MRO in Procurement — Everything You Should Know
MRO is one of the frequent words that you will encounter in the procurement industry, especially within its operations. However, many people keep on using this word without truly understanding what it is.
That is why in this article, we will try to erase your confusion by discussing to you what MRO is. We will tell you about MRO purchasing and MRO inventory management. Further, we will show you some of the best practices in MRO.
After reading all the contents of this article, you will be knowledgeable enough regarding MRO. Thus, you will know how to utilize it in your profession or business effectively. That being said, let us now dive into the world of MRO.
Whatis MRO in Procurement?
Before anything else, the word MRO stands for Maintenance, repair, and operations. Procurement refers to the products and tools acquired to keep an organization running.
MRO is also referred to within the context of indirect procurement as it allows business activity indirectly incorporated into any final product the company creates. It is also a key part of indirect spending which is known in the procurement industry as indirect spend.
Lack of spending visibility is one of the challenges that MRO procurement faces today. Even though MRO is traditionally focused on managing the indirect spend, it gained increased attention as businesses continue to look for ways to reduce costs.
MRO in procurement is usually a forgotten category that is commonly left to operations personnel to find and secure their needed supplies. As such, it can become a risky purchase as operations personnel may spend more than what the company needs to operate.
Whatis MRO Purchasing
MRO purchasing is an indirect spend of businesses that relates to maintenance, repair, and operations. These purchases of a business enable it to keep operating but are indirectly related to the products produced by a company.
The MRO purchases are often managed through issuing purchasing requisitions, especially when the need arises. Thus, expenditure control may go out of hand. The trick here is to estimate what products and services are often required and issue regular purchase orders.
Below are some of the examples of items usually included in MRO:
- Cleaners, chemicals lubricants
- Office suppliers
- Hand tools and repair tools
- Protective gears
- Bolts, bearings, and screws
- Fixtures and furniture
- Pumps, motors, compressors
- Computer equipment
MRO Inventory Management– What is it and Why is it Important?
MRO inventory management refers to the acquisition, storage, usage, and replenishment of all products that fall under the MRO inventory.
Just like any other type of management, inventory management aims to perform activities efficiently as possible so that the business has the right MRO inventory on hand at the right time.
It is important to take note that managing MRO can be complex and time-consuming as companies may need to purchase and store thousands of different items.
MRO inventory management plays a crucial role in keeping the business operating smoothly. If a part or component of a machine starts failing, especially in the middle of production, the entire manufacturing process may stop just to fix the machine.
Without a spare part available, the impact can lead to hours or even days of downtime. Thus, losing revenue and endangering customer relationships as deadlines are missed.
You may think that stockpiling to avoid running out of products is good, right? However, it can also cause problems. Purchasing and storing excess inventories ties up the capital of a company which can be used to fund business growth. Additionally, some items may become obsolete if stored for too long. Thus, your purchases will go to waste.
Challengesin MRO Inventory Management
1. High cost of spending
Companies buy thousands of different MRO items. Without an efficient purchasing process, the cost of acquiring individual items can be more expensive than the price of the items themselves.
Some departments accumulate their own stocks of identical supplies ensuring enough items to meet their own needs. This occurs even when there is a formal procurement process, especially when departments feel that the process does not get them the right supplies.
Therefore, the duplication of effort and inventory of the items increases overall purchase and storage costs.
3. Tracking inventory
Companies may lack visibility into the true availability of items without a centralized inventory management system.
One department may believe that an item is out of stock when, in fact, the other department has already purchased all the items each department needs. Thus, these oversights can be detrimental to the business.
1. Integrate a procurement software solution
Integrating a procurement software solution makes it easy for employees to track, manage, and control inventory, as well as transaction requests and approvals.
Having a procurement software solution does not just gain you overall control of your inventory but you will gain access to valuable data. Thus, you will be able to easily optimize transaction costs for MRO items and assess potential suppliers to replace the old ones that are not giving any value to your business.
2. Identify and track KPIs
You will not effectively measure the success of your MRO management without having benchmarks and standards.
Establishing KPIs provides you with significant information that makes the benefits of your initiative clear to stakeholders and upper management during monthly or annual reports.
3. Centralizing Physical MRO inventory
Centralizing all your MRO items, categorizing your stocks, and integrating procurement software will enable you to easily track and make all your spending visible.
You may consider assigning procurement staff to handle these items, with a strong talent in building partnerships with preferred suppliers to keep the costs low while still meeting lead time and quality.
4. Educate staff on the importance of MRO inventory management
Best practices are only effective when your employees follow them. Thus, you may connect your procurement team with your MRO staff for interdepartmental educational opportunities to provide training for your employees.
Our Negotiation Course For Procurement Professionals will enable you to be equipped with the best knowledge in procurement that you can teach to your employees. Thus, ensuring the success of your procurement operations.
When everyone is on the same page, it will be easier to work toward the same procurement strategy.
If you are having a hard time finding a procurement professional to teach your employees, you can visit our website procurementtactics.com to have a one-on-one consultation with our founder who has vast knowledge and experience in procurement that will surely make your procurement successful.
+ What is MRO in procurement?
It refers to products or tools that allow businesses to operate without a direct contribution to products manufactured by the company.
+What is MRO purchasing?
These are purchases of the company that are crucial to maintain or repair tools helping the business to stay active.
+ Why is it important to manage MRO?
It is important as it helps business operations to work smoothly as these items help the company to mitigate risks and uncertain events that may happen in the daily operation of a business.
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