Here are five ways to tell if that MRO procurement strategy you put in place is working . . . or not.
You already know that the cost of replacement fasteners, machine components, personal protective equipment (PPE), and even break room paper towels can add up quickly for your business.
To control that spending, you need an MRO purchasing strategy. And to tell if that strategy is working, you need procurement metrics--KPIs, or key performance indicators, that you can track.
These five inventory metrics will tell you whether your MRO purchasing approach is working, or whether it needs to be tweaked:
Total MRO spend as part of your firm's total budget is going down.
Maintenance and repair inventories should represent a low percentage of total production inventory, according to SDI's 5 Critical MRO Supply Chain Metrics You Should Be Tracking. "Therefore, MRO spend should consume 3% to 10% of overall procurement budgets." If your firm's MRO budget exceeds 10%, it's time to rethink your MRO purchasing strategy.
Maverick MRO spend levels are under 2 percent.
Defined as purchases made outside of agreed contracts, maverick spend can quickly add up. These "reactionary" buys can also lead to unnecessarily high inventory levels and low supplier accountability. When assessing these spend levels, strive to keep this percentage "under 2 percent of procurement budget," SDI advises.
Supervisors aren't hoarding MRO in their desk drawers and cabinets.
When employees "hide" fasteners, nails or other MRO items in their desks for fear of running out of those products, it's costing your company money. Ideally, you want employees to trust the firm's MRO procurement strategy and know that the goods will be in the stockroom when an urgent need arises. If your employees are hoarding, then your purchasing approach isn't working.
When your team thinks about MRO, it goes beyond just maintenance and repair.
"MRO isn't just a maintenance or repair process. It also involves sourcing and procurement strategies to optimize money spent on operational tools, supplies, and services. Spares and consumables also require different methodologies," Modern Material Handling "Gloves, for example, are used and discarded rather than being recycled back into inventory, and although parts are sometimes replaced after they wear out they might also be repeatedly repaired and reused."
If your team is thinking beyond the basics of MRO, and if it's incorporating spares, consumables, and other often-overlooked items in its MRO procurement strategy, then that strategy is a keeper.
You've effectively streamlined the MRO purchasing process.
When multiple employees are charged with fulfilling their own departments' MRO needs, things can get out of hand pretty quickly. However, when you streamline the process by putting one employee (or a team of employees) in charge of buying, negotiating and confirming MRO orders, the benefits become obvious.
Key wins include a reduction in the total number of contracts, better negotiating power across that smaller number of suppliers, the ability to "strategic source" by producing MRO only from the best possible vendors (and for the best possible value) and a single repository for all MRO purchases (for easy viewing, reviewing, comparing, and future decision-making).
Your MRO procurement strategy shouldn't be left up to chance. In fact, it should be delivering on all of the results outlined above, and more. If not, then it's time to rethink that approach and develop one that better meets your company's--and its customers' and suppliers'--needs.
If you're thinking about MRO purchasing best practices, here are some great places to start: