Better Supply Chain Management: Take Control of MRO Spend

“The opportunity for savings predominantly comes through the elimination of duplicate items and the rationalization of excess active and slow-moving inventory. Mary Cenedese 

Purchasing managers know it affirmatively one can no longer afford to ignore or dismiss MRO products used every day on the shop floor. The nuts, fasteners, helmets, gloves, eyewear, machine lubricants and cutting tools all matter because they all have a cost to acquire, to store and to replenish. Negligence towards MRO can cause an account for upward of 40 to 45 percent of manufacturing expenditure. Saving is a virtue, so let’s unravel MRO cost-saving opportunities in hidden places by eliminating departmental roadblocks and bad inventory management habits.

MRO is not the sole prerogative of inventory. Supply Chain Management Review in the article “The Case for Managing MRO Inventory.” Says that MRO supply activities have little direct accountability, and are driven too often by stockouts rather than any overarching supply chain plan.

Similarly if MRO storeroom is unreliable, engineers and other workers often will take more than they need and would create uncontrolled substocks in the plant. To counter this vertical integration should be sought which can limit the amount of duplication and eventually cut costs. 

MRO spending is way more than piece price per widget. Finding the lowest price MRO item is only a short term solution. Cost containment can be achieved by understanding the context of an operation’s daily, weekly and monthly needs. In this respect, purchasing managers could need to become more intimately familiar with their business’s manufacturing and maintenance work.

1. Establish Metrics - Improving performance in any area starts with identifying and defining core metrics. Standard metrics to consider include days of inventory on-hand, number of stockouts, ratio of expedites to routine replenishment orders, and parts obsolescence. These should be reported to management on a monthly or quarterly basis.

2. Track performance - Once key metrics have been identified and defined, they must be tracked and reported. This can be done manually or via various types of management systems. 

3. Develop skilled Inventory Managers - MRO stock areas need to be managed like a retail store with finicky internal customers, perishable products and zero price markups to cover costs.

4. Centralize storage and control - Central purchasing and storage of such parts and supplies must be complemented by standard put-away practices and computer tracking systems so items can be located quickly and easily.

5. Optimize procurement practices - Improving MRO procurement practices requires the consolidation of product types to minimize SKUs, and the consolidation of vendors to minimize purchase orders and invoice payments.

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