Indirect procurement, and the processes connected to MRO purchases, are changing – what will these changes mean, and how will they impact long-term costs?
The two biggest business pressures facing MRO procurement and supply professionals are reducing operational budgets and inventory costs, according to recent research by RS Components and the Chartered Institute of Procurement and Supply (CIPS). While there are small measures that organisations can take to chip away at these costs, the only way to make a dramatic difference is to embrace change on a larger scale. That’s the view of Peter Malpas, President for EMEA, RS Components.
“When we’re out talking to our customers, asking them about their challenges, the need to reduce operational budgets and to reduce overall costs, whether that’s around inventory costs or asset performance, is really at the heart of what they want,” says England. “The long-term solution is for these businesses to move away from reactive, unplanned maintenance and take that brave step towards predictive, planned maintenance.
" The long-term solution is for businesses to move away from reactive, unplanned maintenance and take that brave step towards predictive, planned maintenance" Mike England, President EMEA, RS
“To do that it’s going to take systems investment, it’s going to mean culture change within those organisations and, just as importantly, the different functions within those businesses, whether its procurement, engineering or operations, have got to come together and look at it as a whole, rather than in isolation.”
Helen Alder, Head of Knowledge at CIPS, believes that this shift in culture has begun at some organisations. “Traditionally there has been a lot of focus on price in indirect procurement, but people are getting better at looking at the total cost of the big picture and realising that the price paid only amounts to a percentage of the overall cost,” she explains. “Procurement has a crucial role in expanding into supply chains and looking at efficiencies and lean supply, which make up the whole big picture of costs.”
Part of this lean supply process is introducing a much tighter control on inventory. “From an inventory perspective, there is a significant opportunity for businesses to not carry so much inventory within their plant and allow the supply chain to either manage that inventory for them at site or manage it for them within their supply chains,” says England. “At RS, we’re working very hard to build out our services both in terms of eProcurement and managed inventory services, while also reviewing how technologies, like the Industrial Internet of Things (IIoT), can be easily adopted by customers to move towards a planned maintenance approach.”
" Procurement has a crucial role in expanding into supply chains and looking at efficiencies and lean supply, which make up the whole big picture of costs"Helen Alder, Head of Knowledge, CIPS
In the 2020 Indirect Procurement Report, two-fifths of respondents cited maintaining ageing assets as a major day-to-day challenge for them. Unplanned maintenance is a major source of pain for organisations as they potentially suffer costly downtime in their operations, have to react quickly to the problems and may have to pay extra for emergency delivery.
“There’s a reality check here for businesses about how they start to think about maintaining ageing assets to help them to move along that preventative maintenance journey,” says Malpas. “By using IIoT technologies, organisations could achieve significant savings.
“While some new products come ready-built with these sensors, there is also a need for cloud technologies that can take the data that is captured in order to analyse it intelligently to predict failure more readily and allow customers to support ageing assets more effectively.”
For the assets that can’t be retro-fitted with IIoT sensors, companies have to weigh up the benefits of investing in new equipment, says Alder. “If an ageing asset is at risk of becoming obsolete, organisations may need to look at a way of amending that asset so that it can take more current parts, or it may be more viable to replace it altogether with new equipment,” she explains. “All of this needs to be looked at as part of a long-term MRO strategy so that you can decide what the best option for your company will be.”
The big picture is clear, however – technology (and competition in the marketplace) is driving change to the MRO procurement process. While adapting to this change may take time and initial investment, there are clear (and significant) financial benefits to making these changes.