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Four Areas of Wasted Spend in MRO Procurement and How to Fix Them

MRO procurement is often the least considered expense of your company's consumables. Its humble, unpretentious nature is not often noticed unless costs escalate exponentially or a much-needed critical spare can't be found.
Whether wasted spend in indirect procurement is a new topic to you or not, as a legitimate company expense it deserves some attention. Although every company is different, this article describes some of the most common mistakes made in MRO procurement along with suggested remedies.

1. Lack of Focus

A company dealing with out-of-control MRO procurement costs may be struggling in its day-to-day efforts to keep machines running, unable to think about indirect procurement. Similarly, companies that have over-focused on direct costs for so long might barely register indirect procurement on their radar.
A lack of focus on MRO procurement can also be due to:

  • Not knowing exactly what to focus on… the old "how do I eat the elephant?" dilemma
  • Relying on outdated inventory methods, such as a Min/Max mentality

Whatever the reason, if indirect spend is not a priority, it can degrade into rogue spending, obsolete overstock, and increased waste.

Integrated Suppliers Can Help

As with so many things, just recognizing that there is a problem is half the battle, and indirect procurement is no different. When you're having difficulty knowing where to start, an integrated supplier can evaluate your greatest need and point you in the right direction.
The company that struggles on a day-to-day basis will find that an integrated supplier can take a large chunk of work (and worry) off its shoulders, enabling it to focus on production. The company that is approaching MRO procurement after years of focusing only on direct cost can benefit from working with experts who can deliver real-world solutions.
Those companies who don't have the resources to perform a complete MRO overhaul can still benefit from "quick fixes." For example, storeroom makeovers can provide better layout, security, and standardization as well as accommodate production line changes.
Experienced integrated suppliers have large portfolios, saving their clients money with lower prices on indirect spend. Working with an integrated supplier, companies can also realize the soft savings of increased visibility, reduced downtime, higher productivity, and overall equipment effectiveness.
Before working with an integrated supplier, make sure they have a brand and supplier neutral approach. This ensures you are getting the best possible solution for your company, not theirs. 

2. Fragmented Supplier Base

Over time, lack of attention to indirect procurement can lead to a fragmented supplier base. What typically occurs is that:

  • Transaction costs rise
  • You lose control over spending
  • Purchasing power diminishes

Although it might make sense to cut costs by spending time sourcing per piece, it's better to step back and look at the big picture.

Assemble a List of Preferred Suppliers

A list of preferred suppliers can simplify your processes and regulate your MRO procurement expenses. Having a list of preferred suppliers leads to other benefits:

  • Choke off unauthorized spending—Reduce the likelihood of rogue spending to unauthorized suppliers.
  • Increase productivity—You won't have to spend time searching online for the best prices.
  • Local storage—Supplier(s) might be able to store backups locally at their own facilities, a space and money saver for you.

3. Overstock

You know it's true… if you have the space, it's going to get filled up. Before you know it, you have overstock.
Storing more material than you need wastes money. Warehouse space is money; every square foot of warehouse space equals a certain dollar amount. Filling up the space with unnecessary items just adds to warehouse costs. 
Overstock is also the result of overspending. You know… when you or your employees:

  • Buy because you don’t know you already have the product
  • Buy extra "just in case"
  • Buy even more to get a volume purchase "deal"

Get Help from Lean 6 Sigma and S5 Principles

One way to attack overstock and its ugly cousin, overspending, is by applying Lean 6 Sigma and 5S principles:

  • Lean 6 Sigma: Systematically reduces waste and removes variation
  • S5: Organizes areas so that work can be performed efficiently, effectively, and safely

Making the commitment to track purchasing can also drive efficiency. By examining purchase history, your company can make better decisions on what should and shouldn't be stocked.

4. Critical Item Identification

While the criteria for labeling a spare item as "critical" is subjective, it's generally agreed that these are parts that take an extremely long lead-time to produce. If these items can't be found in-house when they're needed, it could cost your company thousands – perhaps millions –in equipment down-time.

Detect Critical Spare Items

Identifying the spare parts that are critical to maintaining production processes is a step in the right direction. Work with your maintenance team to identify critical spare parts as well as point out obsolete spare items. This is also a good time to document your critical spare parts policies and best practices.
It may be possible to establish contracts with suppliers who will hold onto critical spare parts. This saves money because you don't purchase the item until you need it, and they are not taking up valuable warehouse space.

Summary

The above-mentioned remedies aren't a cure-all, but the results of just one positive, money-saving experience can lay a foundation for even more improvements in reducing wasted spend.
SDI offers a range of storeroom and other MRO services. Click here to learn more about the variety of solutions SDI has to offer. Whether you need us to engineer a synchronized supply chain or implement a few quick fixes, contact SDI’s experts today.

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