What is MRO? or What is MRO supplies? or What does MRO stand for in manufacturing? Or what does MRO stand for in purchasing? In this blog, I have tried to answer these questions.
What is MRO?
MRO (Maintenance, Repair, and Operations Supply) is an important part of most manufacturing and service businesses and processes as well. Even if these items aren’t a direct part of the assembled product, they help to maintain appropriate operating standards to ensure that all different areas of the business have what they need to function properly.
When analyzing the MRO Supply Chain Management, you will understand how it is essential to optimize the true value, to standardize the companies practices, to determine the key performance indicators (KPI) that provide the most useful data, and finally to integrate the correct technical tools (including procurement software packages) to help achieve this change.
MRO will be the company’s rescue plan in order to simplify its processes, to keep abreast with the ever-changing market, and of course to avoid wasting significant resources.
Standing for Maintenance, Repair and Operations Supplies, MRO is an acronym used in terms of Supply Chain Management in order to describe a set of activities and operations related to the maintenance of a facility including the physical maintenance of structures or buildings, the systems operating in the facility, and the equipment used for production. In other words, anything used to manufacture the final product can be regarded as an MRO product.
Used by companies to create an end product, MRO refers to any equipment or process used to keep a facility running, as Walt Vanderlaan (vice president of strategy at MRO Software in Bedford, Mass) says :
“It’s very crucial to have the right inventory levels and to procure items efficiently”.
The acronym MRO is also seen as a way to control unit price costs in the field of high-volume, low-value purchases which is truly important but getting short-sighted.
The key to understanding how each factor affects the entire company is very essential. Simply because it can bring amazing savings, end-to-end efficiency, and unheard-of control. It can also enable the manufacturing process by increasing visibility, reducing plant downtime, increasing operational productivity and ensuring overall equipment efficiency.
In order to have a successful MRO approach, not only parts are needed, but the company must also seek ways to optimize its maintenance, repair and operation processes.
What is MRO Inventory? The importance of MRO Inventory Management
Nowadays, in all categories of transactions carried out, industrial companies are exposed to a variety of significant risks in terms of their MRO Supply Chain in the case of non-control :
- Unplanned equipment shutdown
- Frustrated stakeholders
- Inflated finished goods inventory
- Bundle working capital in obsolete or unnecessary inventory
- High shipping cost
- Loss of productivity of maintenance workers
When considering all direct and indirect costs, the importance of managing and maintaining the inventory becomes obvious and clear. Consequently, the Supply Chain Manager has to consider the following common scenarios :
The Ultimate Guide to Inventory Planning Methods
- Backlog Excessive Inventory (Overstock)
While trying to avoid out-of-stock by ordering extra parts, the Warehouse Manager finds out that they are rarely used. The excessive inventory (called also Overstock) is placed on the shelf, further making the storage room gathering dust. Worse, he/she cannot get back the money spent which is logical.
Guide to Excess and Obsolete Inventory
- Productivity Loss
We shouldn’t deny nor forget the fact that MRO inventory management affects daily operations. It is estimated that technicians spend up to 25% of their time fixing parts. Although this may only add a small amount of downtime each time, it will add up quickly. Thus, there is a lot of frustration with not being able to find the parts you need.
- Production Shutdown
If materials and supplies are exhausted, production stops. Meanwhile, operators and technicians are on standby waiting for the parts to arrive. Consequently, the Production Manager needs to pay for expedited transportation. The substantial increase in downtime causes the total maintenance cost to skyrocket. If you can’t wait to restore the assets, he/she must use risky expedients that may compromise product quality or safety.
As it can seem clear, MRO’s basic function should me is to maintain the smooth operation of the supply chain & manufacturing. The failure to maintain, repair and overhaul the system can be harmful. However, companies that maintain MRO inventory become able to provide better products, in terms of quality, to customers.
