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A Roadmap For MRO Savings And Efficiencies.

North AmericaMRO
MRO_pipes.jpg

In this guest post, Procurement Leaders invites CoreTrust’s James Hallock to examine the often overlooked category of maintenance, repair and operations (MRO) and provide some insight around where the opportunities for savings and control are.

Have you ever paused to ponder your spend in the MRO category? If you’re like most procurement professionals, you may have not―and for some very good reasons. MRO embodies so many SKUs, suppliers and in-house buyers that it practically defies definition.

 

But if MRO falls under your jurisdiction, it’s your job to somehow tame the beast. Experience has shown that a disciplined approach to the category can return savings of 15-18%, not counting the time gain from managing fewer suppliers. Given that two-thirds of MRO order volume is for less than $250 in goods, a new procurement mindset should also help curtail widespread inefficiencies.

 

Be forewarned that the road to better MRO procurement is not well traveled, which is why few companies embark on the journey. It’s tough to know where to begin, especially if spending spans multiple offices, factories, warehouses or retail outlets. MRO is a highly fragmented space, where leading US suppliers such as Grainger and Fastenal together share only about 10% of the US market.

It’s a similar story in many territories; most companies engage a few dozen MRO suppliers in a single location. The data gets messy fast, so you’ll need a roadmap to arrive at savings:

  • Declare the category a priority and give it visibility. You will immediately notice that MRO has many disparate owners, handshake deals and spur-of-the-moment buying as operational needs arise (think pricey, off-contract spend). Dig in. Quantify spending, both on obvious stuff such as safety gear and janitorial supplies and the one-offs like that tooling plate from the tiny machine shop down the road. Pull AP files and normalize MRO spend across the board. This will be a manual exercise, in part, because MRO vendors must first be recognized as such.

  • Assess your dealings with individual suppliers. Is spending with even one of them being closely tracked? Have you negotiated pricing? Do you have any volume leverage?

  • Determine what products you’re currently buying. This could be the single most time-consuming step, given the category’s scope. Grainger alone has 1.4 million items in its MRO catalog, sourced from 10,000 second-tier suppliers. And, that doesn’t include many unique and specialty products you may need but once or twice a year.

  • Standardize on the best and brightest. If you work with fewer suppliers, it’ll be easier to negotiate better pricing, retain spend visibility, create approved product lists and qualify for perks like prepaid freight. Through an RFP issuance, odds are good that you can identify a single company to meet the majority of your needs; the rest will be niche players. Retain only those that can deliver real business value.
  • Refresh and reflect. Your needs will change, so periodically update your shopping list with key suppliers. Remember to also measure actual spending against that list to nip any bad habits in the bud.

  • Order electronically. Most MRO purchases today are made by phone, fax or in person. You might instead think about investing in an electronic order management tool to shave up to 50% off process costs.

The good news is that tackling just your top five spend areas can impact at least half of your overall MRO outlay. And following your new savings roadmap will help you navigate other ubiquitous, multi-owner categories such as office supplies and business services.


This contributed article has been written by a guest writer at the invitation of Procurement Leaders. Procurement Leaders received no payment directly connected with the publishing of this content.

James Hallock is vice president of development for CoreTrust, an 850-member GPO for large corporations and private equity firms that provides access to a contract portfolio spanning multiple categories of indirect spend.

Jonathan Webb
Posted by Jonathan Webb