MRO

Procurement

Consulting

Strategy Techniques

Some of the strategies and techniques used as part of MRO procurement consulting include:

1. Improving vendor management
2. Developing a base of preferred suppliers
3. Reducing redundancies
4. Finding ways to minimize the need for unplanned or on-the-spot purchases, such as when a piece of equipment goes down

MRO consulting can help to increase the productivity of a factory or manufacturing plant, decrease overall costs and minimize downtime when equipment breaks or needs updating.

What Is MRO Procurement?

MRO procurement might be one of the most important but most overlooked indirect spend categories within an organization. The Chartered Institute of Procurement and Supply defines MRO as any item that plays a part in restoring or maintaining a system or piece of equipment so that it can function in the required fashion. MRO is an indirect spend category because the items purchased under it are a necessary part of the production process but are not the final product.

A few examples of items that are usually part of MRO include lubricants, cleaning supplies and materials, spare parts and tools.

Since MRO includes a wide range of items and covers a wide swath of territory, managing it while keeping costs down and efficiency up can become challenging. It’s not uncommon for businesses to vastly underestimate how much they spend on MRO products annually. It’s also not unusual for companies to have redundancies in the MRO category, especially if an organization has more than one location or operates multiple plants.

Other factors, such as changes in the law or new or increased tariffs, can also affect a company’s MRO spend. The tariffs that went into effect in 2018 impose a duty of 25 percent on steel imported from certain foreign countries and a duty of 10 percent on aluminum imported from particular countries. The tariffs increase the cost of raw materials that enterprises typically need to maintain, operate or repair equipment. This forces a company to make up the difference, either by increasing the price of its own products or attempting to find a more cost-effective alternative.

Procurement Consulting vs. MRO Procurement Consulting

How is MRO procurement consulting different from procurement consulting? MRO procurement consulting is part of the larger whole of procurement consulting. Procurement consulting may include:

• Assessing how much the company is spending: Procurement consultants often evaluate what companies are spending and where they are spending it, allowing businesses to identify areas where they could save money.
• Identifying benchmarks: Procurement consultants typically have access to databases full of information on commodity pricing. Benchmarking can help businesses see if their spending is in line with industry standards or above or below standards.
• Auditing: Procurement consultants will review and audit invoices, SKUs and other data points to make sure that a company isn’t being overcharged by its vendors.
• Ensuring vendor compliance: The auditing process is just one example of the ways procurement consultants ensure vendors comply with the terms and conditions of their contracts.
• Managing RFPs: Procurement consulting firms can aid businesses in managing the request for proposal (RFP) process, minimizing waste and improving efficiency.
• Managing supplier relationships: Consultants can act as the go-between between suppliers and companies, building up strong and long-lasting relationships.
• Negotiating contracts: Consultants work with companies during the contract negotiation or renegotiation process, ensuring that businesses enter into agreements that provide the most benefit to them.

Procurement consultants can assist businesses with tackling MRO, which is often one of the most overwhelming indirect spend categories for companies. MRO procurement consulting often allows companies to significantly lower their overall indirect spending.

Innovative MRO Purchasing Consulting Solutions

Dryden Group includes a team of experienced MRO procurement consultants who can help you manage this overwhelming, catch-all category. We can provide your organization with the expertise to develop and implement a carefully crafted sourcing strategy that will help you gain control of costs, maintain compliance and standardize your purchasing procedures. By facilitating transparency, our MRO sourcing consultants can increase indirect spend visibility, identify areas of waste and remove weak links in your supply chain.

MRO typically covers a wide area. Everything from screws and nails to specialized equipment and services fall under MRO. Some organizations use MRO as a catch-all category. Any object or service that doesn’t fall neatly into a distinct category is classified as MRO.

MRO procurement strategies can take multiple forms, all of which should come together to help companies save money and time and to boost productivity. Consulting solutions from Dryden include:

• Keeping the Supplier in Line. One often-overlooked issue with MRO procurement is businesses can get too complacent or too comfortable in their relationship with a supplier. Complacency can mean a company spends way more than is needed or is even the norm in the category because they feel they can trust their supplier. In these cases, the length of the relationship may lead the supplier to put its own interests ahead of the interests of the customer, simply because it sees no danger of the relationship ending. While there are plenty of honest and dependable suppliers, there are also some happy to exploit a long-standing relationship for their own gain. MRO procurement consultants keep suppliers in line by running regular audits and evaluations, with the goal of ensuring the prices and services offered by a supplier remain the best in class.
• Reducing the Occurrence of Unplanned Purchases. Unplanned purchases can be a tricky aspect of MRO to manage. Few companies want to have supplies or inventory taking up space on their shelves, waiting for a “one day” that might never come. But most companies also want to avoid paying higher-than-expected prices for a replacement part they need ASAP. MRO procurement consultants work with companies to determine the best solution to the problem of unplanned purchases, increasing cost effectiveness without the company sacrificing much-needed space in its storeroom or warehouse.
• Balancing Costs With Quality. Occasionally, companies can get what looks like a tremendous deal on supplies, parts or other MRO components. But what sometimes happens is that a company will trade overall quality for a lower initial price. The lower quality of the materials purchased can mean that over time, the business spends more than it would if it had purchased a more expensive version instead. Benchmarking can help companies get a better understanding of the cost of the supplies they need to buy. Once a company knows the going rate of an item, it can assess whether an offer from a supplier is “too good to be true.”
• Ensuring vendor compliance: The auditing process is just one example of the ways procurement consultants ensure vendors comply with the terms and conditions of their contracts.
• Analyzing Data Streams to Provide the Most Relevant Information. There is a lot to juggle when it comes to MRO procurement. A consultant pulls information from multiple data streams, allowing companies to make the most accurate and advantageous purchases.

