Accenture Spend Trends Report: MRO Category Intelligence – Not One Category, Not One Opportunity (Part 1)

For many companies, maintenance, repair, and operations (MRO) represents a single (and large) area of procurement spend – often one which is rarely as proactively managed as it could be (likely resulting in great savings on certain items and price gouging by suppliers on other SKUs that make up for all the savings in other areas). But MRO is not a single category. It spans everything from janitorial and cleaning supplies to fasteners and electrical products. But MRO typically has one thing in common – the majority (if not all) spend goes directly through distributors which may (or may not) perform value-added activities rather than to manufacturers.

We’ve covered MRO extensively on Spend Matters as of late, including taking a closer look at how to segment MRO spend and appropriate sourcing strategies in different areas. We’ve also looked at Amazon’s potential in the market, among other areas. See our list of related research at the end of this post for our most recent thoughts on the topic.

Spend Matters is not alone in dissecting the MRO market. Accenture’s Q2 Accenture Spend Trends Report offers a detailed analysis of some of the latest activities including how distributors are expanding their reach to new areas. For example, “some of the major distribution players such as Applied Industrial Technologies (AIT) and Motion Industries [are] expanding into new, adjacent product delivery and value added services areas they had not been in before.” In these cases, the report continues, "rather than just selling bearings as they had in the past, these major distributors are increasingly offering tools and industrial supplies that accompany the base products they are selling.” Grainger, which has grown rapidly over the past decade, potentially has the most to lose as it is in the crosshairs of both highly targeted distributors, which are branching out, and Amazon, which has multiple strategies, including AmazonSupply, to tackle MRO categories.

In adopting these expansion strategies, Accenture notes for distributors that “the benefit … is to expand ‘share of wallet’ with customers and offer more competitive pricing (sometimes at lower margins, but capturing more gross profit dollars by increasing the size of overall customer orders).” And for procurement, there are numerous benefits “from the potential for efficiencies due to fewer suppliers and the ability to negotiate better terms on higher volumes. The added benefit is that new competition is created in some areas where it did not previously exist, as well as increased opportunity for continuous improvement and supplier-enabled innovation.”

To more effectively target MRO, Accenture recommends customers become more “open-minded about re-opening supplier agreements” given that “suppliers with expanded scopes of services may also identify savings and product improvement opportunities through possible substitute products.” Additional recommendations include exploring value-added services such as vending/distribution kiosks and RFID.

Spend Matters has developed a range of additional sourcing strategies, including a 2/2 segmentation of how to address MRO spending, for those that are developing both overall and tactical sourcing strategies to manage the category. See related research below.

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