[New Resource] MRO Spend: An Undeniable Opportunity – It's Easier Than You Think
When it comes to managing spend and supplier relationships, defining MRO (Maintenance, Repair, and Operations) can get a little complicated. Traditionally, MRO includes all the goods and services required to keep a company running. As you might imagine, this varies dramatically from industry to industry and company to company.
Because MRO goods and services don't directly touch the product or customer, it's often a category of spend that gets overlooked by management and never gets the prioritization it deserves. This lack of strategy often leads to purchase decisions that are made in moments of need on the plant floor – or in other words, when production is at risk. Keeping production up and running is important, but doing so with tunnel vision leaves opportunities for further savings, improvement, and cost-reduction off the table.
Getting strategic about MRO is a massive opportunity for long-term savings, efficiency, and performance. Below, we scratch the surface with several insights that can help you become more informed and intentional about MRO and which are outlined in greater detail in the Tenzing eBook, 7 Key Insights Every CPO Should Know About MRO. Keep reading to get a taste of what working with MRO experts to define an MRO strategy can do for your company.
In summary, here are the 7 Key MRO Insights outlined in the eBook:
- Production is King
- The 33/3 of Bits & Pieces
- The Artistry of Data Interpretation
- PPV is Not the Issue
- 50 / 50
- The 4th Dimension of TCO
- Codifying Tribal Knowledge
Next we’re going to spend some more time talking about the last two insights: the 4th Dimension of TCO and Codifying Tribal Knowledge.
Keeping Costs Where You Can See Them – A Holistic Approach
MRO is one of the most misunderstood spend areas for any business. It can also become a highly emotional spend area for internal stakeholders who feel strongly about obtaining materials from their preferred suppliers, often friends or local vendors. Procurement is often told by leaders on the floor, "If you mess with my suppliers, you'll be responsible for shutting the plant down!" No one wants to put production at risk, but the opportunity to optimize MRO spend is too important to the greater health of the business to allow the category to coast in ‘status quo’ mode.
Strategically sourcing MRO and implementing a comprehensive program that holistically manages MRO's total life-cycle costs leads to what we like to call “The 4th Dimension of TCO” (Total Cost of Ownership). The 4th Dimension refers to guaranteed continuous improvement savings derived from improvements to processes, better inventory management, new training programs, and many others. The days of price shopping every day are becoming ancient history. Instead, focusing on continuous improvement proactively engages internal stakeholders and strategic suppliers throughout the life of a supplier agreement — a relationship that is critical when it comes to obtaining and maintaining a competitive edge.
Partnering with MRO experts can help you tap into these continuous improvements. Most new MRO strategic partnership agreements contain 8%–12% guaranteed year-over-year cost savings throughout the life of the agreement. Plus, in many cases, these savings represent 50% of the total overall MRO budget impact savings.
Codifying Tribal Knowledge With Supplier Partnerships
Another challenge companies face in MRO is the changing labor force. Tradesmanship is in limited supply. Younger generations aren't flocking to careers in manufacturing and the portion of the labor market available to fill these positions is getting smaller and smaller. At the same time, older generations are leaving the industry. After three decades of work, the people who’ve been running manufacturing plants are retiring, and they're taking their tribal knowledge with them.
Tribal knowledge refers to critical information that's not recorded anywhere outside of these employees' minds. With this sort of knowledge heading out the door every day, how do companies make up for the loss? Partnering with supply experts to implement an effective MRO strategy can help you bridge these significant gaps in labor.
It's important to acknowledge that an effective MRO strategy meets both the objectives of the boardroom and the plant floor. When you partner with the right MRO experts, you reap the benefits of their years of experience on all ends of the manufacturing spectrum. The right partners know where to find opportunities for improvement, how to clean up years of convoluted data, and what questions to ask to optimize for savings and performance.
Take this real-world example of a company who partnered with Tenzing to address their MRO:
A $7B+ company had over 60 operations on three continents. With the help of Tenzing MRO experts, they reduced vendor complexity from thousands to less than a dozen, reduced PPV in excess of 3%, and lined up continuous improvement savings worth at least 10% of MRO purchases annually for three years following.
MRO experts can integrate industry best practices and form solid, strategic partnerships with suppliers that will pay off in the long run. Plus, the right team will help you make the critical connection between MRO at the corporate level and MRO on the plant floor.
A Well-tested and Adaptable Framework for MRO
When facing ever-competitive markets, your MRO approach takes on strategic importance. You can rely on well-tested frameworks delivered by experts with deep experience with MRO suppliers as well as global sourcing perspectives.
If the above ideas resonated with you, download our eBook to learn about how forming an MRO strategy is a smart business decision. Each chapter in the eBook tackles a different insight that will arm you with potentially game-changing knowledge. Learn about the MRO Framework, then find experts that understand the MRO supply market and directly relate to MRO stakeholder requirements.
Download the eBook: 7 Key Insights Every CPO Should Know About MRO
Join the upcoming webinar Sponsored by ISM, Scout RFP and Tenzing on Thursday, November 29 at 2pm EST. Register here.