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MRO Demystified Repairing the traditional approaches to MRO spend management


MRO

MRO (Maintenance, Repair, and Operations) is

perhaps the broadest spend category any

organization must contend with. Unsurprisingly it’s

also among the most essential and most

complicated.

Though organizations will differ in what they define

as MRO spend, the category effectively includes

anything necessary for operating a manufacturing or

distribution facility. Effective MRO purchasing and

spend management is often the difference between

operating as a well-oiled machine and suffering

through considerable lost savings.

Ask someone on the shop floor how important their

MRO suppliers are and they’ll answer emphatically.

Surely, they’ve observed the costs of broken

machinery, delayed deliveries, or outdated tools

firsthand. Folks at the executive level understand

the importance of MRO spend just as well.

Recognizing the importance of the category and

managing it effectively, however, are two very

different things.

When MRO Becomes Unmanageable

MRO challenges and confuses Procurement teams

for a number of reasons including:

The diversity of products and services within the

category.

The diversity and geographic scope of the supply

base.

Poor spend visibility at the SKU level.

Certain complications are inherent to the category

and largely unavoidable. Broken machinery, for

example, often forces organizations to make

sudden, unplanned purchases. It is unexpected

hiccups like these that lead many companies to take

a decentralized approach to their MRO spend.

On paper, this might seem like the most effective

strategy.

Taking a decentralized approach to MRO spend

provides a feeling of security for organizations with

numerous facilities. Purchasing on a site-by-site, day

-to-day basis they can rest assured that plant

managers are ready to make whatever emergency

purchases are necessary. Unfortunately, this sense

of security is usually accompanied by a slew of

additional complications.

Making sense of Maintenance,

Repair, & Operations

MRO is a broadly defined spend area containing numerous individual subcategories. To complicate matters further, many of these subcategories straddle the line between MRO and other areas like Facilities and Fleet Management.

These include:

Bolts Bearings Cleaning Supplies Electrical Supplies Engineering Services Fasteners Forklifts Furniture Gloves Industrial Supplies &

Rentals Janitorial Services

Lab Supplies & Services

Lighting Material Handling Packaging Power Transmission

Products Storage Tools Welding Supplies &

Services & Many More. . .

MRO Demystified: Repairing the traditional approaches to MRO spend management


Determining the Approach Decentralized vs. Centralized Spend

To Each their Own—A Decentralized Approach

A decentralized approach to MRO spend typically

means poor or non-existent lines of communication

between facilities. Since they’re not working

together, these individual facilities cannot hope to

properly leverage their spend or realize maximum

value from their sourcing activities.

Multiple sites will often engage different suppliers

for the exact same products or services. Even when

they’re leveraging the same providers, organizations

have a habit of setting up separate purchasing

accounts for each location. In either situation, data

integrity suffers, purchasing power diminishes, and

standardization becomes all but non-existent. As

this approach becomes a historical precedent,

organizations will dig themselves deeper and deeper

into inefficiency and lost savings.

Alternatively, an organization might leverage a

single supplier across multiple sites without

centralizing and standardizing its approach to

account management. The disparities in pricing and

service levels could go unnoticed and secretly affect

the bottom line for extended periods.

While a decentralized approach welcomes all

manner of complications, organizations often make

things more challenging for themselves by settling

for low-effort, quick-win solutions.


Example: Imagine an organization that

maintains five warehouses.

Across the company, each warehouse

purchases generic steel fasteners which come

into contact with abrasive chemicals during

their manufacturing process. One warehouse

finds that the steel fasteners are of lower

quality than advertised (316 grade) and thus

more likely to wear and break down.

To remedy the issue, this one warehouse

conducts a search and identifies an alternate

source of supply offering a significantly better

product with more stringent quality assurance

processes at a similar cost to the previous

generic. They transition to the new supplier and

experience no further quality issues.

However, in doing so they forget to tag the

item in their company-wide system as the

preferred spec and supplier. The remaining

warehouses continue to purchase the inferior

product, unaware of the new source, and they

continue to experience costly breakdowns.




Determining the Approach

(Continued) All for One and One for All - A Centralized Approach

Perhaps leadership has started to recognize the

issues with their site-by-site approach to MRO

purchasing. After conducting a high-level overview

of historical spend, they’ve learned they engage too

many suppliers and leave too much spend

unmanaged.

The appropriate fix, they determine, is to

consolidate their spend to a single catch-all MRO

supplier. Looking to secure savings fast, first

corporate leaders reach out to distributors to lock-in

a contract with predefined volume-based discounts

and incentives. Then, they’ll issue a company-wide

mandate that all MRO purchases be made through

their newly selected preferred supplier. This

supplier will lead the implementation efforts hewing

closely to the contract terms.

Like site-by-site purchasing, this can look like an

easy and advantageous fix, but mismanaged

approach to centralizing MRO purchasing can prove

deceptively complicated and inefficient.

The Proper Solution

There’s no one-size-fits-all strategy for optimizing

MRO spend. Devoting time and resources with a

sole focus on quicks wins is a surefire way to

experience “quick” and costly losses. While it’s

tempting to meet complexity with simplicity in

consolidating MRO spend, the fact is most

organizations require a hybridized approach to

realize their goals and maintain efficient operations.

While attacking immediate cost reduction is always

a target, overall MRO spend management requires

long-term vision aligned with the enterprise’s

needs.

Example: A distributor might not offer the

necessary customized products.

They’ll respond by purchasing them from a

manufacturer and tacking on a hefty mark-up.

Corporate leadership might not notice this, but

site managers certainly will. Over time, this

frustration can lead to non-compliance and

overall inefficiency.



About Source One, a Corcentric company Source One is a top provider of spend management solutions ranging from spend analysis and

strategic sourcing through category management and Procurement Transformation. Since

1992, Source One has helped industry leading enterprises optimize their approach to count-

less indirect spend categories including MRO, Facilities Management, IT & Telecom, Profes-

sional Services, and more. Serving as an extension of client resources, Source One’s category

subject matter experts deliver best practices, market insights, tools that drive greater value

out of the bottom line. To learn more about Source One, a Corcentric company, visit us online

at: www.sourceoneinc.com.

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