A Huge Opportunity: MRO Manufacturing Spend

I came across this useful interview in Reliable Plant magazine that talks about the huge MRO Spend Management opportunity in US factories. According to the article, "Research shows that America’s 350,000-plus manufacturing facilities annually spend nearly $200 billion on indirect materials (also known as maintenance, repair and operations [MRO] products). Research also shows that a large percentage of these facilities don't manage the specification, purchase, storage and consumption of indirect materials (items such as tools, bearings, motors, PPE, etc.) to the same extent that they manage their direct materials (steel, plastic, production chemicals, etc.)".

Now, I won't presuppose to be an MRO sourcing expert (there are dozens of folks who I personally know that read this blog who would call BS on me within minutes if I started to discuss MRO sourcing in depth). But the subject of the interview, Sandra Taylor, VP of Corporate Accounts for Grainger (an MRO supplier), knows a thing or two about the subject which we can all learn from. What are some of her thoughts?

Well, a few of them are a bit self-serving (but still decent recommendations). She suggests that plants should start with an assessment and that distributors "Can do this for you at no charge. The assessment is done through interviews and looking through past purchase orders. Conversations take place with the maintenance, engineering and plant managers. They discuss how the plant is currently procuring items, what it is buying and to what degree the purchases are planned vs. unplanned. The end result is a report that tells you exactly what's going on with your indirect materials spend." If your spend is high enough, I'd recommend hiring an unbiased third party to do a similar study, but free reports like this are a good place to start.

In terms of the best specific opportunities, Taylor argues that "about 40 percent of MRO dollars are spent in the unplanned area. By unplanned, I mean infrequent purchases. You may buy the item today, but the need may not come up again for another year or so. By working closely with your key distributor, you can develop an implementation schedule related to suggestions and ideas to reduce cost and save time. One of the ways we strongly encourage customers to reduce their costs is to not buy it until you need it ... This greatly reduces your inventory costs ... Count on your distribution partner to carry your just-in-time inventory."

All in all, the article is a useful piece. Of course there's nothing like bidding out MRO providers to generate the greatest possible savings, often through a combination of competitive negotiations, sealed bids, and optimization, especially in the case where multiple facilities are involved. But nevertheless, some of Grainger's advice is spot on. And if you're not planning on tackling MRO as a priority sourcing category, by all means, turn to your suppliers -- if they're good -- for advice on total cost management across plant MRO spend. Jason Busch

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  1. Mike Myers:

    Does Spend Matters have a 2015-16 update on MRO spend? If possible could you provide some insights? I have read $30b to $200b and even $400 billion in annual spend.

    “Research shows that America’s 350,000-plus manufacturing facilities annually spend nearly $200 billion on indirect materials (also known as maintenance, repair and operations [MRO] products)?

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