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Unlocking savings in MRO

Didier Goguelin, RS Components Country Manager UK, highlights how RS' unrivalled data capability and trademarked Value Process enables customers to benefit from dramatic cost savings.

Maintenance Repair Operations (MRO) procurement is a key element for many businesses within industry and the cost involved in the purchase process of MRO products can impact significantly on profits. An effective procurement process is vital, but often, lack of data prevents proper identification of inefficiencies. Identifying this as a major industry issue, RS Components (RS) decided to make an investment in research for the betterment of MRO.

The everyday requirements of the MRO engineer remain fairly static; having access to a reliable supplier that can provide a widely available and extensive product range quickly. This is the same the world over, in any industrial setting. However, in recent years, tough economic times have forced a prioritisation on price, whilst attention or commitment to an effective procurement process has dwindled - causing expenditure to rise anyway and negate any cost savings negotiated. This scenario is being played out in all sorts of organisations, from small to multi-site, where there is a complete lack of awareness of the huge and hidden cost of MRO.

Realising this was a prominent issue, we decided it was an area that required some in-depth analysis so that we could help customers achieve optimisation in a variety of areas to help their procurement process, and most importantly, positively affect the bottom line. With a real focus on unlocking cost savings for customers, we decided that our vast data capability was the key, enabling us to use our own data on customer consumption to find ways to help them save money. In addition, the help of Manchester Business School was enlisted to support us in the research and validate our methods and findings - essentially ensuring a credible process and helping us to develop White Papers on the topic.

To make best use of the data, we created key areas to focus on where we believed efficiencies could be created. Areas such as product optimisation and inventory optimisation were focused on, among others, and we discovered a hidden ratio of 2:1; procurement costs are typically more than twice that of the MRO cost. So if a company's MRO budget is £1m, they are spending more than £3m in MRO product procurement. We thought this was far higher than any organisation and its stakeholders might expect, and a figure that would get their attention and make them want to learn more about how data gleaned from their own consumption could help us create an effective procurement process for them.

The insights we have gathered have been used in the creation of the RS Value Process(tm), a trademarked, formalised end-to-end process. The fundamentals are not complicated and the concept simply relies on good communication and joined-up thinking - something that often doesn't occur within organisations where each department will have its own agenda, with these elements not considered within a bigger picture and therefore not working in harmony. A design engineer may prioritise product range, whilst the engineer wants availability, and finance and procurement will be cost-driven.

Product optimisation and standardisation is an area we focused on as one of our core areas as we found that by reducing the number of products used or substituting them for better quality, cost savings can be achieved. For instance, paying a little extra for energy saving will reduce overall maintenance costs. Cost can also be incurred in training for the use of certain products, so by reducing the amount of brands used, this can be cut considerably. Add this to a focus on inventory; reducing it so just critical items are stocked to improve cash flow and reduce product wastage through obsolescence and the savings can start to quickly mount.

Efficiencies that are a spin-off from the above lie in optimising suppliers and processes; fewer products and less brands means consolidating suppliers, each of which will have differing invoice and ordering processes which can add considerably to downtime in procurement. Reducing suppliers reduces invoices and management of these processes, saving time, but also making the overall data picture and stock visibility clearer to see. Reduced processing, sourcing and ordering time will remove much more cost than using multiple suppliers to achieve the best prices and discounts, which is a false economy.

Applying this process to small organisations can make a big difference, but where it is really apparent is in the case of large, multi-site organisations where it is easy to flag up inefficiencies which, when addressed, can yield dramatic cost savings. Standardising the data across all sites to make comparable data available can make savings across each site achievable. Our ongoing commitment to monitoring and reporting means savings can be benchmarked.

One of the biggest barriers we have found to achieving a better procurement process is perceived time and hassle. However, we take away that hassle by doing all the work, from initial analysis of the customer's data to a strategy recommendation based on that analysis.

From the customers for whom we have completed this process we have had nothing but great feedback and the results and success of the process are proven in the cost savings made in all cases. We have also applied the process to our own model and saved money through efficiencies created - so we are certainly willing to put our money where our mouth is.

RS Components Ltd