How a change in strategy can lead to significant savings when it comes to setting KPIs for MRO procurement

While a dedicated department handles most direct procurement, when it comes to MRO – the indirect spend on maintenance repair and operations goods and services – the process usually involves multiple stakeholders.
 
Although numerous divisions spend money on MRO, the overall responsibility for achieving cost reductions falls on the procurement team, which often has set key performance indicators (KPIs) to measure its results.
 
Research conducted by RS and the Manchester Business School suggests that in many cases these KPIs are too rigid and usually focus purely on incremental discounts on products. These are often not achievable in MRO procurement because the low and sometimes one-off volume of products can cause conflict between departments because they are unrealistic. 
 
 

“It’s important to take a broad approach when it comes to KPIs for MRO procurement”

 
 
The answer is to take a broader approach when it comes to KPIs for MRO procurement. Here are five alternative KPIs that will help your organisation measure performance accurately and deliver efficiencies.
 
Total cost savings
By definition, ‘total cost savings’ is the total amount of money saved, including savings on transaction costs or costs per order. This KPI helps buyers keep costs in check, while you maintain process efficiency, product quality and on-time delivery.
 
Quality of products
It’s essential to gauge whether MRO goods being bought meet your company’s standards and the needs of front-line engineers (who have their own KPIs to meet). Working with engineers and suppliers, procurement teams should be able to identify alternative products with the same function and standards at a lower cost.
 
On-time delivery
While the costs are often less obvious, the true impact of an essential part not being available, and the resulting downtime and loss of production, is likely be greater than the value of the part itself.
 
Inventory availability
Keeping close tabs on whether inventory is in the right place at the right time – and in the proper form – saves costs by avoiding the need to rush orders to fill gaps and outages, or overstocking.
 
Contract compliance
Contract KPIs allow buyers to capture baseline information around service-level agreements, negotiated prices and other key measures. Armed with this data the procurement team can assess current contracts, seek out new sourcing options and negotiate better terms and conditions.
 
For a more detailed overview of how to reduce MRO complexity, read our white paper Maximise MRO savings without compromising procurement KPIs