What is MRO procurement?

What is MRO procurement?

Understand MRO procurement and your bottom line will benefit.

MRO stands for maintenance, repair, and operations. The acronym refers to the materials required to keep your operation running, such as spare parts, engineering tools and test equipment. These items support business or manufacturing activity but are not incorporated directly into what you produce.

MRO products are often low-value items generating many transactions. Because of the low value, many companies pay little attention and often underestimate the cost of and impact MRO materials have on their business. They also fail to recognize how critical managing the MRO supply chain is to the success of their operations. Get it wrong and the consequences can be far-reaching.

Here we explore why the MRO supply chain is so significant and how better management of the entire MRO purchasing process can drive valuable cost savings and efficiency gains.

The hidden cost of MRO procurement

The adage time is money captures why MRO can be costly and why that cost is not always obvious. While MRO materials comprise only 5% of overall spending, they account for up to 80% of transactions ¬– and this high volume of low-value purchases comes with its own expenses. Research by RS Group, for example, found that for every £1 spent on MRO products, organizations spend £2 on the procurement process.

Why is handling MRO procurement so costly? In some cases, it costs more in time spent searching for a part than the actual part is worth. Also, there is a cost to the purchase-to-pay (P2P) process. An inefficient procurement process with too many stages creates additional expenses.

Ways to reduce costs

One way to make MRO procurement massively more efficient and cost-effective is by bringing in expert transactional processing solutions. Organizations that outsource MRO processing to an integrated supply service provider, for instance, reduce transactional costs by an average of more than 50%. A properly managed integrated supply program can provide up to 30% overall savings across the contract term.

How does this work – and why does it generate such big savings? Outsourcing providers working in this space manage everything from sourcing to receiving to issuance. They’ll handle supplier services, product pricing, invoice processing, and supplier processing. The entire system is streamlined so you interact only with them rather than multiple vendors.

A single monthly invoice for all your MRO procurement, creating more time to spend on core value-adding activities

The result is lower costs and time saved. No more researching products, raising quotations, placing orders, chasing suppliers, and receiving deliveries. No more processing of the hundreds, sometimes thousands, of purchase orders and invoices. Instead, you get a single monthly invoice for all your MRO procurements, creating more time to spend on core value-adding activities.

You can also expect to benefit from continuous improvement within the MRO procurement process. An integrator, for example, will routinely investigate opportunities to consolidate and standardize purchases based on your history, scrutinizing purchase quantities and preferred suppliers, to generate further savings.

The added benefits of outsourcing

Managing MRO procurement in-house demands time and money in other ways too. Evaluating every supplier to ensure compliance with your Environmental, Social and Governance (ESG) standards consumes plenty of both, but again this is a task that external providers offer as part of a suite of strategic sourcing solutions. RS Integrated Supply, for instance, has a governance team dedicated to tracking and maintaining supplier compliance on behalf of clients.

RS Integrated Supply can pass on lower costs and improved supplier services to clients.

Monitoring governance is just one way that providers of MRO procurement services operate at economies of scale that individual corporations cannot achieve. Another is by leveraging buying power. Thanks to its annual MRO spend of almost $1 billion, for example, RS Integrated Supply passes on the lower costs and improved supplier services to clients. Access to alternative suppliers within its network also reduces the risk of supply chain disruption and extended downtime without compromising quality.

Why digitalization and data help

Digital technologies play a vital role in making MRO procurement more efficient and effective as well. A cloud-based platform such as RS SYNC™ brings the ease and convenience of a retail-orientated experience to the MRO procurement process, allowing users to access an authorized marketplace of products via any web-connected device, including a mobile phone app. It also supports the development of a frictionless procurement process by interfacing with other software such as SAP, Oracle, Maximo and Ariba.

Digital transformation drives data transparency and therefore enables strategic decision-making.

This kind of digital transformation drives data transparency and, therefore, enables strategic decision-making. Appropriate departments can, for instance, access real-time information and analytics about everything from deliveries and inventory to purchase orders and history.

The next steps to optimization

Better management of MRO supplies doesn’t end once goods are received. On the contrary, continued improvements in inventory management and storeroom solutions drive further optimization, generating even deeper efficiencies and savings. How? By ensuring that your storeroom is an asset, not a liability.

A properly managed storeroom is one where parts are easily found and usage tracked, allowing for informed purchase decisions, and minimizing the risk of downtime as a result. The expense of holding excess or obsolete stock is also reduced. Again, specialized outsourcing providers can help with this if you don’t have, or don’t want to develop, the capabilities in-house.

Less time searching for what they need and more time for value-adding tasks

The right experts will build a storeroom inventory profile that accounts for factors such as usage, reorder frequency, lead times, criticality, and obsolescence. They can automate replenishment, so you never run out of what you need or incur the expense of expedited shipping. They can also link spare parts to specific assets with Bills of Materials, meaning your maintenance technicians spend less time searching for what they need and more time maintaining production equipment.

These specialists know what questions to ask to mitigate risk, increase your control over the supply chain and create cost savings while at the same time reducing unplanned downtime, supporting the transition towards planned maintenance, and increasing plant reliability. The question for you is whether you can afford to not take advantage of this expertise.

For more advice on improving your MRO strategy, visit the RS Integrated Supply Solutions page.

Interested in our services? Contact one of our global locations for more information.