Usually, MRO procurement isn’t managed by the purchasing department, but by the maintenance staff. Which in my opinion is wrong as they are not skilled in either purchasing or procurement. Therefore, Supply Chain folks Must Involve to management spend and reduce spend.
The importance of MRO Spend Management
If we conduct an analysis of the current industrial context, we could identify several thoughtful observations.
If they promise to make changes, some companies are unable to optimize their MRO.
In many cases, this result is due to the fact that they neglect to conduct a thorough and effective spend analysis. The in-depth study of historical spend/ expenditures laid the foundation for the development of further effective and strategic methods.
Proper expense analysis can enable the purchasing department to have a general understanding of its historical purchases in a category and identify opportunities to reduce short- and long-term costs. However, in high-volume products like MRO, the process often seems too arduous to purchase even to try.
MRO Spend Management values are more about :
- Setting correct goals for expenditure analysis and procurement
- Rethinking the historical method of analyzing and managing MRO expenditures.
- Choosing the appropriate politic for MRO expenditure analysis.
- Collecting and classifying expenditure data in the most effective way.
- Identifying cost reduction opportunities.
- Encouraging suppliers and stakeholders to develop more effective data collection processes.
Items and Types of MRO
As mentioned before, MRO’s strategy is an important part of most manufacturing and service businesses. Even if these items aren’t considered as a direct part of the assembled product, they help maintain appropriate operating standards, thereby ensuring that all different areas of the business have the functions required for normal operation.
Some items could be represented as machinery and vehicle spare parts, lubricants, office materials, industrial equipment, consumables, computers or work equipment such as boots, uniforms, vests and helmets.
According to the nature of the business, these elements constitute a large part of the company’s procurement budget, and in the process of purchasing, processing and storing these elements, they should be used productively in order to obtain the maximum benefit from these purchases. Enterprise resource planning (ERP) systems usually include MRO management, which will help companies improve the efficiency of this key business process.
MRO is concerned about the maintenance and repair of factories or facilities, which can be divided into areas :
Material Handling Equipment Maintenance :
In some companies, this area of MRO involves the maintenance and repair of material handling equipment. It covers a range of systems and machinery, from permanently installed conveyor systems to movable equipment and machinery. Keeping this equipment in good repair is essential for the transportation of raw materials and components to the production line as an illustration.
Infrastructure Repair and Maintenance :
Infrastructure repairs and maintenance include activities such as repairing roofs, doors, windows, and loading dock brackets. Depending on the nature of the enterprise and whether the facility is leased or owned by the enterprise, different methods can be used to complete the repair and maintenance of the infrastructure.
The third area of MRO activities involves the maintenance and repair of production equipment. It simply aims to maintain the main machinery and systems used to produce the products and services sold by the enterprise and use them as the main output. Unplanned downtime in production equipment can be very expensive.
Tools and Consumables :
It involves tools and consumables. This usually refers to materials and tools that are smaller than the machinery and equipment discussed earlier in the repair and maintenance section of production equipment. These items are usually used or consumed in production activities but are not classified as finished products, so they are not classified as direct expenditures such as consumable items (Ex : Adhesives and glues), personal protection equipment (Ex: Face shields), etc.
What are MRO Responsibilities
- The procurement team is composed of members who place orders with MRO suppliers as needed.
- In most cases, MRO procurement is rarely managed by the company’s enterprise resource planning tool, material resource planning system or warehouse management system.
- MRO inventory and expenses are usually not included in the company’s periodic reports so that the company does not understand the current MRO projects on hand.
- This can be remedied by tracking a complete list of commonly used MRO items required, required delivery time, usage and consumption rate of MRO items, etc…
Intelligent & Efficient Practices MRO Procurement
Change can be challenging, especially if the Top Management (or senior management) is committed to changing corporate culture and policies. However, if you are willing to adopt and implement some best practices, you can simplify and improve the MRO supply chain and its related expenditures.
