At any point, an organization or industry can be doing exceedingly well or poorly. Most Managements will say that the challenge they face is managing costs across the supply chain. Many organizations have already taken steps to produce cost reduction benefits quickly, including renegotiations with suppliers. But the question arises: What hidden issues can organizations not see?

While organizations struggle to reduce their procurement costs externally, their internal procurement team is faced with challenges like:

• Lack of expert perspective for external markets
• Limited bandwidth
• Decreasing value in savings in procurement costs.

MRO procurement - 3-time tested strategies for cost reduction

• MRO (Maintenance, Repairs, Operations) spending as a source of cost reduction is overlooked.
• Focusing and segmenting specialty components can be a significant cost-saving area.
• Gaining visibility of MRO spending across locations can bring insights into reducing costs.

MRO procurement strategies to control costs

MRO parts segmentation

MROs do not have uniform characteristics, and classifying MRO parts into Non -OEM and OEM categories will help focus on those parts that have a greater impact on business. Specialty parts make up about 25% to 35% of Total MRO spending and are more expensive. They are critical for maintaining operations.

Taking the time and focusing on categorizing parts is a crucial segmentation exercise. It enables one to understand the MRO complexity and identify ways of controlling costs.

• MRO Parts refurbishments

There is a rise in refurbishment parts as they offer significant MRO cost reduction- usually in the range of 30% to 60% of the new parts cost in some cases. Since MRO parts supply was mainly dependent on China and the Covid crisis has shown the supply chain bottlenecks mean one cannot rely on one source only.

A more viable strategy is refurbishing existing parts to maintain inventory, saving costs on new parts, and avoiding shortages.

• Partnering with MRO manufacturers

MRO parts manufacturers that service from multiple sites to an enterprise may not have visibility of the volume of parts and the categories purchased. They may enter into direct tie-ups with enterprises instead of operating through distributor and dealer networks.

For businesses, it is essential to have visibility into the MRO procurement across locations. If the procurement is a decentralized function, it leads to inefficiency as it is possible to procure the same type of parts from different suppliers. Consolidating them under one central procurement authority will help negotiate a better volume price.

Using MRO procurement services

The right combination of process and technology improve automation levels, accuracy, and efficiency in MRO purchasing. Using MRO Asset management solutions that provide Procurement Support Services for MRO items and others.

Examples of Support services

Order Processing & follow up

• Management of Order requests
• Processing of Purchase Orders
• Contract management
• Confirm PO acceptance by vendors
• Ensuring timely delivery of MRO parts and equipment
• Ensuring Proof of Delivery
• Engaging with vendors and suppliers to ensure meeting key milestones

Reconciliations

• Invoice exception management
• Reconciliations of payments
• Ledger verification and reconciliation

Vendor Onboarding

• Adding new vendors to the system and updating existing ones
• Ensure completion of vendor documentation

Conclusion

With the above strategies for sourcing MRO, it is significant to use those which suit a particular business. Segmenting MRO parts into clear categories and data maintenance will provide all-around visibility in MRO management.

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