A Perspective shared by DSSI’s Director of Global Category Management, Michael McFerrin I sat down...
How to optimize your MRO purchasing
Companies are increasingly complex organizations that involve numerous functions and moving parts to operate smoothly, not the least of which is the supply chain. Whether it's the raw material and equipment needed for the production process, or indirect materials necessary for daily operations, businesses spend a lot on procurement and supply chain management. However, when it comes time to cut costs, many companies focus their attention on direct materials, neglecting the surprisingly high cost of indirect materials.
While direct materials typically comprise the majority of operational budgets, the total cost of maintenance, repair and operations (MRO) can add up. MRO costs include all of the expenses associated with the day-to-day upkeep and output of goods or services for manufacturing companies. This can be anything, from office supplies to spare parts and repair tools.
Historically, indirect material purchases were rarely prioritized as a cost-saving opportunity. However, competitive markets have forced businesses to reconsider the MRO procurement process, and innovations in technology have made it easy to minimize costs and streamline the MRO supply chain.
What is MRO management?
MRO management plays a critical role in the daily operations of any manufacturing business. It involves managing the company's inventoried MRO items, sourcing the items optimally, procuring them from the right vendor in a timely manner, getting accurate reporting and, as always, identifying new opportunities for cost-savings. This can be challenging when MRO spend is fragmented across a diverse supplier base.
For instance, if a vital piece of equipment experiences a failure or malfunction, it can shut down the whole business's operations. This downtime can last upwards of days while teams await the necessary parts. In contrast, storing excess inventory can be a waste of capital if the parts are never used, sit too long in storage or become obsolete.
Successful MRO inventory management requires a careful balancing act of managing your supplier network to minimize indirect spend while maintaining enough inventory for daily operations.
Effective MRO management
For MRO management to be effective, it must focus on strong item master data and strategic sourcing to maintain adequate inventory levels. Without the right MRO supplier management tools and resources, this quickly becomes a tedious and time-consuming manual process. From gathering and analyzing spend data to reassessing your MRO supply chain management strategy, the right indirect procurement tool can help your business optimize its MRO purchasing and identify new opportunities to reduce costs.
WHY IS MRO SPEND MANAGEMENT SO IMPORTANT?
An effective MRO spend management strategy includes the right mix of people, processes and tools and is essential in helping manufacturing businesses drive the lowest total cost of ownership. MRO procurement tools offer valuable features like process automation, supply base consolidation and spend analytics to enhance your overall strategy. Having the right people in place to combine your preferred supply base with those vendors that are necessary to meet your tail spend needs is also a critical step in creating the diverse network needed to ensure your business has the products to sustain operations.
THE CHALLENGES OF MRO MANAGEMENT
Despite its complexity and impact on operational budgets, companies often undervalue managing MRO purchasing, treating it as an afterthought when compared to direct materials. This is due to a number of reasons, including:
- Historically poor visibility into MRO spend data.
- The highly fragmented nature of the MRO supply base.
- The propensity for site users to want to manage these purchases autonomously.
- The misconception that consolidating spend to a single distributor can cut costs.
- The inability to devote a central resource to managing the thousands of products included in MRO.
Compounding these issues is the fact that many companies have fragmented MRO procurement processes across disparate systems and departments. This results in unnecessary expenses and further complications in inventory management, such as:
- High acquisition costs across a fractured supply base.
- Duplicate purchases and excess stock.
- A lack of visibility across inventories and the supply chain.
How to manage your MRO procurement
Managing your MRO procurement process can seem like a daunting task. While buying stock, maintaining inventory levels and distributing and replenishing MRO items at the lowest possible cost is no easy feat, there are a few steps you can take to start managing your MRO procurement.
Identify essential MRO items and processes: Companies need to determine all of the vital tools and supplies they need to support crucial business operations. Standardizing and storing item information, based on manufacturer name and part number, will also help employees identify critical components when they need them.
Audit and organize your inventory: An inventory audit will determine what MRO items you have in stock and where excess or obsolete products are in storage. This will help you better organize your MRO inventory to boost visibility and operational efficiency.
Create an MRO procurement strategy: From identifying high-priority items, selecting strategic suppliers and standardizing the requisition and PO generation process to tracking MRO items throughout the supply chain, an effective MRO procurement strategy can ensure your company gets the right materials at the right price across your entire enterprise.
Forecast MRO product demand: Using predictive analytics to examine historical data and seasonal patterns can help optimize your MRO purchasing while minimizing the risk of storing excess inventory that will become obsolete. Many companies leverage the expertise of procurement consultants for this purpose.
Maximizing value and savings in MRO spending
While optimizing MRO procurement will require a different strategy for every business, there are a few best practices that can help your company cut costs while increasing efficiency.
The first step is to consolidate your supply base and standardize your procurement process on a single platform. This type of software enables standard naming conventions, strategic sourcing from an optimal supply base and efficient transaction processing.
Next, you must educate employees on the new strategy. By ensuring they understand the MRO procurement process, you can avoid unnecessary expenses on things like duplicate purchases or excess inventory and time delays.
Finally, it's critical to increase spend visibility. In order for procurement leaders to streamline processes, deliver savings and identify strategic opportunities, they need the right tool to enable effective analysis to optimally manage MRO spend.
DSSI can help you optimize your MRO purchases
In collaboration with Baker Tilly, DSSI has recently launched Dynamic Procurement, a powerful software solution designed to help businesses strategically optimize their MRO supply chains and procurement processes.
Dynamic Procurement offers strategic sourcing and supply base consolidation to optimize your supplier network. You also receive increased visibility with our on-demand spend analytics, powered by state-of-the-art business intelligence.
Want to learn more about what DSSI and Dynamic Procurement can do for your business? Download our eBook here.