Although strategic MRO procurement and inventory management is essential to the overall long-term safety and success of your business, many manufacturers still overlook the importance of MRO items because of the emphasis placed on direct materials and the delivery of finished goods. As a result, MRO procurement can be one of the most underappreciated aspects of streamlining and running an efficient manufacturing enterprise.
Failure to strategically manage and optimize MRO inventory data can wreak havoc across the entire system and cripple a business with untimely equipment malfunction and production downtime or the added costs of carrying too much MRO inventory.
In this guide, we will look at bad practices in MRO procurement with examples of their impact on your bottom line, and how you can replace these with better MRO habits.
Habit 1: Not measuring the efficiency of your MRO procurement process
If you cannot measure it, you cannot improve it.
This saying holds true as ever when it comes to your MRO procurement. One of the reasons why businesses overlook MRO-related expenditures is because they usually account for a small percentage of the company’s total budget—typically around 5% to 10%. However, these figures can be significantly higher for large, global enterprises. If businesses don’t closely monitor their MRO procurement process, they could face issues such as carrying excess amounts of inventory that result in huge write-off every couple of years. Furthermore, running out of critical items and/or failing to stay on top of maintenance needs can bring detrimental effects.
For example, if an asset breaks down unexpectedly, its operation is halted until the spare part needed is located and serviced. Lacking the ability to quickly identify if the inventory is currently on hand could delay you even further. Proper MRO inventory management and procurement ensures you don’t buy the part you may already have in stock.
Failure to evaluate the efficiency of your MRO procurement process can not only threaten the survival of your business as described above but also makes you oblivious to opportunities for optimization and improvement that can help keep your business afloat.
Alternative: Establish relevant Key Performance Indicators (KPIs)
KPIs can be utilized to set standards for performance and monitor MRO-related processes and supplier relationships. These results can then be compared against industry-accepted benchmarks and those processes can be refined accordingly to achieve greater efficiency, accuracy, and speed.
KPIs touch every area of your MRO procurement and therefore prove to be effective tools for process optimization. They give real-time visibility into what’s working, where contract leakage is occurring, and which areas of the organization are in greatest need of immediate attention. Businesses will be able to gain valuable insights into any area—distinct or tightly interrelated—in MRO procurement and fine-tune them as necessary.
For instance, the KPIs by spend category gives a comprehensive breakdown of the company’s spend. This way, procurement managers can understand where their category spending needs lie and how much price variance they may be experiencing across their supplier base. Businesses can see whether they could uncover new ways to cut down on spending so they could minimize costs and maximize profits.
Habit 2: Being blind to MRO operational requirements
The supply management process is a complex system that comprises multiple moving parts that work simultaneously. This includes the processing of raw materials to create the finished products, shipping them from the manufacturer to the warehouse, proper inventory management, and finally delivering the products to the end customer.
Poor MRO management can disrupt all of this and harm your profitability and long term goals. This is commonly caused by existing MRO data living in disparate, legacy systems across the enterprise.
As a result, most organizations lack the visibility and intelligence needed to build a more resilient and agile MRO procurement system.
Alternative: Centralize MRO data into a single platform
Implementing a purpose-built MRO optimization platform can aggregate data across multiple departments into a single, configurable platform. This increases the visibility of your supply network and gives you the luxury of getting a bird’s eye view of your entire supply network at any given time.
In today’s fast-paced world, having the right part at the right place at the right time is key to controlling costs while ensuring the production contuinity needed to acquire, retain, and satisfy customers. Anything short of this, and discontent starts brewing.
Because a centralized data platform gives real-time and accurate visibility into data regarding the entire lifecycle of the part from procurement through storage, and consumption, businesses can identify MRO bottlenecks or SLOB materials and fix procurement issues well ahead of time.
Habit 3: Employing manual practices
Your MRO procurement system may involve coordinating multiple tiers of low-value and repetitive tasks, often with no visible chain of custody, so it’s easy for details to slip through the cracks.
For instance, If several employees are in charge of submitting a purchase order, emailing it to the supplier, waiting for a reply, and making revisions while juggling a queue of other purchase orders and responsibilities, mistakes can easily occur along the way.
In 2019, $8.4 trillion in business-to-business sales were processed manually, with customer service representatives typing in purchase orders by hand. In another survey of supply chain professionals, only 5% of respondents considered their company’s order fulfillment operations “highly automated.” The problem is, that even seemingly little errors can cause big problems—more than 80% of supply chain disruptions are the result of human error.
Alternative: Digitize your MRO management process
In the epoch of across-the-board digitalization, sticking to old practices for MRO inventory management spells hopelessly lagging behind your competitors and low efficiency of workflow.
But that’s not all. Purpose-built MRO solutions come with a range of features that can elevate your MRO strategy. The integration of Industry 4.0 tools such as artificial intelligence and machine learning can analyze large data sets as they currently exist (no data cleanse needed) to derive useful insights such as how much inventory to hold depending on fluctuating lead times, what parts may have critical shortages, and how to keep production lines running smoothly to ensure unplanned outages don’t occur.
Furthermore, such a platform consolidates MRO data into a single, easy to use interface. As a result, the stakeholders of a business can access real-time and accurate information regarding inventory and supplier insights from anywhere in the world. This can help identify any issues well ahead of time and mitigate them before any disruptions occur.