Five Questions to Ask in Building Successful OEM Collaboration

Companies spend millions developing and implementing new technology and processes to enable more effective MRO supply chain management practices. The goal is to better manage the flow of spare parts within the facility environment, whether that is a healthcare system, large campus, or a manufacturing plant.

While effective, such practices fail to address the relationship element between suppliers and end-users. Strong relationships between the two is what truly elevates program success, particularly when it comes to OEMs (Original Equipment Manufacturers). That success demands collaboration and OEM input on relevant supply chain issues. Value is a two-way street.

The most obvious and typical place to focus efforts is line item piece price. Often missed, though, are the larger value enhancement opportunities, an issue specifically relevant with OEMs. By collectively adding value, better products are delivered less expensively.

The Challenge

To best understand the challenges, it’s important to recognize the differences and competing priorities between the facility owner and an OEM. The priorities aren’t too dissimilar from a typical buyer / seller relationship. However, the limited amount of competition can amplify those positions, putting them at odds at times.

The facility owner’s priorities are to optimize inventory and maintain uptime while reducing the cost of maintenance and operations. Strong planning is the key here, to limiting surprises throughout the day-to-day operations.

The OEM’s priorities, while certainly intended to support the manufacturer, are more about forecasting demand for critical spares, revenue planning, and becoming sticky so clients return for parts and new capital purchases.

Overcoming those differences is about good data. Critical parts identification, inventory management, and stocking needs are critical. Typically, if the goals are met and the value improves, it leads to a stronger, more trusting relationship that is then documented with a longer contractual agreement.

When looking to build a successful collaborative relationship with an OEM, consider these five questions:

Question #1 What is the overall relationship with the OEM?

Is it a one-off transaction or are there on-going expenditures expected? Is the relationship transactional or more about understanding how each party can support the other? The latter delivers better results.

Or are there many pieces of equipment installed from the same OEM and potential for many more to come. The answers will impact your leverage in the relationship and how the OEM responds. It can also determine if it makes sense to directly engage with the OEM long term or use a third party who might have multiple relationships with the same OEM, thus bringing more leverage.

Question #2 Are there any special pricing agreements in place or escalating savings arrangements from year to year?

Was a pricing agreement included in the initial capital purchase or negotiated later? If there is an existing agreement in place, are all manufacturing locations benefitting? Are they receiving the contract pricing? Is there an expectation set with the OEM to reduce prices year over year? Do you have expectations from third parties to deliver those savings year-over-year? Aligning with all parties involved brings better contractual understanding and always drives more positive results.

Question #3 Is the part truly an OEM product? What is the willingness within the organization to commercialize / reverse engineer the product or buy direct from the part manufacturer? Are substitutions an option?

OEMs are often integrators themselves. They do not manufacturer all parts or components in the equipment they sell but instead those components are purchased through different suppliers. It is important to understand your ability to purchase these items from a part manufacturer vs OEM and their requirements. It can significantly impact pricing and product availability. If it is an off-the-shelf item, you want to understand where it comes from so you can protect yourself from supply risk as well as cost.

On the flip side, if you are interested in buying the components from other than the OEM you need to understand what change management processes are required and if there are any implications to the warranty. Approval of such substitutions can be challenging if they are not an exact match.

Question #4 Do you have accurate part data, specifically manufacturer part number?

Data is king. To support accurate inventory management, critical part availability, or part substitution, having access to part numbers is the key. Having both OEM and manufacturer part numbers will be very helpful downstream.

When equipment uptime is critical, and it is always critical, having accurate data ensures parts availability and accessibility from the appropriate supplier. Commercial considerations are important but secondary. You can’t do cost reduction and risk reduction without good data.

Question #5 Does the OEM see value in third-party relationships?

OEMs seek long-term relationships with the facility’s owner, and you can’t blame them. They are looking for long-term revenue. The inclusion of an MRO integrator in the transactional or strategic part of the relationship can be beneficial. They don’t have to be at odds with the OEM’s goals.

An MRO integrator is not looking to create a more complex relationship or add an extra non-value layer. They’re looking for the opposite. An integrator’s value comes from removing the day-to-day transactional noise, allowing clients to focus on core operations. In the case of OEM relationships, an integrator brings value through enhanced data, inventory management, and information on product performance.

Managing OEM relationships is always challenging, but especially so if you fail to understand their perspective. Working with a third-party integrator alleviates some of the issues and offers additional advantages through increased spend and stronger leverage.