The MRO category can often fall by the wayside. Many Procurement teams choose to focus far more on the "low-hanging fruit" in terms of savings, particularly when it comes to core materials involved in the production process. MRO's diverse subcategories and supply bases often seem too complicated or too deeply ingrained to reevaluate. Treating the category tactically, Procurement teams find themselves dealing with elevated tail-spend and poor communication. To avoid falling into these traps, it is important for Procurement to assess the spread of MRO and begin to develop a schedule for more frequent check-ups. Here are some tips for handling MRO spend more efficiently and making the category lower-maintenance in the long-run:
Location, Location, Location
Perhaps one of the biggest rules in MRO sourcing is shared with real-estate: location, location, location. Finding the right locations for both suppliers and inventory facilities are key in ensuring communication, consolidation, and efficiency.
Although I would love to preach a standard rule behind centralization, this decision is ultimately what is best for the company. With the emergence of more natural disasters and political tug-of-wars, it may in fact be best to diversify MRO supplier locations to ensure that products and materials are still available if something unexpected were to occur. Consider amending contracts to leave your options open.
With that being said, consolidation – in many cases – can streamline the MRO sourcing process, diminishing not only supplier costs, but administrative costs associated with managing more suppliers than necessary. This is where our next topic comes into play.
In the same way that MRO sourcing is often put to the side, MRO inventory is not nearly as thoroughly managed as production inventory. Though MRO inventory management may not feel as important as other spend categories, a lack of attention can lead to shortage or surplus of particular materials. To make matters worse, dispersement of these parts to various storage locations can create logistical inefficiencies. There are several steps can be taken to optimize spend and get a better handle on MRO inventory, but perhaps the most important is centralizing inventory facilities.
By centralizing MRO inventory for each production facility, it is far easier to keep count of inventory and assess the appropriate volumes of particular products for each facility. In doing this, savings are found through reduced costs on long-term, unnecessary overspend. Rather than dealing with the logistics of MRO distribution and managing several facilities for each production location, production facilities affected by natural disaster could also “borrow” MRO inventory from other facilities’ warehouses, creating locational diversity while still maintaining the efficiency and convenience of the system.
Inventory management can often feel like the extra step in the process that no one really wants to deal with. With that in mind, perhaps vendor-managed inventory is the most effective solution for your organization. By having a supplier on-site at each facility, inventory will be managed more directly by someone who can assess and re-evaluate the appropriate order volumes for each product in the facility.
Checking the Scorecard
Although the MRO category often takes the backburner in terms of sourcing, when deciding on suppliers, it is still important to develop a qualitative analysis to assess the values and delivery of the products and services you are looking for. By developing a scorecard, the client is able to take a side-by-side look outside of per-item savings and to assess how suppliers can save time and money in other ways, like convenience of location, delivery, reliability, and supplier values.
Not only can scorecards give a comparative analysis of several suppliers, scorecards allow a way to quantify whether or not the client’s qualitative wants and needs are. Though qualitative analysis may not feel as impactful as other types of spend analyses, evaluating how suppliers can assist in savings through other capabilities can often lead to the emergence of unrealized savings.
Want to learn more about navigating this complicated category? Contact the cross-category spend management experts at Source One today.