The Procurement of Spare Parts
“OEM versus non-OEM” the story continues…
Some years ago, I was allowed to publish an article in MT about the somewhat thorny subject of the procurement of spare parts and specifically I explored the discussion around Original Equipment Manufacturer (OEM) versus Non-OEM. The article sparked an interesting and lively debate amongst peers and suppliers alike. Fast track to today and there remains clear challenges for both experienced and new buyers in a market space that faces continuous change.
Stephen Alexander challenged me to revisit the subject and write part two, so here we go…
The initial article and discussion began with an exploration of the understanding and therefore a definition of what exactly OEM and OEM parts are. It is clear that different people and organisations maintain different positions on this i.e., what is OEM and what is not? The conclusion was that it is based somewhat on what works best for them within the relevant boundaries/stretching boundaries of their own operations.
Logically the definition of OEM is far from unequivocal. In some organisations OEM parts are strictly supplied by the supplier of the asset only, while in other organisations OEM materials are considered items that have been on the asset once supplied by the OEM maker. The reasoning behind this stance is that OEM’s are buying a considerable number of parts from third parties. In addition to ‘OEM’ parts, copy parts are also available and these copy parts are sometimes referred to as ‘pirate’ parts. Some engineers prefer to use a more sophisticated definition and refer to these parts as reengineered parts arguing that in some cases these parts are reengineered better than the original! Again, we can see a matter of interpretation to suit the individual and the company.
The non-OEM’s have access to OEM supplier sources as well as reengineered parts. Obviously, the latter is more common as the amount of non-OEM suppliers has been growing steadily over recent years. These organisations are established often by ex-employees from OEM’s and are often very flexible, relatively small, and very knowledgeable because as ex-employees they have much knowledge about the weaknesses, pressures and conditions of the OEM’s.
The knowledge available, short communication lines and commercially favourable conditions is what makes these organisations attractive for many buyers and therefore successful. I have always found it fascinating that the OEM’s ‘allow’ these companies to exist. What I mean is the buying power of the OEM, combined with the R&D capacity, overall resource and marketing power and their experience should in theory be sufficient to outcompete any ‘small’ company in the same/their market. So why is possible that an increasing number of so-called non-OEM suppliers are able to take a piece of the pie (actually supplying similar brand spare parts often)? I believe there are multiple (root) causes for this phenomenon, yet I present that one of the main causes is the perceived difference in focus.
What I mean by focus is that the focus of the small(er) supplier is firmly placed on customer satisfaction as priority. While the OEM’s do share this focus the headlines of recent years can tell us how these organisations exist in a state of considerable (continuous) change. Unfortunately, yet logically when organisations are engaged in (continuous) reorganisation, acquisitions and mergers less time is available to focus on continuous process improvements, and customer focus initiatives. In addition, the sales force in these organisations is faced with increasing complexity and a wider program of products and services which means that their added value through implicit knowledge is diminishing over time. The alternative suppliers are usually focused on a limited scope, have expert knowledge, maintain extensive inventory, and specifically they are extremely eager.
As suggested already in the latter another cause/driver of the success of the non-OEM is the multiple sourcing strategy of the OEM supplier. In theory the OEM is using multiple sources to manage risk, get better rates, and utilise different sources for R&D purposes. In some cases, the OEM’s have tried and reconsidered initial make or buy decisions. The suppliers to the OEM’s have recognised these threats and try and utilise the after-market and alternative supply chains to manage their risk and improve their market position to the OEM’s.
Turning to the buyer perspective I personally believe that a good relationship with the OEM is essential for owners for various reasons, however we should not underestimate or disregard the knowledge and support from non-OEM’s. These companies exist based on the service and support needed so often, and obviously the perceived service and conditions of the OEM’s allow these companies to flourish as well. The latter appears as a delicate and healthy equilibrium.
I recognize and can understand partly the negative connotations attached to reengineered parts. Clearly there have been cases where reengineered parts have caused expensive damages or worse and clearly there have cases where companies have been closed because of copyright infringement. Yet, for old equipment these issues are usually less relevant and there are cases where the original maker is closed or does no longer support the equipment any longer. In those cases, everybody is satisfied and supportive to non- OEM’s. One could argue that certain considerations are disregarded in these situations which is interesting by itself. We want to buy the original for comfort reasons, regulations, risk avoidance, and so on, while we might utilize dual due diligence once the maker is no longer available. Is that not strange?
It is clear that the maritime and offshore procurement landscape is becoming increasingly complex and therefore more fascinating. Yet, the latter has proven to be very complicated already for experienced technical buyers, so for inexperienced buyers’ clear guidelines and coaching is essential because the procurement of technical items and services from service providers requires in-depth market knowledge, excellent buying skills, procurement knowledge, knowledge of rules and regulations, and a basic knowledge of the technical paradigm.
The necessity of expertise for any function is obvious yet procurement has an increasing dominant impact on the profitability of the organisation. We are lucky that procurement is perceived more and more as a fascinating lifetime career and therefore attracts a lot of young and eager highly educated staff. We have to welcome, coach, train, and retain these promising individuals in our industry.
ROB C. SCHARFF, MSC. MBA. B ENG. IMPA VP of Education & Training and Department Head Procurement for Allseas Engineering BV