be how do you minimize spend? And you don't spend it and you don't spend time on it as well. So not only dollars, but your. Time as well for some other suppliers, or other industries.

MRO is a critical component and you can still cla some people classify it as direct, some people might still classify it as in direct, but if we talking about spare parts on a pump in the refinery and your pump doesn't work, that makes that part very critical for your operations. Or it's a safety tool that allows you, to calibrate some something to keep your production going.

Or maybe it's a harness for you to get, to do, I don't know, confined space or, or working at heights. That really stops the operation. So when you have thousands of dollars on the line, then MRO becomes critical. And what's important then your strategy follows your perspective. How do you treat MRO in your organization will really put, what management is asking you, what management, what resources management is allocating.

Whether it's, to you, to your team. And again, resources comes around, people and the money available to spend on different on different ideas. All right, so we're good with that. So now let's talk about single source. Sole source. Briefly, I would think everyone knows it.

So let's do a test and see how many people are awake after lunch. So who is very familiar with single source and sole source? All right. Okay. Mo most people so sole source when there is really no alternatives, and I'll give some more examples later on, on the slides, but it's, it's a.

True constraint and you only have to work with this particular supplier whether it's OEM certified parts or some proprietary, geographical licenses, for example, on some or regulatory mandates. A lot of the time. What we think is a sole source is actually a single source.

Single source is when there are multiple options, but the company is deciding to buy from one supplier for various reasons. Maybe the spend is too small and if you break it apart, you know nobody's gonna buy, nobody's gonna be interested talking to, maybe you do it for simplicity, one supplier.

It's easier to maintain a relationship. So whatever the reason, or maybe it's just that's how we've been doing things, I'm sure we've heard that before. Challenge the assumption and that's again, the reality often plays in the perception. And I think we're in procurement learn or pushed to challenge the assumptions.

And with that, that's how it's connect to the strategy. And how, and your strategy connect, to the approach that you have with the supplier. All right, so we got through some basics, MRO single source. Source. So let's get into a little bit more in a detailed scenario. And I'm actually now in the role working for OEM, so our company's manufacturing equipment.

And believe me, one thing, when we think about commercial strategy, we think about how we would. Restrict our customers buying parts from someone else. We want 'em to buy from us. That's the revenue stream. On other side, as a procurement you wanna and there's obviously restrictions.

The m supplier provides you it's equipment been tested, you have warranty, then you have a certification that's potentially at state. So that's the element that's important. Then you have regional exclusivity rights and I don't know if anyone had that experience, but you can have a supplier that grants the regional selling rights to a distributor.

So even if you that in that particular region, it's very hard to shop around because you only have one distributor to deal with. There are some safety critical compliance where. It's, you're legally obligated to buy the particular part from a certain supplier, then only they're certified, for example.

So how do you this is probably the key slide that everyone came for. So how do you maintain a relationship? How do you find, how do you find value, protect value? How do you improve the value? And it's starts simple. It starts with building the trust and open the communication.

Usually one of the first thing I do whenever I get into the relationship, one of the first question I ask, do we pay you? Do you pay? How's your AP status? And so that, that's usually, a step forward that gets the attention. Oh this guy is not only for him, he wants to do something for us.

Then who is familiar with, there's a terminology cost to serve. So this is, again, from a sales side, there's a cost to serve a customer. So customer can really be a pain. And if you are, have multiple transactions happening to the point where a customer has to have two. Admin that taking your order, that's a cost of two head count, for the cost of the year.

That's a specific example of cost to serve. So what can you do maybe on it side to automate and streamline the, the interaction to reduce not only cost for them, eventually for you as well, right? So that starts with. Basic P two P process, making sure the payments are done and then, I'm not gonna spend time, how do you build trust, but usually it's just you do what you say you're gonna do.

Then negotiation there, there was a great presentation earlier this morning about how do you negotiate with one supplier, within the supplier relationship management framework when pricing increasing. You look for total cost of ownership and there was some presentation yesterday on that, so I'm not gonna repeat that.

