With ever-greater pressure on utilities companies to provide value for money to the customers they serve, maintenance, repair and operations (MRO) provides an ideal opportunity to implement efficiencies
When it comes to MRO spending, you don’t get a more diverse list of product requirements than in the utilities sector. Companies in this market are working with plant, which in the case of some water companies was put in place during the Victorian era, right through to the latest cutting-edge technology in renewable energy sites.
The water regulator Ofwat has completed its 2019 price review and Ofgem is already in consultation about its equivalent exercise, RIIO-2. And so as utilities firms come under severe pressure from regulators to reduce spending and give consumers better value for money, there is a real opportunity to look at their MRO strategy to help boost efficiency and the bottom line.
The key focus when it comes to products in the water industry is total expenditure (totex), which looks at the whole-life cost of an asset rather than the initial outlay. “The value of totex really shines when it comes to maintenance,” explains Chris Cruise, Industry Sector Manager, RS Components. “Put very simply, if you have a plant that costs £1m to buy new or you can keep an existing plant running for half that amount, then assuming there is no technological advantage, it may make sense to maintain and repair the existing plant.”
Helen Alder, Head of Knowledge at the Chartered Institute of Procurement and Supply (CIPS), believes that developing a joined-up approach to MRO is a crucial step on the path to achieving the efficiencies that utilities firms want. “There are a number of reasons why you should have an MRO strategy, but probably the most significant is to keep your business operations running with little or no interruption, which means being able to access the spare parts you need.
"We can demonstrate the speed and effectiveness of our MRO services and how they can improve upon the common practice of engineers making ad hoc purchases"Chris Cruise, Industry Sector Manager, RS Components
These issue are explored in the Indirect Procurement Report 2019 - The Future of MRO whitepaper, jointly produced by RS Components and CIPS.
“The answer is to have a reliable set of approved suppliers you can trust to have the products you need in stock, at a price you are willing to pay and that can deliver when and where you need it,” adds Alder. “Part of this process is working with suppliers to identify what the business-critical products are and making sure that they have this core list stocked at all times.”
Outsourcing tail end spend
In some cases, utilities firms choose to outsource their tail end MRO spend to suppliers so that they monitor stock levels on their behalf. This can be particularly useful in relation to products that are purchased infrequently. “For a nuclear power plant, for example, there are huge challenges around the parts they need,” says Alder. “Given the long lifespan of a power plant, it’s very possible that certain components they used when the plant was built will be obsolete in five to 10 years’ time. It’s vital that the supplier, if outsourced, stays on top of this issue.
“If there’s a part that you only order once every five years or so, your supplier needs to alert you if this model becomes obsolete. That way, they can hold a greater number of the old models, but you may also want to consider updating your machinery to make it compatible with newer parts.”
Many of the utilities firms have it written into their government contract that they will provide continuous service, with fines imposed if that is broken. As such, unplanned maintenance, where something goes unexpectedly wrong or where planned maintenance creates an unexpected consequence, needs to be done quickly and correctly. It’s vital to have suppliers that have as wide a range of stock as possible and that can deliver quickly.
“At RS, we have a comprehensive range of stock and work with our customers to deliver critical parts as quickly as possible,” says Cruise. “In this industry you often have remote sites where an engineer is out in a van and needs spares, so we look to get those parts to the right person when and where they need them.”
Dealing with the ordering process is only part of MRO. Another major saving that companies could make is around how they hold parts and then distribute them internally. Cruise explains: “Many companies hold huge amounts of parts internally that they distribute themselves. This is something that really needs to be challenged because it’s an unnecessary cost that could bring little or no benefit, yet it’s common practice across the industry.
“Incredibly, it can take up to a week for some companies to get a replacement part via their own internal distribution system. The fact is that a large supplier such as RS can get these parts out, often in a day and direct to the site. This saves the organisation money on storing parts they’re not using and on the cost of getting those parts to engineers.”
Another issue that tends to crop up with utilities companies is that it is not unusual to have misaligned KPIs and different departments working independently without consulting each other over MRO strategy. The result tends to be far too many suppliers with costs and efficiency not being centrally controlled.
“Historically, when utilities companies were publicly owned, they were renowned for inefficiency, particularly when it came to ordering parts,” says Cruise. “Thankfully, privately owned businesses are much better run and have invested in business software to manage their operations. However, it’s important that when it comes to choosing suppliers, businesses work with companies that are able to integrate into those systems.
“At RS, we have a strong reputation for our source to pay ability, where we can reduce the time and inefficiencies involved in ordering parts – this is really important because most MRO distress purchases are around the £100 mark, but with an inefficient source to pay system you could come close to spending that much in the ordering process, effectively doubling the cost of every transaction.”