Leveraging MRO Supply Chain Efficiency Through Category Management – A SpendEdge Success Story
What is MRO in Procurement?
MRO refers to the maintenance, repair and operations of machinery and equipment used in an integrated supply chain management model. MRO providers play a significant role in today’s supply chain management. Owing to the economic downturn one can witness a shift in focus on sourcing and procurement. Measuring performance and the associated improvements to your MRO supply strategy requires setting benchmarks and identifying achievable goals.
We’ve identified five KPI’s that will help you get a better handle on MRO supply chain management:
Total MRO supply spend as a percentage of procurement budget: Maintenance and repair inventories should ideally represent a low percentage of total production inventory. The MRO supply spend should not consume more than 3% to 10% of overall procurement budgets.
Percentage of maverick spend as a percentage of procurement budget: Poor inventory accuracy can inflate budgets and cause unnecessary inventory growth which further complicates the MRO supply chain. Reduction in these areas will result in better spend visibility across the MRO supply chain, better spend management capability, and higher supplier accountability.
The ratio of rush orders to replenishment orders: While rush orders may be necessary from time to time, huge volumes of rush orders lead to increased spend, which in turn results in cost overruns and shrinking margins. Hence it is important to maintain a low ratio to combat negative impacts on the MRO supply chain.
Though such KPI’s can help you gain a better handle on your MRO supply chain, its time we look at other factors that will help boost efficiency and drive value across the MRO supply chain. Owing to the advancements in the MRO services sector players in this industry are poised to witness massive growth opportunities over the next few years. However, to get there one must navigate a rocky market landscape, which implies players should expect to encounter a plethora of challenges that arise due to- inefficient spend management capability, a fragmented supply base, and undue tail spend.
Businesses that leverage category management reported a 70% reduction in overall costs. Request a FREE Proposal.
Category Management for MRO Supply Companies
About the Client
The client is a leading MRO service provider with facilities located throughout the US and Canada. Backed by advanced systems and world-class processes this company is an independent MRO service provider headquartered in South America and ranks among the top ten in the world. The services offered by them include- upgrades, modifications, maintenance inspections, and refurbishments for a wide range of aircraft OEM platforms.
The Business Challenge
MRO service providers are set to witness massive growth over the next few years. However, the players in the MRO sector that offer these services must navigate a rocky landscape to thrive in the long run. Though the MRO supply companies are experiencing robust growth due to advanced technologies, consolidations, and emerging markets opportunities, such developments have transformed the market risk landscape, making the supply chain vulnerable to continuous disruptions. Facing similar challenges in the MRO supply chain the client was looking at accurately positioning themselves to capitalize on the new opportunities in the MRO supply chain. Disruptions in client’s supply chain equated to millions of dollars in losses, hence they wanted to adopt strategies to navigate the market landscape, ensure business continuity and position themselves in the broadening market of rich opportunities.
In the face of increasing cost reduction pressures, MRO companies are on the constant lookout to find alternative ways to increase efficiencies and tackle challenges in their MRO supply chain, such as the ones faced by our client:
Problem Statement 1
The client found it challenging to manage materials and labor costs in the face of tightening MRO supply chain functions.
Problem Statement 2
Categorized by a fragmented supply base and high amount of tail spend, the MRO service provider was forced to make spot buys on a daily basis due to which they faced major challenges in effective spend management.
Problem Statement 3
Owing to the utilization of different systems across the client ’s facilities, the predicaments faced by them was further compounded by the sheer number of MRO buyers, the lack of communication between MRO buyers and facilities, and poor MRO supply chain management.
SpendEdge’s category management team works with you to evaluate and optimize your current MRO supply chain, providing clear strategies that will effectively drive cost reductions, improve service levels, and drive compliance across facilities. Want more Info?
SpendEdge’s team of MRO supply chain experts can help your sourcing and procurement teams to effectively tackle such challenges. Where sourcing and procurement teams responsible for MRO supply within organizations struggle to gain control over fluctuating costs, product non-standardization, and site-level compliance- SpendEdge’s category management experts can help.
To help the client tackle all the above MRO supply challenges the experts at SpendEdge adopted a comprehensive four-step approach. This approach not only helped the MRO services provider to enhance their procurement strategies and cut down on maverick spend but also enabled them to enhance the efficiency of the MRO supply chain. The valuable insights unearthed by our solutions also helped identify price arbitrages, thereby helping them benchmark their performance against market developments while maximizing their supply chain efficiency by over 60%.
