Does MRO procurement seem hopelessly complex and specialized?
If you have ever been challenged by MRO, be it sourcing or inventory management, you are not alone. Even the most seasoned procurement organizations find it highly frustrating. From maintenance perspective, criticality of MRO to keep the plants running, often seems to become the greatest barrier to implementing procurement best practices.

However, there is a way to gain control. Here are some strategies and best practices, that provide significant ammunition to effectively manage this category –

1. CLEANSE DATA

There is no substitute to maintaining high data quality. Eliminating duplicate part numbers and implementing standard product classification systems help in automatically mapping nonstandard classifications back to OEM part numbers. This provides clear visibility into inventory as well as buying behavior, which allows a company to significantly optimize MRO spend. For example, in one recent engagement, we could remove duplicates by over 20% and implemented standard product classification using UNSPSC system to dramatically improve spend visibility.

2. CUT COMPLEXITY

Complexity is a killer. Rationalizing the supply base, working with fewer strong suppliers, and standardizing products specifications are critical success factors. MRO distributors and OEMs can play a big role in these efforts but need strong support from procurement. By focusing on fewer suppliers, one can efficiently manage relationships and the supply chains as opposed to individual item supplies. For example, in one of our recent engagements, we found over 70 different types of hand-gloves being bought by the company across its various plants in India. Such an item could very well be a candidate for standardization resulting in increased buying leverage and reduced inventory levels.

3. SUPPORT SUPPLIERS

Very often, suppliers are in better place for product standardization and process improvement. Championing their efforts can lead to significant cost reduction. While, we consistently see pushback from plant maintenance teams around standardization, procurement must fervently support such efforts both internally and from the supplier partners to create value. MRO distributors and integrators as well as manufacturers can offer tremendous services and a wealth of knowledge that can help the purchasing organization run at top efficiency. For example, in one such initiative from our past, we could reduce the fragmentation of solenoid valves from over 70% to under 15%, by supporting lead supplier to conduct a detailed study across the plants. This standardization effort reduced spend and inventory levels of the item significantly.

4. MAP PROCESSES

A microscopic level view of existing maintenance processes, to identify sources of complexity and variation, can be a game changer. Organizations typically tend to underestimate the complexity that gets created over a long period, which then becomes a habit very difficult to get rid of.

In our past engagements, such a granular assessment resulted in clear identification of areas for productivity improvement. In certain cases, it helped improve working capital while in others, improved processes as well as plant uptime.

5.ALIGN FUNCTIONS

Process mapping exercise provides an opportunity to align key MRO related functions in the organization including procurement, receiving, materials handling, storerooms, maintenance, and manufacturing. We often think that we know the goals of the individuals throughout the organization, however at deeper level, you realize they are often different and at times conflicting. It is important to really bring everyone onboard, working with suppliers to make sure overall organizational needs are met.

6.PUT COST OVER PRICE

Benchmarking total costs and measuring hard savings from those benchmarks is paramount to have meaningful outcome. One of the biggest issues is to document right up-front what the total cost savings are and how they are going to be measured. Typically, in most organizations, buyers are often evaluated on price reduction only. Shifting an organization’s focus from price to total cost is critical. Once we embark on total cost view, it becomes apparent that decisions based on unit price alone are very often less productive and total cost view helps with significantly optimized spend.

7.MEASURE SUPPLIER PERFORMANCE

Measuring supplier performance continually and in meaningful ways is critical since we buy not goods or services but performance or outcome. Planning to have formal partnership reviews at least annually or better yet, four times a year ensures strong engagements where relationships stay fresh with focus on continuous improvement.

8.BRIDGE CAPITAL MRO BUYS

Traditionally, large manufacturing companies have handled their capital and MRO buying functions completely separately. For those that bridged the two, have seen to be racking up some big total cost wins.
This typically has to do with the KRAs of each one, Capital Vs MRO. While former is completely driven by project budgets and timelines, later is constrained by the decisions made during the capital buys and the need to keep plant up-time high. Combining the two at the time of capital buy can help make total lifecycle costs clearly visible and thereby opportunity for optimal decisions. For example, capital buys typically experience a highly competitive supply base with cutthroat pricing. However, once an equipment/OEM is selected, competitive leverage on subsequent operational costs (spares & services) is lost. In fact, it turns monopolistic. Suppliers typically are seen to be selling the equipment (capital buy) at almost throwaway price to get foot in the door.

9.MANAGE TIGHT INVENTORY

High plant up-time being the focus for maintenance department, optimal MRO inventory management is very often overlooked or compromised. We have consistently seen this behavior across industries and geographies. Despite such a focus however, interestingly companies continue to experience stock-out situations, at times even for critical items.
Inventory optimization strategies such as on-site inventory, on-demand purchase or vendor managed inventory that are based on criticality, failure frequency and cost must be critically reviewed and implemented dynamically. Similarly, periodic review of excess and obsolete inventory must be institutionalized as a standard practice.
A robust inventory management program frees up significant amount of all-important working capital locked in unproductive inventory.

10.FOCUS ON HARD SAVINGS

Report all savings that directly translate into P&L statements. Tracking cost avoidance is important but is best kept out of the performance reporting. Most internal business owners do not understand cost avoidance since they cannot see the impact in their own P&L budgets.