When it comes to MRO (Maintenance, Repair and Operations), is your organization leading, evolving or trailing? That’s one of the questions posed by new research from the Center for Supply Chain Research at Penn State published in a recent issue of our sister publication, Supply Chain Management Review.
Based in part on an online survey of 171 respondents and interviews with subject matter experts on indirect spend and integrated MRO supply execution (see About the Research, p. 22), the authors conclude that MRO is evolving from a function too often viewed as a low-impact, low-dollar afterthought, with no central control, to an advantage for leading companies that are “moving steadily toward an integrated approach to MRO that facilitates operational excellence and promotes the total cost of ownership.”
Afterthought to advantage
“MRO management has always been something of an orphan,” the study contends. As the authors point out, the function has struggled to escape its back-office image and typically is characterized by fragmented decisions made by multiple individuals who represent multiple sites and business units. None of the parties involved has a full view of the MRO value chain, resulting in management practices that are well-intended but suboptimal.
With few standard processes in place to manage how supplies are purchased, stocked, consumed and analyzed and little or no focus on performance measurement, MRO managers’ decisions tend to be based on the way things have always been done or whether a manager likes a supplier. The researchers write that many executives feel they can’t justify the time required to integrate their MRO activities because they really don’t understand what they’re spending, or they believe that MRO is limited to low-cost items that present little opportunity for savings. Given the hundreds of other issues to address, why bother?
And yet, MRO is now a significant cost, accounting “for 5% to 9% of total indirect spend in typical manufacturing companies, and as much as 10% to 20% for pharmaceutical manufacturers and utilities,” according to the study, which notes that 20 years ago, MRO costs as a percentage of total indirect spend ranged from between 3% and 12%. Much of that increase is being driven by factors that will sound familiar to users of highly automated materials handling systems: We are seeing more—and more complex—automation than in the past, which is leading to more repairs and maintenance.
The good news: “More and more companies have been improving their MRO practices,” according to the authors, who add that “faced with rising pressure to cut costs and do more with their existing resources, they are recognizing that they can turn MRO from a headache into an enabler of operational excellence that contributes to overall revenue and profitability.”
Leading, evolving and trailing
What then do today’s MRO organizations look like? To answer that question, Penn State organized respondents into three categories:
The researchers then identified the 15 most significant MRO management activities and looked how widely they were adopted by each group. Among the key findings:
Key takeaways
Regardless of where your organization finds itself on the MRO maturity continuum, the Penn State authors offer three priority actions that can help both evolving and trailing groups advance their MRO organizations.
For the trailing group, they propose these additional priorities:
About the research
The research study was conducted by the Center for Supply Chain Research (CSCR) at the Smeal College of Business at The Pennsylvania State University, in collaboration with Supply Chain Management Review, and supported by the CSCR’s corporate sponsors.
Results were based on 171 online survey respondents along with insights from literature, the authors’ experience working with companies and interviews with subject matter experts on indirect spend and integrated MRO supply execution. Respondents represented companies with annual revenues ranging from less than $50 million (45%) to more than $1 billion (45%). Forty percent of respondents reported annual MRO spend of less than $1 million.
The full findings were written by Steve Tracey, Kusumal Ruamsook and Lauren Bechtel from Penn State and Carol Colgan, from North Bay, Inc. They were published in the May/June 2015 issue of Supply Chain Management Review and are available to subscribers at scmr.com.