Procurement consultants can assist businesses with tackling MRO, which is often one of the most overwhelming indirect spend categories for companies. MRO procurement consulting often allows companies to significantly lower their overall indirect spending.

Our MRO Purchasing Consultants Can Provide Guidance on Multiple Fronts

Dryden Group can help you:

• Improve vendor management practices through efficient supplier consolidation and establishing a preferred supplier base that will serve as your go-to source for MRO items
• Better anticipate unpredictable demand that often leads to purchasing and carrying excessive inventories of slow-turning items
• Reduce the frequency of unplanned spot buys to fill an immediate need, but turn out to be cost-prohibitive
• Improve compliance and optimize pricing through regular, ongoing audits
• Harness multiple data streams to ensure you have access to the timely, relevant information you need to make intelligent purchasing decisions

Through our MRO sourcing management services, you gain a more thorough understanding of your organization’s existing MRO requirements and identify and eliminate wasteful spending. The information obtained also lets you anticipate and prepare for future MRO needs.

Another factor that can make MRO procurement challenging is the nature of the category. It is not easy to predict when or if a piece of equipment will break. When something does break, there’s no way to be certain what part will fail first. That often means the buyers make spot buys, purchasing a specific part or supply when they need it, regardless of price. Additionally, there are often multiple MRO buyers within an organization and occasionally little to no communication between those buyers and their counterparts.

Occasionally, people assume procurement is the same thing as purchasing. While purchasing is part of it, procurement is much more than selecting items to buy and then buying them. Procurement should be a key part of a company’s strategy, as it involves choosing and vetting vendors, negotiating contracts, determining payment terms, selecting the appropriate products and, finally, making the purchase.

How Have We Assisted With MRO Procurement?

Since 2001, Dryden has worked with companies on the Fortune 500 list as well as smaller companies on the Global 2000 list, helping them to manage and contain the cost of indirect spend. We encourage companies to approach procurement and MRO purchasing issues from multiple angles. A few of the tactics we have taken include:

• Benchmarking and auditing: Dryden used 12 months of spending data to audit prices charged by a company and identify areas where a supplier overcharged. We also established benchmarks to help the company avoid unauthorized price increases. All told, the benchmarking and auditing allowed the company to recover $200,000 from overcharged items and enabled it to save $400,000 over the remainder of the contract.
• Audit of spend category. Working for a Fortune 100 retail company, Dryden performed an audit of the company’s relationship with an indirect commodity distributor. The audit included three years’ worth of data and two separate contracts in addition to a voluminous SKU count. Over the course of its relationship with the distributor, the company hadn’t been aware of compliance or contract issues. We turned up $3.3 million worth of overcharged items and revealed that some terms and conditions of the contract could be improved. As a result, the company ended up with better terms, was reimbursed by the supplier for the overcharges, and was equipped with better key performance indicators (KPIs) and metrics to use going forward.

The two cases above are just a small sample of the ways that MRO procurement consulting helps a business save money and improve its operations.

Taking a More Strategic Approach to MRO Supply Chain Management

Companies often consider MRO supply chain management a type of tactical spend. When a warehouse is out of window cleaner, it goes out to buy a new bottle. When a conveyor belt brakes, the business buys a new ball bearing. Once a piece of equipment has reached the end of its useful life, it’s time to buy a new one. Tactical spending, also called tactical sourcing, focuses on the short-term requirements of a particular part of an organization, rather than the long-term needs of the organization as a whole.

The trouble with a tactical approach is that it often leads to waste. For example, some organizations find themselves with a good portion of their inventory either obsolete or more than what they need. When MRO procurement is treated as a tactical spend, companies often find themselves stuck using the same supplier or vendor, never having the opportunity to explore other relationships or opportunities.

In fact, often when a part breaks or a piece of equipment needs replaced, buyers are tempted to go with the first supplier they find or the supplier that offers the best price. Taking that approach can mean that a company spends too much on a product or purchases a lower-quality product, which can increase the total cost of ownership. Working with a procurement consultant to develop a preferred supplier base has two major benefits in this case:

• Companies end up with a “go-to” source they know they can trust when there is an issue.
• Businesses can take advantage of economies of scale. When different departments or facilities at the same place use different suppliers, they do not get the best price on products or the best services. But if companies combine their efforts across departments, they can take advantage of supplier discounts.

Although MRO procurement is often looked at as a type of tactical sourcing, developing a more strategic approach to it might pay off in the long run. Strategic sourcing assesses the current needs of an entire organization, focusing on the total cost of ownership and looking to make decisions that pose the least amount of risk to the supply chain.

One way to develop a strategic approach to MRO procurement and supply chain management is to work with a consulting firm. A strategic approach to managing your MRO supply chain and procurement practices saves you money in the long run.

By enlisting the services of Dryden Group, you will be able to remedy a constant challenge of your operation and implement an organized, tightly categorized system. Our expertise and recommendations also let you centralize your procurement strategies and practices and align them with broader, company-wide objectives. Top management will come to recognize MRO as a value center instead of an indirect-spend center.