Chainbreak works with manufacturers to reduce supply costs, helping them to be more efficient and slash budgets. By Staci Davidson
Manufacturers continuously face rising costs, and diminishing margins is not a trend that seems to be going away any time soon. The founders of Chainbreak saw this happening at the operations where they were working, and with their experience in MROP, they realized there were costs to be saved, if manufacturers knew how to do it. As a result, they formed Chainbreak to help manufacturers shorten their supply chains, cut industrial supply costs and reducing MROP budgets.
“I was part of a company for 30 years and had a lot of experience in MROP, selling tools and supplies,” President Andrew Gourlay says. “I started to see changes in the market, and with electronic platforms like Amazon becoming dominant and able to get things to people more quickly, down the road they would eliminate the middle man in getting these supplies to industrial clients. We thought about how industrial distributing had a lot of costs with warehousing and sales, and it wasn’t as competitive in today’s market. Additionally, manufacturing customers didn’t see as much value in their services. We looked worldwide at how things were done, and most of the world doesn’t use middle men or industrial suppliers.”
Instead, he saw that larger plants in the global market were going directly to the manufacturers of MRO products to save costs. Gourlay explains MRO products usually make up 3 percent of the final cost of a product, and could include safety products, cutting tools or anything that is part of the core manufacturing process. Approximately 85 percent of a company’s MRO spend is with about five manufacturers, with the remaining 15 percent coming from as many as 150 suppliers.
“We help them to combine the brands they use, negotiate to get the same cost the distributor had and pass those costs onto our clients,” Gourlay says.
Cutting Hard Costs
Manufacturers who spend at least $500,000 per year on MRO should have the leverage to negotiate direct purchases with their suppliers and cut out the middle man industrial distributor, Gourlay explains. Chainbreak can help by duplicating some of the services that distributors provide, especially if those services are difficult for customers’ employees to take on. This is a better option, he notes, than manufacturers squeezing distributors for lower costs, which isn’t sustainable for anyone.
“We set up back channels for kickbacks and rebates, which customers don’t really know about,” Gourlay says. “Distributors would push their clients toward brands that give kickbacks or rebates, but when manufacturers have this level of spend, they can negotiate to get a good price directly with the suppliers.”
ERP systems can be integrated into a client’s manufacturing system, so ordering of these MRO products can become more automated. Only one person needs to manage it at a client’s operation, reviewing orders and checking with various departments to see if there are any changes, Gourlay says.
“Sometimes it’s hard to justify productivity improvements,” he explains. “Those are soft costs, but manufacturers want to see improvements in hard costs that you can easily measure. We help clients cut out hard costs by cutting out the distribution middle man and going direct. One customer was spending $2 million a year on MRO, and we helped them get that down to $1.5 million. We found 10 brands where they could source directly, and for other items, Chainbreak can supply products that are repetitive orders using the Amazon platform. There is next-day delivery on those items. That’s just one of our solutions for clients, and it’s optional.”
Many people in purchasing these days are in a younger generation, he notes, and they like to do buying on their phones where they can see the options, prices and delivery times. Chainbreak can assist with this by connecting to clients’ ERP systems and ordering items automatically when needed. This is a growing trend in Europe and Japan, Gourlay says, and all manufacturers need to look for savings. Chainbreak enjoys working as a partner with manufacturers, looking at their data to see their purchasing processes and help keep them from draining their budgets.
“I am proud of being in this and working as a real partner with manufacturers,” Gourlay says. “As a distributor, you are a partner, but you’re trying to get something out of them. We honestly work with manufacturers to lower their MROP and it creates a much more positive relationship. We have a win-win relationship because we are not playing games. The costs here are easily to quantify and easy to see prices go down when we negotiate. “This concept is easy and doesn’t really need a lot of investment,” he continues. “There needs to be a commitment from a client’s project leader to take the time and get the company to where they are free from these high costs and the chain has been broken. Customers are getting tired of prices being raised and services becoming less. We work in the market basket they are most interested in.”