Through a comprehensive data collection and normalization process, our category management experts helped the client to gain a thorough understanding of their existing MRO supply chain requirements from both a qualitative and quantitative standpoint. Not only did this approach offer more visibility into the client’s MRO spend, but also provided a detailed item-level detail data that empowered them to identify and evaluate savings opportunities present within the MRO supply chain. By leveraging our extensive internal database, MRO category expertise, and knowledge of the MRO supply market, we were able to quickly benchmark the client’s current costs and developed robust business plans to optimize their MRO supply chain.
Understanding the core challenges faced by MRO companies and phasing out the rollout of our category management solutions helped minimize the implementation risks to a great extent.
The solutions offered were divided into the following four phases:
The initial phase of this category management process started with a top-down diagnostic of spend and MRO supply chain data to understand opportunities and prioritize initiatives. We then moved on to analyzing multiple buyer processes, category by category, addressing close to 40 different MRO supply chain categories. This analysis was carried out by segmenting the MRO supply chain spend into different groups to determine all the sources available for spend optimization across all departments and business units.
The second phase revolved around holistically assessing the category demands of the MRO supply chain along with a robust market evaluation process to determine the best fit MRO supply model and preferred partners.
When it comes to selecting the right MRO supply model, one-size does not fit all, as each model has its pros and cons. Since the client spent a sizeable amount on technical categories we adopted a Hybrid MRO supply model.
In addition to MRO supply model selection, companies can realize savings from fully leveraging spend across different supply chain categories. The final phase of this engagement revolved around minimizing spend leakage by identifying the tail spend suppliers across the client’s business units.
The client’s MRO supply chain encompassed a multitude of products, services, and suppliers that were crucial to their day-to-day operations. With a large decentralized user base and millions of items and transactions, their MRO supply category had a high opportunity for cost savings – by leveraging SpendEdge’s MRO supply category management and strategic sourcing expertise.
Besides driving competitive MRO pricing strategies, SpendEdge’s category management process enabled the client to:
- Optimize and manage millions of SKUs and itemize current price points across all facilities
- Gain control over demand planning and inventory management by incorporating the industry’s best practices including- vendor managed inventory (VMI), inventory consignment, industrial vending, and order point optimization
- Maximize the advantage of economies of scale through MRO supplier consolidation and the establishment of a preferred MRO supplier base
- Streamline centralized billing processes to minimize administrative and MRO supply costs
- Drive compliance throughout the organization
- Ensure spend efficiency through continuous monthly auditing services, post-implementation
Having a robust category management process in place has become more of a prerequisite for a professional sourcing organization. But do you get all the possible benefits from your current approach to category management? Get in touch with our category management experts!
Why partner with SpendEdge?
With over a decade’ experience in the field of procurement and sourcing, SpendEdge has been a forerunner in offering smart procurement solutions to over to 500+ businesses across the globe. We offer in-depth, powerful insights that help our clients develop effective procurement strategies to maintain a winning edge in the market in which they operate. SpendEdge’s unique approach to procurement transformation encompasses robust procurement strategies and technological innovations to help businesses to rapidly build the infrastructure required to fuel high-performance digital procurement enterprises. Our category management services provide your organization with the strategic sourcing expertise needed to help reduce costs through increased spend visibility, market intelligence, compliance tracking, and supplier optimization
As a true end-to-end procurement solutions provider, we combine our dedicated procurement offerings with best in class innovative approaches to tackle all procurement challenges. What’s more, our experts say that such smart procurement solutions not only act as a key driver of productivity and savings but also accelerate the overall impact on the organization far beyond the sum of its counterparts.
We Offer All Things Procurement Under One Roof
SpendEdge offers the industry’s widest range of procurement offerings and customized solutions to tackle challenges across industries. Our procurement services portfolio includes:
- Supply market intelligence
- Strategic Sourcing
- Supplier Management
- Spend Analysis and Benchmarking
- Risk Assessment
- Category Management
We can also deploy our own procurement management system, by leveraging smart procurement solutions that deliver maximum value to clients.
This case study highlights the manifold challenges in the MRO supply chain and exploits how the intelligent use of SpendEdge’s category management solutions can empower MRO service providers to create facilities of the future.
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