Supply chain managers and procurement specialists often must reduce the effects of maintenance, repair and operations (MRO) expenditures on the supply chain. That’s not always easy, but these five tips should spark meaningful and measurable progress.
1. Understand the Impacts of Poor MRO Management
MRO encompasses essential items that are not part of the finished products — sometimes referred to as indirect costs. For example, the category might include lubricant for a machine, safety goggles for workers and scheduled maintenance appointments for equipment.
MRO expenditures typically account for 5 to 10% of the cost of goods sold. Some people initially view that percentage range as small and do not manage MRO procurement as well as they should or at all. However, that’s a mistake, because running out of critical items or failing to stay on top of maintenance could bring knock-on effects.
For example, if a production line machine runs out of an essential chemical, its output could completely stop until someone re-supplies. Alternatively, running out of safety gear could put lives at risk and expose a company to scrutiny from regulators if accidents happen. Weighing the consequences of inadequate MRO management should provide the encouragement any company needs to take it more seriously.
2. Determine How to Mitigate Climate Change-Related Effects
Many leaders across all industries are paying more attention to how climate change could affect MRO expenditures. For example, some scientists believe climate change makes hurricanes more severe, causing more rainfall than past storms did. In that case, maintaining a building may involve purchasing and installing flood barriers or changing a warehouse layout, so the most valuable items stay out of the reach of rising water.
Imagine an area starts experiencing more severe winter storms. In that case, a company’s MRO budget may include more salt and other de-icing products to keep loading bays and other regularly used areas safe and accessible. Alternatively, business leaders may need to invest in cloud software that lets some people work from home if they can’t reach their workplaces due to icy roads. When companies take preventive measures like these, their overall weather-linked MRO costs should decrease due to better preparedness.
Inclement weather’s effects on the supply chain are not merely hypothetical. A report showed that the 2011 floods in Thailand affected more than 14,500 entities that used Thai suppliers. Those weather events resulted in billions of dollars worth of losses for the companies that had operations disrupted. Thus, inclement weather could raise operational expenses if a business ramps up production to meet the needs of clients affected by production stoppages from other suppliers in hard-hit areas.
3. Create an Effective Preventive Maintenance Program
When maintaining the equipment that helps the supply chain run smoothly, there are two primary approaches to pursue — reactive and preventive care. The first type centers on addressing problems once they appear. Conversely, proactive maintenance is all about having technicians assess machines often enough to catch minor issues before they cause significant outages or require total machine replacement.
One survey showed that 80% of maintenance personnel preferred preventive maintenance. The respondents found it especially valuable as part of a multidimensional maintenance plan. Such an approach lets companies avoid the costliest or most time-consuming repairs. That’s because technicians notice most issues while the abnormalities are still small and simple to address.
Business leaders may not immediately associate some MRO expenditures with preventive maintenance. For example, one professional accepted a position as the maintenance manager of a fully automated warehouse. Soon after assuming the role, he assessed how cleanliness supported preventive maintenance by showing more details about functionality. He gave the example of how it’s more challenging to spot a machine leak when the floor below the equipment is dirty.
4. Set Relevant Key Performance Indicators
Many company leaders — especially those who recognize data’s value — set key performance indicators (KPIs) to track whether improvements on particular metrics occur over time. If they do, that generally means the business is moving toward its goals. On the other hand, if KPIs get worse or stay static despite employees’ best efforts, it’s time to assess what’s going wrong and make the necessary alterations.
Specific KPIs are exceptionally valuable for decreasing MRO’s impact on the supply chain. For example, measuring the percentage of slow-moving inventory and keeping it under 10% is a suggested ideal. Achieving that aim shows company leaders are not making the common mistake of buying a product that falls under their MRO expenditure umbrella, but finding it expires before they can use all or even most of it.
Inventory accuracy is another worthwhile KPI to track. An ideal is 95% or above. Incorrect MRO product counts could prove disastrous — particularly when many purchasing representatives buy PPE to keep supply chain workers safe. Imagine a scenario where a computer system says a company has 1,000 masks, but, due to human error, they only have 10 in stock. That’s an extreme example that illustrates the importance of staying on top of inventory counts.
5. Assess and Tweak the MRO Budget
Some people make the mistake of treating the MRO budget as a static entity. However, doing that could cause them to miss out on money-saving opportunities. For example, using one MRO supplier instead of several can reduce transactional overhead. In addition to saving on shipping, they may also become eligible for volume discounts.
Regularly scrutinizing the MRO budget can also illuminate whether businesses may be reducing costs in the wrong ways. Maybe they switched to cheaper cutting tools to minimize spending. These may have a lower upfront cost, but add more expenses to the overall budget. Perhaps employees complained and said the tools broke often or quickly became dull during typical use. Thus, managers would probably buy more of the items than before while trying to accommodate those shortcomings.
Making MRO Spending Reductions a Priority
These five tips show how businesses can act strategically to limit MRO spending’s adverse effects on the supply chain. Doing so can keep a company within its budget, plus make it more responsive to marketplace changes that may require operational changes to meet demands.
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Emily Newton is an industrial journalist. As Editor-in-Chief of Revolutionized, she regularly covers how technology is changing the industry.
