Leveraging MRO Procurement to Control Hidden Costs

MRO procurement strategies streamline negations and quality MRO equipment by reducing overall costs in procurement and transportation.

FREMONT, CA: Maintenance, repair, and operations (MRO) processes in the production line account for 70 percent of the total cost of production. According to surveys, producing the actual good accounts for 30 percent of the production cost. Manufacturers aim to contract hidden costs as much as possible, and effective MRO procurement improves costs and product quality.

Manufacturers can leverage MRO Procurement to control hidden costs in the following ways:

Strategizing purchase quantity: Buyers purchase in large quantities of MRO equipment that are low-value items, and individual items have low purchasing value. Most MRO procurement companies adopt decentralized procurement strategies. Companies can, instead, choose different types of combinations of goods, and MRO companies have a higher advantage during negotiations.

Comprehensive suppliers: MRO materials suppliers can be a separate entity from manufacturers. MRO procurers can consolidate procurement projects through other small and medium-sized businesses that provide a comprehensive solution. Single-item manufacturers can have a greater cost advantage. Procurers may not always receive the best prices. Manufacturers can reserve large amounts of inventory for individual customers, and the delivery speed could be faster. MRO procurers can purchase through a supplier that meets their needs through flexible services. Buyers that purchase in bulk have a better chance of receiving discounts. Procurers have more leeway to reserve specific inventories to reduce their inventory size.

Local sourcing: MRO procurement undermines transportation factors. Effective transportation speed and costs limit overall expenditures. Slow transportation ramps total procurement costs as MRO materials are usually low-value products. The cost of maintaining ineffective long-distance transportation can exceed the cost of an MRO purchase.

Enterprise resource management (ERP) systems: Appropriate ERP systems improve procurement management. ERP system improves operation speed, eliminates human error, and optimizes procurement processes. It can reduce procurement costs. Accurately applying ERP applications in only specific areas of the procurement process limits expenditures and MRO procurement.

Facilitating fast payments: Faster payments improve business communications and positive credit scores. Good credit scores improve a buyer's standing in procurement negotiations. Buyers can ask for longer payment periods and offers.

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