Driving value through a strategic MRO approach

How can those charged with indirect procurement and MRO ensure they have the resources, expertise and support they need?

Businesses incur two kinds of costs: direct and indirect. Direct costs relate to the items a business buys and then sells in the form of its own products and services. The things a business needs to stay operational – spares and repairs, maintenance, and so on – are indirect costs. And without them, everything would grind to a halt.

Spending relating to supplies for the Indirect procurement category of MRO, can add costs of up to double the amount spent on the items themselves. A simple spare part may only be £20, but if someone has to stop working to track one down and order it, additional costs are incurred straight away. Plus, there’s the potential for extra admin costs when it comes to processing an order and invoice that could come in without a PO number, or from a vendor that isn’t on your approved supplier list.

Indirect procurement costs can come to twice as much as the amount spent on the products themselves. It is therefore unsurprisingly that as pressure grows to manage costs and ensure operational availability, those responsible for MRO purchasing are facing more scrutiny than ever and there is increasing focus on that total cost of ownership rather than just the purchase price.

Businesses in some sectors are having to take tougher action in this area than they have in many years. Historically, a focus on list price has led procurement professionals to concentrate on minimising spend-per-item. But a more holistic view is concerned with the total cost of ownership involved in MRO expenditure.

The perils of maverick spending
One of the most common challenges facing customers is MRO purchasing that has been decentralised and lacks control. Another is where it has become too centralised and lacks a sense of urgency.

In a decentralised model, those at the sharp end of ensuring maintenance can order and administer their own MRO supplies. But after months, or even years, of uncontrolled, ad hoc MRO purchasing, many find they have accumulated a lot of stock. If you have a dedicated stores room and someone to keep it in check, you should always know what you’ve got and where to find it. But sadly, many businesses have had to tighten their belts and that’s meant no dedicated stores manager.

We’ve even heard of customers of having to retrospectively make sense of purchases made via eBay, which provides a number of risks related to counterfeit goods and staying compliant.

It’s also not uncommon for us to visit a new customer and find storage facilities with boxes of spares and parts, opened and discarded randomly – making it almost impossible to know what’s in stock and what needs to be ordered in. Ultimately, this can lead to thousands of pounds being tied up in MRO stock that is not being put to use, and which may eventually be scrapped. That could mean a heavy hit to the bottom line.

Keep an eye on visibility
Even in a centralised system, similar problems can arise. We see customer sites where engineers have been faced with time-consuming procurement processes – raising POs, waiting for them to be approved, waiting for items to be ordered and so on. Some of those engineers have created their own off-book stocks of supplies, sometimes simply based on squirrelling away unused items after a repair-or-replace job.

In both scenarios, there’s a lack of data and a lack of visibility making things worse.

A smarter, more strategic approach can unearth valuable data and insight. Knowing what has been bought and where it’s stored means you can avoid repetitive purchases and the problem of capital lying around gathering dust in the corner of a storeroom.

You could even start to spot patterns. If Site A is ordering twice as many light bulbs as the same-sized Site B, something might not be quite right and it could be worth investigating.

Making compliance work calls for consistent internal communications and genuine buy-in from senior leaders.

Cheap but not so cheerful: beware imitations
Speed tops the list of priorities for a time-pressed engineer sourcing stock to complete an urgent repair. Price tends to come a close second. Sometimes quality can be overlooked, unwittingly. After all, if your preferred brand is not available when you need it, opting for the next-best item makes sense.

But unless those alternatives have been properly assessed, how can you be sure the supplied part is fit for purpose?

Meeting our customers’ challenges where we’re needed
Many businesses face a broader set of challenges today than at any other time. Whether it’s adapting to new and more stringent regulations, or coping with currency rate changes, there’s an array of external pressures that aren’t letting up.

As these and other factors continue to put pressure on margins – and costs come under greater scrutiny – businesses will have to find suppliers that can act as partners and offer a range of flexible and creative solutions.

For some customers, an online catalogue of their most-ordered items at agreed price and availability points will be enough to transform their MRO approach. But others will need something more bespoke.

With solutions such as RS ScanStock®, our vendor managed inventory service, we’re able to literally put ourselves on-site with our customers. We’ll set up a store, index and catalogue stock, and regularly send a dedicated account manager to place reorders, audit what is and isn’t needed and make sure everything is running smoothly.

Compliance
Hard-working procurement teams put time and effort into securing the best possible supplier contracts. And then someone comes along and ignores them, placing orders wherever they find a good price and fast delivery. It’s easy to sympathise with hard-pressed engineers – they’re up against the clock.

But ad hoc spending works against the idea of managing your total cost of ownership and opens you up to:
Higher costs from one-off purchases
Time wasted on searching for a so-called great deal
An admin headache dealing with invoices from non-approved suppliers
The risk of ending up with substandard or even counterfeit goods

No one knows what the future has in store. But you can be fairly sure you’ll need to be more flexible, more responsive and more reliable than ever to handle whatever comes your way. And that’s precisely what you should be expecting from the partners you rely on to keep your business running smoothly.

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