A uniquely diverse spend category, MRO is usually classified as a tactical spend area - though some aspects can be considered leveraged or critical. With so many products and services falling under the MRO header, companies can use multiple strategies in order to drive savings. Having clear goals and objectives when sourcing MRO will provide a smooth guide in guiding your companies market assessment, sourcing strategies, and its approach to supplier engagement. Below are six meaningful goals your company should keep in when going to market for MRO.
Cost Reduction and Supplier Rationalization
Many goals in an MRO-centric initiative can change as a project moves forward. However, it is important to remember that bottom-line impact should always command attention. A simple cost reduction can be achieved simply by transitioning from brand name items to more generic substitutes.
The chances of achieving savings on MRO products is usually high based on the sheer number of suppliers in the marketplace. This is especially true in organizations where Procurement has typically made purchases and built relationships at the site-level. A quick audit in the form of a spend analysis should point out opportunities to eliminate redundancies and establish an optimal collection of preferred suppliers.
Ordering Process Efficiencies
A substantial amount of MRO products are considered tactical purchases. This often means that costs associated with acquiring an MRO product are greater than the cost of the product itself. Thus, a streamlined, simple ordering process will generate efficiencies for your buying team. The ordering process should make invoice reconciliation easy. This will save time and money and enable to Procurement to devote more attention to high-value, strategic initiatives.
Part Number and Specification Standardization
After performing a spend analysis, buyers may find that their company’s internal ordering system does not deliver reliable information. For example, let’s say several locations order the same product. While the product may be the same, the descriptions are likely to vary, thus data entry errors may exist. Cleaning up and standardizing data helps give buyers and management a clearer picture of what they are spending and where saving opportunities are.
Inventory Level and Lead Time
By its very nature, the MRO requires Procurement to keep a multitude of stock-keeping units (SKUs) on-hand. After all, the cost of an individual part is not nearly as expensive as the cost that comes with having a production line go down. However, the cost of managing and fulfilling MRO stockrooms at multiple locations can result in cash being tied up in on-hand inventory. One option that can help mitigate this is outsourcing your company’s stockroom altogether. Reviewing current inventory and identifying unnecessary parts can ultimately open up warehouse space.
Maximizing Equipment UptimeJust like managing inventory levels and lead time, maximizing equipment uptime is a key goal when sourcing MRO. While most business realize that maximizing equipment uptime means having parts ready for when machines go down, few also realize that buying the right parts in the first place is equally important. Sourcing from a sub-par supplier could lead to poor quality parts, retro-fitted equipment, incorrect deliveries, and incorrect orders. Having the right supplier group or group of suppliers can assist in troubleshooting and resolving these issues (or, better yet, avoiding them altogether).
Long-Term Supplier Relation Development
Most, if not all suppliers in the MRO industry are familiar with periodic customer turnover. This is why it is worthwhile for your company to evaluate a supplier’s overall service offering. Take care to identify those who are willing to go above and beyond, build partnerships, and provide additional value adds that their competitors might not.
In closing, the goals and objectives for the category help outline the framework for the initiative. As suppliers are engaged, make them aware of each goal and collaborate with them to achieve it. As your company dives into data collection and spend analysis, you will realize how much effort is needed to accomplish the goal of improving your MRO sourcing. Why not commit to doing it right the first time?