Whether your business makes windows, waterproof wellies, or widgets, the cost of production can go beyond direct spend for components and materials. The indirect spend linked to the crucial support and supplies that don’t show in finished products, though they enable them to be produced, are considered to be maintenance, repair, and operations (MRO). The costs that include anything from tools, spare parts, and industrial chemicals to custodial products, furniture, and office supplies can be handled with the same focus on supply chain management as the direct spending.
Unfortunately, MRO procurement does not usually get the attention and time required to maximize its performance and give effective inventory accuracy, cost reduction, and lasting value. Therefore, you need to understand and implement best practices for MRO spend so that you can recover lost value. This article discusses MRO buying best practices that can benefit your company.
Understanding MRO Purchasing Best Practices
Production inventory associated with material requirements planning (MRP) is usually managed with precision to make sure that important raw materials, additional components, and finished products are enough when they are required. However, the MRO supply chain tends to shorten.
This is because MRO items may or may not be tied into the enterprise resource planning package or key buying software system. As a result, this tends to render them invisible as a component of the total spend.
Like many companies out there, your procurement team can understand the benefits of including this part in your procurement strategy, though it can be hard when you are experiencing some issues.
Some of the issues that can affect you include invisible and decentralized spending. When you don’t have a centralized software solution, there is a good chance that you can have various places doubling up on vendors within the same category. Therefore, you can lose out on economies of scale and its associated discounts. If there are redundancies in the supply chain, it can be hard to accurately assess vendors and make sure there is enough lead time, quality control, and inventory accuracy.
Wasted time and talent can also be an issue. If there is no mechanism to verify and track inventory, then your team can lose time waiting on spare parts that may already be there, having paid expedited shipping expenses for nothing. Besides, rather than applying their skills to their jobs, some plant managers as well as other MRO professionals can be spending their precious time on inventory management.
There can also be a focus on cutting costs rather than building value. Saving at least ten percent on supplies can seem like a simple task to do. However, if it’s a vendor who fails to meet the quality control requirements of your company, they can overcharge or compromise current supplier relationships. Keep in mind that MRO practices that emphasize on total cost of ownership can be the secret to improving both profitability and efficiency.
Another problem is that people in operations and repair can sometimes take advantage of lack of controls to get their stashes of important parts. While this can look like a blessing once it decreases equipment downtime or even prevents the requirement for rush delivery of important materials, it can be a dangerous game to play over time compared to the stability and safety of centralized and cross-checked supply management.
Key Good Practices for MRO Procurement
Change can be hard to adopt, especially if you decide to change policy and corporate culture. However, the MRO supply chain as well as its associated spend may be streamlined and tamed, and even improved if you are ready to adapt and implement a couple of these best practices.
Research and Integrate the Best Procurement Software Solution
If you don’t have a software package to handle your MRO supply chain and spend, then it’s a good idea to find a procuring company so that you can have one. Modern software can make it easier for you to track, manage, and even control inventory. Even better, you can use it for approval, transaction requests, and verification.
In this way, you can be in control of the inventory and have access to important data to make it easy to maximize transaction costs associated with MRO items. You can even assess potential vendors and track the performance of existing suppliers. As if this is not enough, the software can decrease the number of suppliers you need in the chain and reduce the procurement budget as you are still building value.
Identify and Keep Track of KPIs
It can be hard to measure the success of the MRO procurement if there are no standards and benchmarks. Setting the key performance indicators (KPIs) can offer you important information that may benefit your initiative clearly to management as well as other stakeholders in the reports.
Some of these KPIs to think about include vendor supply or performance contributions, procurement budget, maverick spend, number of stock-outs, rush orders against replenishment orders, and many more.
Centralize MRO Inventory
It’s a good idea to put all the MRO items to a single centralized location and assign each team member a unique part number. You can also catalog stock in your company and integrate it with the procurement software package for spend visibility and easy tracking. It also makes sense to assign procurement workers to manage essential supplies so that you can create strong partnerships with suppliers to reduce costs while meeting lead time specs and quality.
Streamline Procurement by Doing Preventative Maintenance
When you catalog your inventory and locate it centrally, you need to create a schedule that is tied to your KPIs and benchmarks. Once you do this, you will realize that budgeting and forecasting can improve greatly because you can identify some purchasing patterns and plan properly.
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