MRO, or Maintenance Repair & Operations is known as the materials and services used in production to maintain, repair or operate the facility, machinery or equipment. These items typically include industrial supplies, safety supplies, janitorial products, power transmission products…etc. These items are typically low in spend, however the category as a whole can generate significant spend and greatly impact profitability if not managed correctly. For this reason, it is important for organizations to evaluate their MRO purchases and gain visibility into their purchasing behaviors.
The most effective way to quickly gain visibility into MRO purchasing is to gain visibility into the overall MRO spend. This can be done through a supplier usage report, or directly through a 12 month invoicing report that outlines critical information such as the product information, annual quantity, unit price, and unit of measure. Once this information is gathered from each vendor, the information should be consolidated into a single standardized excel file. The next step would be to categorize the items within this file and run an analysis to determine which vendors are being utilized for which category purchases, and how much the organization is spending with each vendor. After this information has been obtained, the following three strategy opportunities should be assessed to help reduce cost and increase overall profitability.
An industry best practice when managing MRO is consolidating purchases into as few vendors as possible. Supplier consolidation is a proven strategy to concentrate buying power and reduce purchase prices. Suppliers will be more willing to reduce product pricing when being granted a larger amount of spend, which in result can lead to substantial cost savings. Additional benefits of consolidating suppliers is overall efficiency of fewer transactions being processed, and the ability to improve supplier management while developing longer term supplier relationships.
Analyzing volume usage over a period of time can bring insight into the average number of orders for a given product in a given year, as well as any peak times during the year. Using this information to bundle product purchases into a few orders will result in maximum profits by reducing delivery cost and overall product cost through a larger order quantity.
In many instances, organizations purchase materials from a specific supplier, but do not have a contract or pricing agreement in place to manage the price of the products being purchased. Implementing long-term contracts with preferred suppliers gives an organization leverage to lock in pricing for a specific period of time, and the ability to implement category discounts on current MRO category purchases,. Suppliers will be willing to add additional incentives and category discounts knowing that purchases will continue for a specific period of time.
MRO spend can quickly add up and greatly impact the bottom line when left unmanaged. It is important for organizations to understand their purchasing behavior within this category to reduce overspending and utilizing best practices to effectively manage MRO. When managed properly, MRO can generate large savings and increase overall profitability within an organization.