How a focus on the MRO procurement process can unlock significant cost savings
Maintenance, repair, and operations (MRO) costs are a much bigger proportion of a company’s expenditure than stakeholders expect or understand. RS Components has conducted studies using its MRO data and unveiled a hidden 2:1 ratio for procurement costs versus product costs. Here, Didier Goguelin, RS Components country manager UK, explains why it’s time to refocus customers on MRO procurement processes for significant cost savings.
There are many important factors for MRO engineers when choosing their supplier; their ongoing requirement is usually to work with a company that can deliver what they need, when they need it, consistently and reliably – and of course, cost effectively.
Operations grinding to a halt due to lack of availability of a product is no joke, so it is easy to see how these factors have reigned and dictated the processes employed by the MRO engineer.
However, there is a bigger issue lurking in the MRO arena that is sapping huge financial resource, often undetected or at least unaddressed – and that is the real cost of MRO procurement.
In fact, when we embarked on exploring this further, the results were far more surprising than we had imagined.
Choosing some key customers and analysing their consumption, we identified the main areas that can greatly affect MRO costs, including product choice, inventory, suppliers and process.
It was during this analysis that we uncovered the 2:1 ratio of procurement costs versus product costs – put simply, if the MRO budget is £1m, then more than £3m is spent on MRO procurement. This isn’t a figure that is evident on invoices, hence it is largely hidden and as a result, not taken into account or addressed.
It is easy to see how these costs can occur; challenging economic times have put the focus firmly on price, and this is the metric that has been used in the procurement process, alongside the aforementioned factors such as speed and availability.
In unveiling these costs we embarked on a partnership with Manchester Business School to ensure our research could be assisted, stand up to independent scrutiny and also to be able to produce White Papers on the findings. This investment is important in validating the process and also in demonstrating our commitment to customers.
Based on this research, we decided to devise a process that can be applied to our customers’ businesses and indeed our own. The concept, called the RS Value Process, isn’t complicated. In fact, it’s almost obvious – but as it relies on the communication and joined-up working of often disparate elements and departments within a business it tends not to happen.
Each department or function will have its own agenda; cost saving for finance, product quality for the engineer, and availability for the operator – and these elements often don’t liaise and work synergistically.
There are many areas where savings can be made. Product optimisation is one area where simply reducing the number of products used or substituting for better quality or energy saving can reduce maintenance costs – as well as fewer brands meaning less product knowledge or training required.
This is one area alone that can yield great savings. Consider this alongside inventory and even more efficiencies can be achieved. Reducing stock to just critical items not only frees up cash in the business, but negates instances of obsolescence.
Optimising suppliers and processes can also create great efficiencies; reducing the number of suppliers reduces invoices and other management of those individual processes – as well as providing a clearer data picture and stock visibility.