Improving MRO practice in the rail industry could significantly help companies meet their efficiency goals
There is no shortage of demands on the UK’s rail operators. There is an expectation that franchises should deliver a better level of service while spending less, despite rapidly increasing passenger numbers and the sometimes-creaking infrastructure. So, while projects like CrossRail have seen significant expenditure, existing lines need to find greater efficiencies and cost savings to allow operators to hit their contractual targets.
Train operators take on a franchise and commit to certain service levels for a fixed fee. In some cases, operators have found the task impossible, with some stripped of their franchise and others giving up on their own accord having found profitability almost impossible to achieve.
Against this background, it’s essential that the rail industry takes advantage of any opportunities to achieve efficiencies, and one avenue is around the Indirect Procurement category of Industrial supplies for Maintenance, Repair and Operations (MRO). Research by RS shows that the price of MRO products only reflects a third of the total cost. When you take into account the time taken to place an order, holding stock, depreciation and other factors, the cost is actually three times that of the visible product price.
As such, it’s important to look at the ways in which rail firms can reduce inefficiency in the MRO process as they look to hit their targets. The secret to getting your strategy correct is working with the right suppliers, according to Greg Sharp, Industry Sector Manager, RS. “Good MRO strategy is about controlling costs and consolidating suppliers and your supply base,” he explains. “In order to achieve this, you first need to understand how much you are actually spending on MRO, and then align the various areas of your business so that there is one clear strategy.
“I recently sat in a meeting with two procurement guys and the head of engineering at a rail firm. Procurement wanted the lowest possible price on products, whereas the head of engineering said the price should be irrelevant, because if a light goes, you need to replace it, or you will get a fixed-penalty fine for the station being shut.”
The answer is somewhere in the middle, Sharp points out. Price is clearly not the only factor that should be considered, but by reducing the number of suppliers to a select group, it’s possible to achieve good prices while also ensuring the overall quality of the parts being bought.
“One of the massive risks in MRO is ‘maverick’ spend,” says Helen Alder, Head of Knowledge at the Chartered Institute of Procurement and Supply (CIPS). “There’s the chance that buying parts from a non-approved supplier will cost more, and possibly take longer to source, but the biggest issue is the quality of the parts. It’s not unknown for engineers or other employees to search the internet and buy parts that turn out to be counterfeit, or that don’t meet the required quality levels.
“Similar to consumers, there are people who will look up items online, see a ‘too good to be true’ price and not consider the possibility that it’s counterfeit. The only way to avoid this is to work with trusted, pre-qualified suppliers that can prove the quality of everything they sell.”
The challenge for procurement departments is to help communicate the risks of maverick spending and the benefits of using trusted suppliers. Alder believes that the answer is for rail firms to make use of technology through eProcurement to make the process as simple as possible.
"There's no excuse to not have a centralised list for regular MRO parts"Helen Alder, Head of Knowledge, Chartered Institute of Procurement & Supply
“There’s no excuse in this day and age to not have a centralised list for regular MRO parts so that employees have one approved source for this sort of regular purchase,” she explains. “This should cut down on the time it takes to order the parts, you know that there is no quality risk and the business as a whole can monitor spending more closely.
“It’s important that your procurement team works with engineers to identify what should be on this central list, and then once they put contracts with suppliers in place they need to implement a system that makes it quick and easy for the end user to implement.”
The challenges of managing the Indirect Category of MRO are explored in depth in the 2020 Indirect Procurement Report - The Evolution of MRO, jointly produced by RS and CIPS.
Suppliers have an important role in this process too. As Sharp points out, companies such as RS have data about what their customers order regularly and they have sector knowledge so that they can help advise on the correct products, and in some cases, better substitute products that will save money for the rail company.
“A big part of my job is understanding the challenges and talking the rail company’s language rather than simply taking a vanilla approach,” he says. “For example, we understand that products need to be rail-approved so we only deal with manufacturers that have that approval. You need to be able to trust your suppliers and work with them to help improve the entire MRO process.”
"You need to be able to trust your supplier and work with them to help improve the entire MRO process"Greg Sharp, Industry Sector Manager, RS
Another area that suppliers can help rail companies with is stockholding. Many companies are still in the habit of hoarding MRO parts in their own warehouses, which costs money in terms of tying up working capital, space, and then the distribution of these parts to engineers. “I think there is an opportunity to sit down and think about whether you really need all the stock you hold," says Sharp. "Clearly, if something is a critical part that will need to be replaced immediately if something goes wrong, it may need to be housed on site but for most equipment it might be that next-day delivery, from someone like RS, works perfectly. By identifying these items it’s possible to free up warehouse space and working capital by letting your supplier hold the stock.”