Global components distributor RS Components GM Brian Andrew says that, although manufacturing companies have realised that they can reduce costs by optimising their maintenance, repair and operations (MRO) procurement, they tend to achieve this by negotiating category supply contracts, which typically account for only 20% of MRO purchases.
Andrew states that MRO costs are determined by the items used in the ongoing maintenance of factories and production lines. He notes that “research has shown that the Pareto principle applies to MRO purchases”. In the case of MRO, it means that about 80% of procurement process costs (or, according to the principle, 80% of effects) are spent on just 20% of purchased products (or 20% of the causes).
Andrew says that replacements for instrumentation and control products used in automation tend to be relatively known and understood, which prompts companies to use category supply contracts.
However, companies tend to use the procurement processes and contracts meant for the recurring maintenance-related purchases to regulate one-off, unplanned or infrequently purchased items, he explains. The adoption of processes meant for recurring purchases to regulate infrequent purchases subsequently results in significant wasted process costs.
Andrew notes that price-related data on indirect purchases – infrequent or unplanned purchases – tends to be minimal or nonexistent, owing to the value usually being low. It is also difficult to manage these costs through the usual process of cost-reduction strategies, as they are not meant for individual purchases, which separately do not account for significant savings, he adds. However, sufficient price data and a combination of strategies could save as much as 35% of the total MRO procurement costs.
Andrew says that companies realise that tackling the “long tail” of MRO spend needs a collaborative approach among multiple stakeholders, which entails procurement, finance, engineering, operations and suppliers.
Companies now use targeted strategies that include product substitution and standardisation, supplier consolidation, inventory reduction, process simplification and pricing solutions to reduce their total MRO procurement costs, he states. A key element is to have adequate data, which companies can use to map their consumption of MRO items, which “needs to happen over a period of time and contains the right type of data to make informed decisions”, Andrew adds.
RS Components has, therefore, introduced a trademarked process to help companies reduce their total MRO procurement costs by offering customers data and insight into the buying behaviour of their unplanned purchases. “Further, with more than 500 000 products from 2 500 leading global brands, including its extensive quality private-label range RS Pro, RS Components can reduce the number of MRO suppliers that companies need to work with,” Andrew explains.
He asserts that RS partners with customers to help them reduce their MRO spend by up to 35%, without significant investment or risk for them. The company extracts value across the complete end-to-end purchasing cycle from sourcing to payment.
Andrew concludes that the company can meet the unplanned MRO and project- related purchasing requirements of maintenance engineers, buyers and machine and panel builders, as well as electronic engineers