MRO Q&A: Internal Vendors Versus External Vendors

A reader wants to know how to chose internal vendors versus external vendors.

Q. We recently hired some creative mechanics with great capabilities to rebuild assemblies that we were being sent out to outside suppliers. It's a good thing, but we are getting complaints from other mechanics on the assemblies’ quality and from storeroom personnel regarding erratic quality and delivery times. Is it better to just buy from vendors rather than put up with hassles from our internal vendors?

A. This is a great question and one that haunts any company with a number of “can do” employees. Being an internal vendor for parts or assemblies is considerably different from being an outside vendor. Let’s say hot dog manufacturing is the primary business, and maintenance of sophisticated loading equipment supports the process. Relying on an OEM may be very expensive, and your people say they can do it for a lot less. They may or may not. Each case must be considered on its own merit.

As an MRO provider, you must deliver the best cost, quality and service from each supplier, regardless of whether the supplier is internal or external. The most important consideration is to make sure you develop the same specifications, expectations and costs, regardless of who does the work. A common pitfall is to prefer to do it internally because you are “better” than the external vendor.

My advice is to make internal vendors prove they are better than the external options. Many times the people that do the work do not realize the concept of overhead and cost allocation from other areas of the company, and these factors can make a big difference. Inside vendors are asking you to make a change in your primary business. Such a change should be undertaken only if it is consistent with the overall strategy of the company.

That being said, the greatest way to ensure a company’s success is to encourage folks to take charge and be better than the competition. If you find yourself in a tie between an outside vendor and an internal one, I would error in favor of the internal vendor.

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