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The A-Z Of Maintenance, Repair & Operations(MRO)

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Maintenance, Repair and Operations (MRO) is the crucial part of any supply chain network. Unfortunately, it is often an overlooked business function.

MRO probably has the broadest definition of any category in sourcing. MRO is anything used to maintain manufacturing and distribution facilities. This can range from electrical supplies to cleaning supplies to bearing and power transmission products.

Insight

The MRO sourcing landscape has evolved dramatically in recent years, yet most of us haven’t adapted to the changes. MRO altogether is a unique thing, even if on the surface it looks like many other large areas, most companies typically see MRO as:

  • Having a fragmented and differentiated supply base, which can make it difficult to directly compare alternatives because of unique, supplier-specific capabilities.
  • Not being well-controlled or managed inspite of strategic sourcing and compliance efforts.
  • A significant portion of spend.
  • Being subject to the quirks of business stakeholders who often have different priorities other than centralised procurement.

Yet, if your procurement organization is applying old techniques to a category or service where new approaches, options and technologies can dramatically impact the cost and quality of the MRO experience, then you surely are losing out on potentially tens of millions of dollars of savings. One challenge to accept here is that MRO is complicated.

From safety supplies that protect workers to facilities items to electrical items – to specialized MRO goods for specific industries to fasteners – to – MRO services, the list of MRO sub-categories is much diverse.

MRO purchases are the purchases which are necessary to keep the business running. In some type of businesses, such as an office block these kind of purchasing may be quite small and many purchases will be made on a regular basis.

How important is MRO?

MRO is drastically important to the business, and procurement organizations and the good thing is that companies do realize the importance. Ask any worker of a plant how important their MRO suppliers are and they will tell you how much would it cost them if one of their machine goes down!

While folks on the ground understand it completely, managing it properly is a different story altogether. MRO has so many moving parts that companies can easily find themselves lost in the weeds. The diversity of the products that fall under the category, the lack of spend visibility at the Stock Keeping Unit (SKU) and the diversity of suppliers across regions makes proper sourcing and supplier management difficult.

The fact is that the stakeholders for the MRO category are not determined on cost as the top priority, instead valuing factors such as lead times, same day delivery or Vendor Management Inventory (VMI).

Within the MRO space, many purchases are unplanned.

Is procurement tackling MRO properly?

Well, in most cases MRO is decentralized particularly within organizations with a large number of facilities. This, not necessarily, is a poor management- rather it stems from a comprehended need for plant managers to be able to make purchases, especially emergency purchases, on the fly. But this decentralization causes a whole slew of problems.

To start, facilities typically do not interact with each other. They use different suppliers between the same category even for the same exact items or services, and there is limited standardization of manufacturers and/or processes and national contracts in place. This, as a result, creates a lot of inefficiencies- and hence the organization is not able to accomplish economies of scale and because of it, suppliers often are not dedicating the attention that the organization deserves.

MRO purchases are the purchases which are necessary to keep the business running. In some type of businesses, such as an office block these kind of purchasing may be quite small and many purchases will be made on a regular basis.

Solution

To start to treat this, a thorough spend analysis is required. Sit with stakeholders, categorize it and work with them to understand the suppliers that you are using under each category and at each locations. Chances are, you will likely wonder why you need so many suppliers within the same category, especially if they all are doing and providing the same thing. Look for the areas of opportunity for consolidation, evaluate the market and establish the preferred suppliers. Set up national contracts and standardized pricing and defined service level agreements. Define the category and manufacturer discounts to control costs on unplanned purchases!

Conclusion

The line between MRO and supply chain can be blurry, as the line between MRO goods and services. From conventional distributor models to truly integrated supply approaches, there are several stages of services that suppliers offers as well. Technology can play a critical role in helping procurement manage MRO spend more effectively and create implementable savings programs with additional benefits. Companies should start with spend analytics but any old generic spend visibility program applied to MRO won’t do.

6 thoughts on “The A-Z Of Maintenance, Repair & Operations(MRO)

  1. Interesting article although I really think it depends on the organization. We have always kept the life cycle of both our equipment and operational infrastructure on the radar screen of both the CFO and CEO. We have general ledger codes set up for both and we engage our departments in planning for these type costs in their budgets.

  2. Your comments regarding MRO as a critical part of the supply chain are right on; additionally, MRO should be viewed as a critical function to achieve plant reliability. You state that MRO is often overlooked and point out some activities that can solve the MRO dilemma. When you consider that MRO is but 6 to 10 % if a company’s spend, it is reasonable to see why it is ignored. However, that low spend level is the source of 70 to 80 % of administrative supply chain costs. The solution is for companies to get out of the MRO business so they can concentrate on their core endeavors and contract MRO management to the experts just like they do security, cafeteria, et. al. The benefits achieved are at optimum and sustained.

  3. There is always a risk that MRO is treated as less important than mainstream purchasing, in fact left to junior buyers. And the parts may not even be on the main ordering system, or ERP. We have installed our Procurement module to manage Spare parts for a major manufacturer as their ERP system was not adequately configured to control the spares requirements.

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