What is MRO procurement?

Underestimating the importance of MRO procurement puts organisations at risk

Maintenance, repair and operations or MRO is an umbrella term for the materials needed to keep your operations functioning. Think spare parts, tools and test equipment: items that are essential to business activity but not directly incorporated into the final product.

Organisations neglect MRO procurement at their peril. There are significant hidden costs if it is not managed well, from the expense of multiple transactions and inefficient processes to the impact of downtime when an inexpensive but vital part isn’t quickly available.

Many companies, however, fail to give MRO the attention it warrants because the products tend to be low-value items. In the recent Indirect Procurement Report produced by RS and the Chartered Institute of Procurement and Supply (CIPS), just 57% of procurement professionals said that the procurement of MRO purchases is either important or very important for their organisation.

Here we delve into why MRO procurement is so significant as well as how you can manage it better.

The cost of downtime
MRO procurement is relatively small compared to other categories of spend. The Indirect Procurement Report also found that over the previous 12 months, companies had spent an average of £1.6 million on indirect MRO supplies. For medium and large companies, the average was £3.3 million. A full 15% did not know what their MRO spend was, further underlining its neglected status.

At the same time, however, the indirect costs associated with MRO procurement can be enormous. An inexpensive product, for example, may be critical for keeping a piece of equipment running. Without it, operations could grind to a halt, having a huge impact on productivity and profits. As recent survey by RS and the Institution of Mechanical Engineers (IMechE) revealed, maintenance engineers spend an average of nearly 20 hours per week on unscheduled maintenance at an average cost of over £100,000. Not having the right parts available only creates further delays and disruption.

It also places additional pressure on those responsible for keeping facilities running, particularly when they operate around the clock. As an engineering manager at a UK bakery explains, “The only day we don’t run is Christmas Day, therefore if we lose time, we haven’t got the capacity to catch up – and what happens is our backlog gets bigger. I’m only allowed 2% downtime per week.” Getting your MRO right helps to reduce this pressure and reduce the risk of costly downtime.

Hidden process costs
Downtime is not the only hidden cost associated with MRO procurement. While individual MRO purchases are often for low-value items, the overall process for making those purchases costs, on average, twice as much as the actual product.

This may be because too much time is being spent on researching the cheapest product, which negates any actual savings made, or because an inefficient purchase-to-pay process creates additional expense.

The price of risk
“Buyers have to consider both the cost of buying the goods and the cost of the actual goods themselves,” says Helen Alder, Head of Knowledge and Learning Development at CIPS. “Is saving a little bit of money on the product worth the extra effort and cost of acquiring from other suppliers? You might end up with a proliferation of suppliers and some might not be operating in a sustainable manner.”

You may also end up acquiring counterfeit goods. According to the Indirect Procurement Report, 57% of procurement professionals in the UK do not believe this is an issue for indirect materials. However, as the report notes, “It’s also possible some of those 57% are blissfully unaware of the issue, rather than there not being one in the first place.”

Doing MRO procurement better
The report features advice on how to improve MRO procurement within your organisation too. Here are ten of its top tips.

1. Ensure you have a sustainable and ethical procurement policy in place, which can assess suppliers against key areas of ESG criteria

2. Make sure you know what’s in supplier contracts and that terms are adhered to. This can help reduce inefficiencies and improve supplier performance

3. Assess the total cost of ownership for MRO purchases. This means looking beyond the headline cost to consider the potential for economies of scale that come from using fewer suppliers or distributors

4. Evaluate how well you monitor supplier performance, and whether you should consider other KPIs as part of an assessment

5. Ensure you source MRO products from a trusted distributor with stringent protocols in place to protect against counterfeit items

6. Make investing in eProcurement systems a priority and be prepared to make the business case for this

7. Ensure any new system is able to offer a seamless customer experience, along the same lines that people are used to receiving in their personal lives

8. Analyse spend data to gain visibility into what is being bought, when and from which suppliers. This can then be used to consolidate spend and negotiate better prices

9. Consider the use of Artificial Intelligence and web-scraping tools to help with sourcing and category management

10. Ensure there is a comprehensive cybersecurity strategy in place, and that this extends to suppliers and their use of data

For more MRO insight, click here