But you find a way, to look at the cost holistically. And o obviously, as I move on down, you need to understand, what the scope is, what are the requirements and you put KPIs around it. And I've seen quite a few people that, was in my global procurement experience that.

Where do we start with KPI? Start, you go ask operations, what do they want? List that as bullet points. Another great example we're my salespeople here. So go ask the sales person for the company that's selling the service and just record them. Oh, we do this we guarantee you that is the KPI, you write it down.

You ask them to sign it. I've been 15 years through, through marriage and we have, we've been building trust and relationship with my spouse and do I have a written contract? No. Do we have scope of work? Clear? Yeah. And believe me, if I don't meet the KPI, I would know right away.

And you go to the grocery store and you forgot to buy something that was on the list. All right. So then for negotiation that you benchmark against the norm. Yes, it's a sole source. It's the only supplier you have. But there's ways to do it. There's market indexes. You do the cost model and you push for transparency.

You rely on the relationship, collaboration, and trust to get the transparency. Alright, I think car. Covered quite a few things and maybe there's a few other angles, from risk management perspective, that's the only supplier if they go down, what's gonna happen. Are you gonna have planned down for two months?

What's the cost of finding another alternative? What's the time it will take and the revenue loss that you're gonna have? Knowing those options, doing this is relatively easy. All right, so now let's move on to perceived sole source. Again, we talk about maybe that's a supplier that was the only supplier 10 years ago.

But things change. Market moves. There's other people get on the market, so really look through. Challenge those assumptions around legacy. I have the example here of market disruption. My share is a relatively small company in automotive industrial space, and they're not very disruptor today, but they were pretty disruptive when they, entered the market.

So I was at Schlumberger, which was a huge oil field service company. And my experience through the supply chain was the direct spend. And actually indirect spend and all the parts were quite a mess. And my share came over and they, at that time manually, there was over a hundred thousand of part numbers.

So they went through all that and, help not only clean up the master master list, but also were able to identify alternative suppliers, within MRO space and also provide the people. To manage the in-house MRO space. So it was, maybe it's not a disruptive model today, but, 10, 15 years ago it was quite disruptive.

And today there are solution providers that we've seen, like Varian can make this duplicate search very easy. And there's other AI providers as well. And that brings me, again I'm gonna keep repeating this. So how do you classify MROs matters? And that will drive your attention, that will drive the resources and and some of the sourcing approaches as well.

This is what procurement usually does. You create leverage. So once you identify it, it's a single source and there's potential for more. You start with category definition, then you start putting your strategy together. Maybe you unbundle the score, the scope, maybe the scope includes parts and services.

You break that apart, you'll find opportunity where smaller suppliers can, bid on a smaller smaller scale. You can also leverage GPOs and aggregators. We are, again, I'm now joined a new company. We have HR outsourced. We have it outsourced and we are not directly using, we use an actually aggregators.

And so in the indirect space, there's if you're not familiar, there is a lot of aggregators for almost anything you can imagine. And also pilot new suppliers. There is quite a lot of AI providers. Out there, I'm not sure about you, but I picked one that I want to try and, the next, when there's opportunity and it makes sense for the company.

So find new suppliers data that test them out, build the alternative for the solutions that you have today. There's a few examples that I have. What usually perceived as a sole source in, in OM. A lot of time, again, tied to warranty and but there's a lot of independent rebuilds that can provide quite a cost effective solution and that, com for comparable quality and electrical equipment.

Rockwell automation is a lot of time considered, a go to company, but there's a lot of integrators, panel builders that they can offer, a decent solution that might work for a company. Oh, we have we have another one here, grader always considered, or lot of time considered as a default supplier, but there's others on the market that's available.

And again, I mentioned GP earlier, so when you span is too small, believe me, you think it's your indirect, your MRO, it's a direct spend for someone else that's their core business. They take that, spend aggregate across companies and negotiate on your behalf. All right, so that brings me to the close.

So the constraints are real whether, there are true constraints for your sole source or perceived, and it's a single source supplier your mindset drives the results. What do you think? And again, in procurement, you gotta challenge the assumption. And that will drive, the strategies that you'll put in place when you focus on performance, create the leverage.

