Spend category highlight: MRO
A subsection of Facilities Management (FM), MRO stands for Maintenance, Repair and Operations. MRO refers to products and tools used by companies to create a product, encompassing any item that is used in the production process but is not visible on the end product.
MRO can be broken down into three subdivisions:
Regular maintenance to keep equipment running smoothly.
Fixing a problem, such as a total breakdown or general wear and tear.
Maintenance that is carried out based on monitoring system data.
Why is MRO important?
COVID-19 and the supply chain disruption it caused has exposed vulnerabilities in supply chains all over the world, including MRO.
In terms of cost, MRO expenditure is not typically high in terms of a percentage of cost of goods sold, which is why MRO spend is often a low priority for procurement teams. However, the implications of managing MRO incorrectly can have a huge impact on a business. If the operations team run out of an essential tool, part or substance that forms part of the production process, the entire production line could grind to a halt until the item is sourced. This would then lead to employees unable to do their jobs (yet still costing the business money), delivery delays to distribution centres and customers, and ultimately a loss of revenue. If the missing item is essential for health and safety purposes, if production isn’t paused until it is sourced, lives are at risk.
It is important to ensure that there is enough in stock to prevent disruption to the supply chain, but not so much that working capital and internal costs are raised due to stockpiling and taking up space.
Despite the importance of MRO, often operations personnel are buying and securing supply with limited (or no) support from Procurement. However, this can lead to undesirable buying practices, especially if there is no approved supplier list in place. If parts/equipment are being purchased from suppliers that have not gone through any kind of background check to ensure their legitimacy, this could pose a significant safety risk and defective items could potentially damage equipment further.
In order to deliver efficiency and cost control in this area, it’s key to get the operating model and process right. It’s possible to have the best rate card whilst bleeding cost if too many hours are being spent on jobs, or there is no control over scheduling, work taking place and invoices being signed off.
Ebit’s approach is comprehensive to this often neglected category. We consider:
- Legal compliance and subsequent reporting against any Government legislation for an organisation.
- CAFM systems to manage all jobs booked, unit prices, site details, vendor details, certificates, and more.
- Asset register review to understand what is at each site and whether action needs to be taken, ie. PAT test or air con filters.
- Preferred Supplier List (PSL), ensuring there is an approved list of suppliers who will be allocated jobs as they become available.
- Planned maintenance schedule which should be itemised ahead of time in a controlled manner.
- Warranties to implement good FM practices to ensure warranties are obtained for items and bolted into the FM system. Too often, we see costs spiral unnecessarily as a result of not having warranties in place.
By proactively managing MRO, efficiencies will be improved and less time will be wasted firefighting problems.
MRO is just one area of spend that we work with. If you could benefit from support with your indirect procurement, get in touch to find out how Ebit could potentially help.