The Meaning of MRO and Its Role in Procurement

MRO is an important spending category not only for the growth and success of your organization but also for the health and safety of your employees. MRO is necessary for maintaining equipment in a way that’s safe for your team members — no matter what industry in which you operate. 

First, what does MRO stand for? MRO stands for maintenance, repair, and operations. MRO is part of an overall procurement strategy in that it contributes to the continual and long-term success of your business; yet, MRO often gets lost in the bigger picture of indirect costs and decentralized planning. 

What is MRO?

MRO is a category of spending that covers all maintenance parts used for repairs and to support production at an organization. MRO, despite being vital to operations, is considered part of indirect spending. MRO procurement includes things like office and cleaning supplies, computers, and items related to maintaining tools needed for production. 

Often, the challenge of MRO procurement is that it is “invisible;” it is a spending category that gets overlooked by purchasing teams seeking to optimize costs. MRO spending tends to be decentralized, but with the right software, organizations can uncover MRO spending, find efficiencies, and bring down the total cost of ownership (TCO) for their product. 

[Read more: PCI Pharma increases MRO sourcing events without adding headcount] 

MRO procurement is often seen as necessary — but not necessarily strategic. Other spending categories (like direct costs) are scrutinized and prioritized over MRO costs; but, there are many MRO items in the tail spend that can be better organized and managed. 

The challenges of MRO 

Besides being decentralized, the MRO spending category comes with its own challenges. 

First, many procurement teams struggle to track and verify inventory across an organization, leading to wasted time and talent. This lack of visibility can cause teams to lose time re-ordering replacement parts that may be available somewhere in an organization’s network — but no one knows it. Team members not only waste time trying to locate parts, but also managing inventory, a manual task that can be easily automated. 

Next, MRO often suffers from a short-term vision. Procurement teams may seek to take advantage of discounts in this spending category, only to constantly switch vendors in pursuit of a better deal. Ultimately, MRO procurement is best served by considering the TCO and building long-term supplier relationships. 

And, finally, MRO spending is often redundant when there aren’t enough controls and oversight to manage MRO procurement. Teams may “hoard” parts or stockpile inventory to reduce the risk of downtime, but this just leads to further waste and overburdens the procurement budget. 

How to manage MRO

The approach to better managing your MRO costs is not dissimilar to the strategy of managing direct costs. The first step is to identify where the organization’s interests could be best served by implementing technology. Procurement teams must centralize spending data to have a clear view of how much is being spent on MRO — and where there is an opportunity to reduce costs. 

Next, tools like Fairmarkit allow organizations to track, manage, and control MRO sourcing events. Fairmarkit’s machine learning automates the bidding process for MRO purchases, suggesting a number of possible suppliers based on the company’s master vendor list and Fairmarkit’s own vendor database. For one company, Fairmarkt was able to help identify over 20% savings on over $1 million MRO procurement events. 

In addition, sourcing software can make it easier to optimize costs, track metrics automatically, and make sure competitive sourcing is helping the organization achieve its mission. The organization must set KPIs in order to ensure MRO optimizations are working as intended. Some KPIs for MRO procurement might include: 

• Vendor performance/supply contributions
• Number of stock-outs
• Days/months of available inventory
• Rush orders vs. replenishment orders
• Part attrition due to obsolescence
  

Once you have your MRO procurement process set up, centralize your inventory management. Catalog everything with a unique identifier for easy tracking and to improve spend visibility over time. Schedule preventative maintenance regularly to optimize the lifespan of your parts and keep your operations working as efficiently as possible. 

Over time, these changes will improve your organization’s ability to forecast spending and budget accordingly. And by building long-term relationships through strategic sourcing, you can identify purchasing patterns and plan ahead to save money. 

For more advice on managing costs and optimizing maintenance, repair, and operations, check out Fairmarkit’s blog, The Source.