1. To Identify and Track Key Performance Indicators (KPI) :
Without benchmarks and standards, we will not be able to measure the success of MRO procurement. Setting up KPIs provides the company with the necessary information that can clearly explain the benefits of its actions to senior management and other stakeholders in the monthly/quarterly report. Key performance indicators could be : Procurement budget, vendor performance/supply contributions, number of stock-outs, etc…
2. To Research, Approve and Integrate Purchasing Software Solutions :
If the purchasing team still doesn’t use any software package to manage MRO spending and supply chain, it must switch to it. Modern software makes it easy to track, manage and control inventory as well as transaction requests, approvals and verifications. This will help the team control inventory, access valuable data, so as to easily optimize the transaction costs of MRO projects, evaluate potential suppliers (and track the performance of existing preferred suppliers), reduce the number of suppliers in the supply chain, And reduce procurement budgets while still creating value.
3. To streamline Procurement with Preventive Maintenance :
After locating the inventory, you can set a schedule for equipment downtime (linked to benchmarks and KPIs), and order a sufficient number of equipment according to the needs and situation requirements to make the system operate at the best efficiency without maintaining unnecessary inventory. The team will find that budgets and forecasts have also been greatly improved because its members will be able to identify purchasing patterns and plan accordingly.
MRO Procurement Best Practices
If a company wants to maximize the value and cost savings generated by its MRO project, the first and most important step is to prioritize and support MRO procurement and MRO inventory management in the same way as the company’s direct procurement. Therefore, the company will immediately obtain substantial and sustainable savings through :
- Simplifying expenditure analysis by eliminating rogue expenditures, and making more accurate financial forecasts and strategic planning.
- Enhancing data management and collaborating to increase the productivity and participation of all stakeholders
- Eliminating unnecessary work process complexity, thereby reducing work time and reducing process efficiency. Combined with automation, obstacles and human errors can be greatly reduced.
- Incentive measures, economies of scale, and partnerships with trusted suppliers shift from tactical cost reduction to the strategic total cost of ownership reduction
The manager must be a dedicated and experienced purchaser, and a team responsible for MRO.
It is also important to deploy appropriate “supplier relationship management” procedures, just like the manager’s needs for any other category. Given that there may be thousands of MRO project suppliers, the most practical method is to identify the mission-critical, highest-risk MRO projects and suppliers, and ensure that a few suppliers are directly attracted.
Having proper metrics and performance tracking processes is essential. Target metrics and performance will inform actions regarding procurement and inventory.
Active inventory management is essential. Most importantly, the most critical business MRO projects need to be analyzed and managed based on demand patterns and lack of supply impact. Intelligently storing these mission-critical items will reduce downtime, reduce costs, and save management time. Finally, it is important to ensure compliance with expenditure control.
Hopefully, these blogs answer the question of what is MRO. It becomes clearer that MRO is a crucial and indispensable aspect of any purchasing organization or even a simple operation.
All companies (Small or Big ones) have to take the time in order to appropriate: Business processes, infrastructure, and strategies in order to support and encourage the application of MRO standards, it is very essential to invest in this domain and area. If not, the company will end up spending more time while dealing with disasters and fires caused by insufficient management.
Consequently, you have to keep in my mind that it is, nowadays, mandatory to establish and follow MRO best practices. We won’t deny the fact that it is at the beginning a bit tough to change the company’s culture in order to allow the concept of value to be established through our Supply Chain Management department.
Best practices only work if they are followed.
This is why, it seems too important to, first, think about the procurement team (MRO employees) to whom we should provide appropriate training for procurement software, a clear explanation of the advantages and benefits of value-driven business processes, etc.
Greatly explained and I can totally relate with your article as I work in material planning of an airline engineering division which is an MRO organization and I am glad to see that we are practicing “MRO Procurement Best Practices” as listed in your article. It’s always very knowledgeable and inspiring to read your articles and posts.
Dr. Muddassir Ahmed
Thanks Ahsan for your comments
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Thanks for sharing this blog. MRO is an essential, and unavoidable, aspect of every Operation and Procurement organization.