MRO Procurement: 3 Proven Strategies for Cost Improvement
- MRO spend as a source of cost reduction is often overlooked
- Segmenting and focusing on specialty components can produce real savings
- Gaining visibility into MRO spend across locations is crucial
For procurement leaders looking to strategically control spend after the pandemic chaos of 2020, maintenance, repair and operations (MRO) costs can get pushed to the wayside. MRO is a vast category with a high degree of complexity that can stymie cost-optimization initiatives.
The good news: with the right plan in place, it is possible to make a significant impact on the bottom line through MRO sourcing, procurement and management.
The following three strategies can help reveal opportunities to control MRO costs:
1. Effective segmenting of MRO parts
Not all aspects of MRO are the same. Classifying MRO parts into more than just OEM and non-OEM categories enables greater focus on the parts that have an outsized impact on the business.
Specialty parts in particular can make up to 25-35% of total MRO spend, and be extremely important for maintaining operations.
Distinguishing specialty parts from commodity or OEM parts can make opportunities apparent that would otherwise have gone unnoticed.
Commodity parts, for instance, are often less difficult to substitute with similar products from other distributors.
Taking the time to categorize parts is a logical first step to understanding MRO complexity and identifying ways to control costs.
2. Refurbishment of components in MRO category
The use of refurbished parts offers significant opportunities to lower MRO costs (30-60% vs. new parts in some cases) and is on the rise as a result.
China is a leader in the production for MRO supplies but the COVID-19 crisis has shown that the world cannot rely solely on China in the future.
Refurbishing existing components is becoming a more viable strategy for maintaining inventory, avoiding shortages and saving on the cost of replenishing with brand-new components.
3. Partnering with MRO manufacturers to leverage scale
MRO manufacturers that service enterprises from multiple sites may not have visibility into the volume of parts and categories being sourced. Such manufacturers may be more willing to explore direct relationships with enterprises instead of operating through a distributor.
Having visibility into MRO across locations, though, is crucial.
MRO procurement can be a decentralized function, which leads to inefficiency if locations use different suppliers for a similar part, for example. Visibility into different locations opens up potential avenues to consolidate suppliers and negotiate more favorable pricing on volume.
Start addressing MRO spend by letting data inform the strategy
With any of these strategies, or with any of the numerous approaches to sourcing MRO, it is important to keep in mind that there is no one-size-fits-all solution. A strategy may yield effective cost savings with specialty components – say, refurbishing pumps and valves – but not with the entire category.
But segmenting MRO parts into clear categories and gathering and maintaining the necessary data to have visibility into all aspects of MRO costs are excellent first moves toward a more strategic approach.
Learn more about cost management in MRO category in our white paper: Unlocking Cost-Reduction Opportunities in MRO: How to Tame Seemingly Unaddressable Spend.