Maintenance, repair, and operations (MRO) functions are essential for any procurement department or operation. While these items represent a relatively small portion of an overall procurement budget, they can still have a significant impact on profitability. This is especially true if costs increase without a proper system in place to identify and make improvements.
In this post, we’ll discuss the definition of MRO and how these items can be managed. Reducing MRO expenses can have a positive impact on an operation’s long-term profitability. In addition to traditional asset and maintenance management practices, such as tracking assets with equipment tags, facilities asset management tags, utility tags, and other barcode label solutions to streamline maintenance and repair processes, an MRO strategy can bring an additional layer of efficiency.
The Definition of MRO
As noted above, MRO is an acronym that stands for maintenance, repair, and operations. It includes the operations, processes, and activities associated with the upkeep of a plant or facility such as physical infrastructure maintenance, equipment and its associated operational processes, and materials and supplies that are used to maintain infrastructure and equipment or in the production of a product or service. However, these materials aren’t classified in the same way as raw materials that are part of a finished product (such as the metals used to manufacture tools or paint used to finish a wood product), which would be considered direct costs. Instead, materials and supplies that fall under MRO are used in production but are not part of the final product, such as supplies used for cleaning and maintaining equipment.
The best way to define the scope of the MRO designation is to explore the four major categories of items that are typically included in assessments. Each business must manage its assets in a way that optimizes performance across the entire operation. Organizing MRO items into distinct categories streamlines tracking and makes it easier to review financial metrics for particular asset classes.
Infrastructure Repair and Maintenance
This category refers to equipment and related materials that are used to keep an entire commercial facility up and running, such as:
- HVAC (heating, ventilation, and air conditioning) equipment
- Safety equipment
- Computer equipment
Production Equipment Repair and Maintenance
Production-related MRO items are categorized as all equipment and activities needed to maintain production systems. This MRO category includes equipment such as:
- Compressors and motors
- Conveyor belts
- CNC machinery
Material Handling Equipment Maintenance
Materials handing items help move raw materials and other related assets into the right locations so that they can be used for production purposes. Material handling equipment maintenance includes supplies such as:
- Valves and piping
- Work attire and facemasks
- Personal Protective Equipment (PPE) such as gloves
Tools and Consumables
All other small tools and consumable parts used in day-to-day operations are captured in this MRO category, such as:
- Office supplies
- Gaskets, screws, and nails
- Hand tools
Even a relatively small operation could have thousands of individual items that fit within these MRO categories. For this reason, each company must maintain an organized asset library. Beyond these broad categories, effective MRO management involves the proper classification of assets in a more granular way. There are several MRO classification taxonomies, with the United Nations Standard Products and Services Code® (UNSPSC®) being the most widely used. Other taxonomies include [email protected], which is often used in Europe, ETIM, the Standard Industrial Classification (SIC) System, and Harmonized System Codes (HSC). There are also industry-specific taxonomies that are often used for MRO management.
Why is MRO Management Important?
MRO can make up nearly half (up to 47%) of a typical organization’s procurement costs. Many of these costs are related to processes, and many companies could benefit from a thorough review of their procurement efficiency. Improving procurement strategies can lead to cost savings that directly impact the business’s profitability.
The challenge with many MRO processes is that the work can be reactive and more difficult to predict or project on a long-term basis. What can be controlled, however, is the way work is performed. Data management systems, automation, and other emerging technologies can help streamline these activities and produce efficiency improvements. The management of product parts, raw materials, and safety awareness can directly impact MRO-related costs.
How to Manage MRO Items
The allocation and control of MRO expenses should have clear ownership assigned within the procurement department. Clarifying these responsibilities is an important step in creating a comprehensive MRO strategy that can help you identify and control the risks associated with these areas. A few examples of MRO-related risks include:
- Excessive shipping costs
- Poor maintenance work productivity
- Unexpected production shutdowns
- Inventory backlogs
Companies that manufacture goods or provide related services are especially prone to these types of issues. Having an MRO strategy in place creates higher visibility for supplier and inventory management practices. It also helps align your leadership team around these key procurement priorities.
Implement Asset Tracking Systems to Optimize MRO Management
Businesses can gain better visibility into the use and maintenance of MRO assets by implementing asset tracking systems to streamline maintenance and repair processes and manage the complete asset lifecycle. The data obtained through an efficient asset tracking system enables business leaders to make data-driven decisions such as when it’s more cost-efficient to replace an asset rather than repair it.
Additionally, asset tracking solutions enable efficient preventive maintenance management, enabling organizations to optimize equipment performance and maximize the useable lifespan of their assets to reduce maintenance and procurement costs. Asset tags can be printed with barcodes that remain readable throughout the lifespan of the asset and synced with asset management software to enable accurate asset classification and automate asset identification and documentation.
With a variety of asset tags available for various applications, such as utility asset tags, facilities management asset tags, work-in-process labels, chemical resistant labels, high-heat barcode labels, equipment tags, cable labels, and more, organizations can efficiently track equipment, assets, and inventory to streamline documentation and improve MRO management.
Develop and Track Key Performance Indicators
Another suggestion is to develop key performance indicators (KPIs) that clearly define the areas you intend to control. The following metrics have been shown to align well with most MRO improvement plans.
- MRO Spend. The amount of funding directed toward the MRO category should represent 10% or less of the overall procurement budget. These simple financial metrics are an excellent baseline for driving costs down and improving MRO efficiency.
- Stock Outs. An operation that routinely experiences stock-outs is likely experiencing one or more major process issues related to production, procurement, or fulfillment. Tracking the number of stockouts can be used as a lagging indicator of systemic problems.
- On-Hand MRO Inventory versus Turnover. A good rule of thumb for on-hand MRO inventory is to target a 30-day turnover. Excess inventory can add additional unnecessary costs.
- Rush Orders to Replenishment Ratio. An operation should experience a low number of rush orders versus standard replenishment orders. A good rule of thumb is no more than 8-10% of all orders should be rushed.
Tracking MRO expenses and lowering costs can be a significant challenge for procurement teams to manage. Taking time to develop an MRO strategy can help align everyone involved and provide clear benchmarks for improvement. Ultimately, controlling these costs can lead to significant improvements in efficiency and profitability.