Paper, packaging and plastics companies need to overcome a ‘just in case’ hoarding mentality when it comes to buildings maintenance procurement. A strategy for MRO could be the answer
The British packaging industry has annual sales of £11bn, employs some 85,000 people and represents approximately 3% of the UK’s manufacturing workforce. Our paper industry has a turnover of £11.5bn and 56,000 direct and 86,000 indirect employees. The UK’s plastics industry, meanwhile, has an annual sales turnover of more than £23.5bn and employs approximately 170,000 people.
Together, these overlapping sectors carry considerable manufacturing and economic clout. But, like many manufacturing sectors, the unpredictable political landscape is creating deep uncertainty: the impact of the weak pound on raw material prices, the sector’s future trading relationships with Europe, and what exiting the European Union is likely to mean in terms of regulation and controls are all focusing minds.
Opportunity for efficiency
One challenge is around the indirect procurement cost of industrial supplies for Maintenance, Repair and Operations (MRO) of buildings – the day-to-day purchasing of mechanical, plumbing and electrical spares, replacements and components. This challenge, however, also represents an opportunity to reduce costs and increase efficiency to help an organisation’s bottom line.
"If you’re holding unnecessary stock, you’re holding working capital"Del Tiwana, Industry Sector Manager, RS Components
“It’s easier to make the case for keeping tight control on MRO spend for plant and other operationally critical machines, but it’s just as important to look at MRO spend on buildings,” explains Helen Alder, Head of Knowledge & Product at the Chartered Institute of Procurement and Supply. “Many organisations have numerous, large buildings and over the course of a year spend significant amounts on maintaining these.
“It’s vital to have a list of key suppliers that will be able to provide parts as and when you need them,” she adds.
When it comes to MRO, transparency and safety is of critical importance in this sector, for example the use of food-grade products, greases and lubricants and robust metal detection processes. Another driver is the growing importance of environmental sustainability and recycling, both for environmental kudos and energy saving.
“We help customers identify where they find inefficiencies in energy consumption,” explains Del Tiwana, Industry Sector Manager at RS Components. “That could be as simple as lighting, or as complex as production machinery. But there’s also an important MRO procurement agenda around the maintenance of buildings, not just in terms of the products you purchase, but how you go about buying them. It’s vital that the purchase of industrial supplies for buildings MRO is kept under tight control.”
Avoid hoarding stock
One issue here is the ‘just in case’ hoarder mentality, explains Tiwana. “A paper mill will hold perhaps multi million pounds of MRO stock, of which about 30-40% will be obsolete – it is just stuff they are keeping, and may not even be useable, which is why it’s generally ignored. So at RS, we often say ‘let’s look at your stores, the environment, method of storage and your actual consumption and product use’,” he points out.
“It can be the same with electrical stores; customers may be keeping all sorts of different brands and products from numerous suppliers. And if you’re holding unnecessary stock, you’re holding working capital, which means you’re actually paying to hold it. Even though you’re holding it on site, there’s no guarantee that when you want to use it that it’s going to work anyway; the products could have missing parts, be contaminated with dust/water and not stored correctly,” Tiwana adds.
"It's vital that MRO purchases are kept under tight control"Del Tiwana, Industry Sector Manager, RS Components
This is where a proactive MRO strategy can pay dividends. Developing a procurement or purchasing strategy around MRO can allow you to streamline your processes and reduce bureaucracy. And, importantly, it can reduce the level of stock – some of which may be very large given that the equipment being used will also often be massive – you need to keep physically on site.
“With an MRO strategy you can review your stock and vendors,” says Tiwana “One way of reducing you’re working capital and guaranteeing the stock will be available is adopting a VMI (vendor managed inventory) process like RS Scanstock™. With this service RS can manage and hold stock locally or at a national distribution centre. This way you only pay for it when you use it; it’s not on your books but it’s ready and available when you want it, and we make sure it is replenished regularly.”
It’s important to review MRO across the business, to streamline the supplier base, thereby creating more efficient buying processes. This can give you greater control, both over the price you pay and expect to pay, and over issues such as ‘maverick’ or spot buying.
“Maverick spending on items like light bulbs or new washers may seem innocuous on an individual level,” says Helen Alder. “But if it is widespread across your business it’s likely that you won’t be able to keep track of all that spend, you may be paying too much for parts and there’s also the risk that non-branded, inferior parts may be purchased that will have a short lifespan.”