Organisations are adopting new services and innovations to manage supplies within the Indirect Procurement category for MRO (maintenance, repair and operations). Here we explore strategies and how your supplier can support you in your search for the right solutions for your business.
MRO procurement is complex. Engineers who are based across multiple sites may be making thousands of low-value purchases, meaning agreeing upon and adhering to a single MRO purchasing strategy is difficult.
“We know from talking to our own customers that inventory is near the top of the agenda for category managers,” says Mike England, Chief Operating Officer, RS Components. “Many companies haven’t dedicated enough time to dealing with inventory, so there can be huge inefficiencies in this area.”
Research by RS Components and the Chartered Institute of Procurement and Supply (CIPS), which represents procurement professionals globally, highlighted this issue. The research included a global survey of 851 CIPS members, 46% of whom identified managed inventory options as one of the most important conversations they have with suppliers when planning future relationships.
The survey also revealed that organisations are increasingly adopting new services and innovations to manage this complex area of business. You can read all the details in the Indirect Procurement Report 2018: drives of change & how to respond.
Top strategies in place for managing MRO
The RS Components and CIPS research demonstrates that procurement professionals are talking to suppliers about a range of ways to handle MRO. As well as discussing managed inventory options with suppliers (46%), they are talking about knowledge services to help procurement (56%), new product innovations (53%), business services to help procurement (46%) and delivery options (45%).
Talk is being followed by action. Vendor-managed inventory (VMI) is the most common MRO strategy that companies currently use for fast-moving, low-value MRO parts (39%). In second place is production substitution (27%). Calibration services come third (25%), although this is the number one strategy in the UK (33%). These are trailed by outsourced management of engineering stores (21%) and energy monitoring of specific assets (20%).
“Many companies haven’t dedicated enough time to dealing with inventory, so there can be huge inefficiencies in this area”Mike England, Chief Operating Officer, RS Components
The benefits of vendor-managed inventory
These figures show that outsourcing services to suppliers is a growing trend. For many organisations, the attraction of outsourcing is that it frees up employee time by removing responsibility for complex MRO purchasing.
This is certainly the case with the most popular MRO strategy, vendor-managed inventory (VMI), which offers organisations a number of benefits. UK respondents list its advantages such as reduction in the time spent raising individual orders (68%), better visibility of stock (58%), improved productivity (48%) and increased product availability (47%).
England agrees: “VMI solves a lot the issues around time and inefficiencies. It means that a supplier such as RS can take over your inventory, ensure products are constantly restocked to the right levels, while providing a clear breakdown of all the spending and usage so that further inefficiencies can be made in future.
“Most of all,” he continues, “it frees up the time of engineers and procurement professionals to concentrate on work that adds value to the business.”
Reducing the risk of counterfeit goods
On top of these benefits, VMI can play a vital role in combating counterfeit products. This is an area of concern among survey participants, with 32% of respondents rating the risk of counterfeit items entering their supply chain as a significant problem. A further 24% rate it as a moderate concern. These figures are even higher for small and medium-sized businesses (39% and 37% respectively rated counterfeiting as a significant problem).
“Counterfeiters are becoming more and more sophisticated, which means that there is always a risk as soon as an organisation makes a purchase outside its trusted supplier network,” explains Alder. “The chance of this is even higher in the MRO category, as maverick spend is a well-known problem. As soon as people go online and select the cheapest option that isn’t from a trusted supplier, they open themselves to a risk that can’t be underestimated. “A faulty part could cause extensive damage and downtime: in the worst case, it might even injure an employee. It just isn’t worth that risk for the sake of saving a few pounds.”
England also regards use of trusted suppliers as a way of avoiding counterfeit products. “Having a supply partner that you can trust to source reliable products is important,” he says, “particularly for procurement individuals who are managing risk on behalf of a business.”
By moving on to a VMI system with a supplier that they know and trust, organisations can be sure that all the products they receive are genuine – thus avoiding counterfeit goods as well as the damage and downtime that they can cause.
“Suppliers are particularly useful because they will also have knowledge of what other companies are doing and can share that best practice with you”Helen Alder, Head of Knowledge, The Chartered Institute of Procurement & Supply
Sharing best practice
A final advantage of VMI and the other strategies for MRO is that they deepen the relationship between businesses and their suppliers.
This has benefits in the short and long term. Alder asks: “Where do you go if you’re trying to add value and do something differently to improve your organisation? A big part of the answer is to look outside your company and talk to your suppliers, other non-competitive businesses and organisations like CIPS. “Suppliers are particularly useful because they will also have knowledge of what other companies are doing and can share that best practice with you.”
England shares this view. “Having the right partners, who are knowledgeable and can bring expertise and help you to accelerate forward, is fundamental to procurement. Having worked out internally the approach that you want to take in relation to this category, I think it is about identifying and agreeing a strategy across multiple stakeholders, then finding and identifying a partner that you believe can help you progress it. “That supplier then needs to be an integrated part of the strategy deployment team that, over time, increasingly becomes a key part of that as you progress further into execution.”
So, as well as identifying areas of the MRO procurement process that your organisation could outsource, keep in regular dialogue with your trusted suppliers and involve them in your strategy. Also be sure to challenge suppliers to provide solutions and thought leadership that will help your organisation, now and in the future.