So we talk about trust, we talk about KPIs. One thing I haven't mentioned is the bonus malice, supplier rebates. Those are the commercial tools you can implement in your contracts. Not only, find a ways to incentivize suppliers and have some penalties. I'm sure, everyone likes to if supplier doesn't perform, everyone likes to throw the penalty.

But very rare I've seen people excited about paying a bonus to a supplier. But there's ways to do it. If you're interested, let me know. I have the scheme. Content matters. So again, MRO if is tail spent and how critical it is determines your strategy. If that's something that to keep the light out on the facility, oh, that's a critical port to keep the operations going.

And the last one that I have, the relationship drives success. So back to my marriage story. Dependency is not a weakness. Dependencies is a strength, and you can really leverage the discussion with suppliers. We talk about. Driving the extra value that comes from a relationship.

It's about having capacity when no one else has supplier has new innovation that they need to test it out. Who do you think they're gonna call? The top customer. Are you the top customer for them? There's deeper sustainability discussions, and some of that is borderline between, together supplier innovation and sustainability.Dmitriy Monakhov, Procurement Leader – Industry Expert: So there's a lot of opportunities that can be done through partnership. So that's it. The timer is really handy here. So there's a couple minutes left for questions. So thank you very much for your attention.

Announcer: Any questions for Dmitri? Oh, we got one up front.

Audience: Hi. Did you record your wife, or

Dmitriy Monakhov, Procurement Leader – Industry Expert: sorry,

Audience: did you record your wife, like recording the supplier Now, quick question. Sorry. How would you handle a sole supplier but that has also one plant. Because in terms of business continuity, how do you manage that considering that plant can go into fire or whatsoever flow?

The what, depending the region.

Dmitriy Monakhov, Procurement Leader – Industry Expert: So the last conference actually I was speaking was on risk management. And there's a whole strategy on risk management if you identify that's your weak point. I mentioned a few elements, what is the switch cost? If that supplier goes down, you can do a tabletop exercise what are you gonna do?

And in that case, actually it doesn't matter whether the road get flooded, they cannot ship it out. They've been cyber hacked, they can't, the system is down or they have a fire or they're going bankrupt. You can spend money on understanding their positioning for all of these type of risks they're exposed to, or you can lean into what's gonna happen to us.

And and if you are really, to the point where relying on them a hundred percent, there's no other alternatives. And I'll be in their facility, every other day, almost doing it on their behalf because at this point they're almost you just happen to make versus buy decision.

You can, you just made decision to buy, but you know their extension of you at this point.

Audience: I like increasing safety stock would be part of the strategy also, give you time to

Dmitriy Monakhov, Procurement Leader – Industry Expert: Yeah, no, absolutely. I think that would be if they're a parts supplier, then absolutely getting bigger stocks. So you have better time to react.

Yeah. Thank you.

Announcer: Any last que last questions? Oh, we got one more.

Audience: So as a supplier trying to strategically centralize an industry, what would you expect from us to come to you guys as the customer to help support this partnership? Is there ways you mentioned penalties and stuff like that.

How can we better make you guys feel comfortable consolidating into these areas? From a supplier's perspective?

Dmitriy Monakhov, Procurement Leader – Industry Expert: So the, you can't be friends with all of your suppliers, so you know, one thing. Procurement teaches, you do the segmentation, right? So then you have your tail, your true tail suppliers, then you have your mid pack, and then you have the top, you can call it strategic, important, whatever terminology you use.

And that's the people you do SRM with. And then you lean into the relationship, into contracts, into KPIs. Like you will never have resources to do the same with all of the suppliers, right? So I think, understanding who is the supplier. And what's your strategy around it? And if it's the top supplier you do an SRM with, then you engage, and sometimes, from B2B engagement in my previous corporate role, we had mapped, three or four levels of interaction, from VP to the, at the buyer level.

There's many elements there. All right. Thanks so much.

Announcer: Thank you, Dmitri.

Thank.