In challenging economic times, companies look for new ways to control costs and improve efficiency.
To address these issues, manufacturers are taking a hard, strategic look at Maintenance, Repair and
Operations (MRO) supply. Commonly known as "indirect materials," MRO supply includes a vast array
of items that support internal operations, ranging from safety gloves and office supplies to spare parts for mission-critical industrial equipment and tooling.
A White Paper from the North American Leader in Supply Chain Management
Driving New
Efficiencies in
the Indirect
Supply Chain
PROCUREMENT & LOGISTICS STRATEGIES FOR MAINTENANCE, REPAIR AND OPERATIONS (MRO) SUPPLIESEXECUTIVE SUMMARY
In challenging economic times, companies look for that provide a solution offering centralized procurement, new ways to control costs and improve efficiency. systems support and a single point of contact. To address these issues, manufacturers are taking Integrated outsource models provide some advantages a hard, strategic look at Maintenance, Repair and compared with traditional MRO supply models that Operations (MRO) supply. Commonly known as typically operate with limited resources. However, "indirect materials," MRO supply includes a vast array companies are finding that the integrated model's of items that support internal operations, ranging "bundled" service and pricing structures do not always from safety gloves and office supplies to spare parts provide the visibility needed to eliminate waste and for mission-critical industrial equipment and tooling. inefficiencies while improving the productivity of maintenance teams. Many companies have focused cost-cutting efforts on direct materials and capital spending rather As a result, leading manufacturers are beginning than MRO supplies, which have traditionally been to un-bundle outsourced services to implement viewed as low-cost items with little potential for lean processes that provide better visibility and promote savings. However, there is growing recognition continuous improvement in every aspect of the MRO that MRO represents a substantial expense for supply chain. This enhanced outsource model leverages U.S. manufacturers - about $125 billion annually, the expertise of an MRO Supply Chain Manager according to a 2008 study by Frank Lynn & Associates. that works with partner companies offering deep expertise in each area of MRO supply - strategic For a typical manufacturer MRO expenses represent up sourcing, procurement, transaction management, to 16 percent of the cost of goods - but 62 percent of logistics and others. This high-performance team total requisitions. MRO supply is also a complex leverages lean principles to deliver greater value and process, with thousands of stock keeping units (SKUs), service levels through the supply base, streamline fluctuating demand and hundreds of individual inventories and improve administrative efficiencies.suppliers, often managed at a local or site level rather than corporate procurement. Given the large volume of As shown in Figure 1, the benefits of an efficient transactions, unpredictable demand and de-centralized MRO supply chain are significant. management, the MRO supply chain has long been ripe for efficiency and cost savings improvements. This white paper will help decision makers in a wide range of industries understand how expertise-driven Historically, companies have sought to streamline MRO outsource models reduce cost and complexity - MRO supply since the 1980s by outsourcing purchasing, while putting the control and ability to drive further inventory and other functions to integrated suppliers efficiencies back in the hands of the customer.
BENEFITS OF AN EFFICIENT MRO SUPPLY CHAIN Best in class19% 17% 18% Average14% Laggard
Best-in-class companies 9% have reduced MRO costs by 7% 8% 7% 19 percent, according to the Aberdeen Group Study. 3% 2% 3% 2% The study found a wide gap between "best-in-MRO Savings Over MRO Inventory MRO Supply Base Administrative class," "average" and the Last 12 Months Reduction for the Reduction for the Cost Reduction "laggard" companies Past 3 Years Past 3 Years among 150 firms studied.Source: Supply Chain Management ReviewFigure 1.
PAGE 2CHALLENGES WITH TRADITIONAL MRO SUPPLY
Historically, MRO supply functions have operated This traditional approach to MRO supply in a silo separate from many companies' primary creates five key problems.strategic purchasing operations. While most purchasing activities have moved to centralized 1. E nd users lack a complete understanding procurement professionals, indirect supplies have and transparency of MRO costs. continued to be managed at a site level with little or no system support. MRO supplies represent almost two-thirds of a company's requisitions yet companies lack Until recently, inf... [download for more]
