Hidden MRO Costs Your Company Should Seek to Avoid
MRO costs are often so high that they negatively influence profit margins and prevent company productivity. Your maintenance, repair, and operations (MRO) budget should not take a majority of the proverbial pie, and if it does this is your sign that operations need to adapt to modern MRO cost standards.
Supply chain leaders may think of MRO costs as unbudging, but digging into their cause can reveal countless potential cost optimization opportunities. Several companies took this step during the global COVID-19 pandemic. This is because many businesses were not in the right state to continue paying high maintenance fees while being subject to risk.
Business leaders must now worry about what drives maintenance costs and how to safely reduce wasted spending if they are to stay competitive in an increasingly advanced industry.
3 Hidden MRO costs
MRO items often do not belong in a fixed cost category. If your business treats them as such, opportunities to reduce consumption will be missed as with the potential cost savings. By increasing your visibility over MRO inventory usage and procurement strategies, it is easier to cut out unnecessary items and introduce controls or key performance indicators to improve proficiency and reduce overall risk.
Data plays an important role in expanding your visibility over MRO systems. Integrating machine-learning-enabled software to optimize the procurement process and automate unnecessary manual tasks is a great first step in addressing overconsumption. Data-driven decision-making facilitates evidence-based MRO strategies that align with real-time need.
The absence or disparity of data can be detrimental to MRO optimization policies as human error and unexpected downtime – issues addressed by AI-enabled software – will sabotage productivity and your bottom line. Planned periods of downtime and automation will troubleshoot these common hidden costs, as well as help to optimize subsequent MRO processes.
Inefficient order strategy
MRO management is often a key indicator of overall inventory management practices yet receives very little attention from most organizations. If things run as usual, manufacturers are able to predict future requirements and easily adapt to changing supply chain environments. During times of turmoil like we saw with the pandemic, MRO practices are truly tested and poor procurement strategies become readily apparent, leading to overages of some materials and severe shortages of others.
Bad order strategies can take many forms, but you will often see them as unreliable suppliers or misallocation of funds. Order policies unchanged within the last few years may be rife with inaccurate order quantities or high minimum orders for parts rarely used.
Inefficient procurement will result in increased transactional and logistical costs. Moreover, storage for unused items demands resources and space from more important inventory. That’s why it is vital to reevaluate your MRO system, searching for places of waste and improvement. Companies often perform an internal audit before optimizing the MRO process for this very reason, but that data can quickly grow outdated and lead to repeated issues around the proper MRO handling process.
To catalyze this process, third-party software is often employed that functions at a much higher speed and degree of accuracy than any human-led audit could meet. With readily available data at hand, companies are much more prepared to realize potential cost savings.
Too many disparate suppliers
Consolidating your MRO spend among a select group of suppliers can save money and increase profit margins. Bulk discounts provide a cadre of potential cost savings, and the absence of rogue spending is sure to free up resources whose time would be better spent on making strategic decisions concerning your operations.
When you rely upon numerous suppliers for the same materials, you are subjecting your business to high transactional overhead. By reducing these numbers, cost optimization is not only realized but MRO procurement overall becomes significantly simpler and less vulnerable to risks like overstocking or shortages.
Shipments can be incorporated with one another, and improved supplier relationships can lead to hidden cost savings and discounts further down the line. While this step is likely to bring the littlest cost savings, it is equally important to improve your supply chain procurement strategies as a whole.
“Suppliers can help customers find out why they are buying products across several sites in a certain way when they could be buying them more efficiently,” says Mike England, Chief Operating Officer, Electrocomponents. “Data for procurement professionals will be key but it’s vital that you use that data to form a trusted partnership with suppliers, rather than as a stick to beat them up with.
It is critical to consider the total cost of ownership for MRO items rather than just their initial product price. This mindset will allow you to budget for items more efficiently, aggregate spend across your enterprise network, and provide the highest value in the long-term.
MRO visibility is essential
Whether you’re dealing with a shipment of repair parts or batteries to keep the lights on and production lines running, MRO inventory has financial value and should be treated as an area for finding the perfect balance between working capital and risk reduction.
Optimizing your MRO supply chain by introducing data analytics, machine learning, data science, and AI-enabled software will have a direct impact on your bottom line.
To achieve this cultural and financial shift, establish and follow some best practices for your MRO strategy through the help of an advanced platform designed to learn from your team and inject improvement opportunities across your business. There is real value to be realized in optimizing your MRO supply chain. Additional measures like key performance indicators, formalized practices, and professional development will further catalyze optimization.
By following these steps to optimize your MRO buying, you put yourself on an excellent path to a more strategic and efficient approach. To learn more about reducing supply chain risk through MRO optimization, download the white paper on MRO optimization today.