Optimize—it’s a term everyone is throwing around in the MRO industry, but what does an optimized contract really look like?
The word “optimize,” means to maximize the effectiveness of a given resource or opportunity. When you optimize your MRO supply chain, you get two main outcomes: reduced plant downtime and less MRO spend.
Supporting those outcomes are a host of smaller measures that your electrical and lighting MRO supplier will deliver for you or collaborate with you to achieve. Each of these smaller measures are like bricks that combine to make a staircase towards higher profitability.
Illuminating the dark corners of your MRO spend
The first step in any program is to set goals, which requires good data. Want to decrease electrical and lighting MRO spend by a certain percentage? Then you need to know what you’re actually spending.
Here are four key questions you need to ask about your MRO supply chain area:
- Do you know how much you’re spending on MRO? With MRO purchasing spread over many locations and job roles, many companies have no idea what their overall MRO spend is.
- Do you know what you’re buying and what it’s used for? When MRO purchasing responsibility is distributed across several people and locations, it’s common for companies to not have a good picture of what they are buying or the prices they are paying.
- Do you know what your company’s usage/depletion rates of MRO items are? Your company is buying MRO parts, but are they being used at the same rate? It’s very possible that you may be buying parts faster than you can use them, resulting in over-stuffed stockrooms and lots of capital tied up.
- Do you know how many MRO items you have and what they are? What’s in your plant storerooms right now? Is everything in the storeroom even usable? Cross-industry statistics show that 30 percent of stocked parts in an average company will never be used. That’s a lot of excess or obsolete inventory to have on your books. For example, it’s very common to still find cases of lightbulbs in a storeroom after the plant upgrades to LED lighting.
Bringing strategic buying practices to MRO
When something is broken in a plant, it needs immediate replacement to minimize expensive downtime. So, the plant manager will order the needed parts without any price research and pay the expedited shipping to get the parts right away. The parts arrive quickly, and the plant manager is the hero for getting the assembly lines up and running again.
Ultimately, reactive purchasing is an ineffective and expensive way to operate. A better way to go is to avoid that dire situation altogether through strategic purchasing. Instead of always focusing on the most urgent problems of the moment, your company can leave this vicious cycle by planning for the future. Many of the issues that cause downtime can be forecasted or even fixed before they become problems. If you know approximately when something may break (e.g. it has a lifespan of X operating hours), you’ll know when you need to order replacement parts before they break.
Buy MRO solutions for tomorrow’s problems instead of this minute’s problems and watch how your plants’ downtime decreases and MRO spend drops.
“Just in case” vs. Just in Time
The main job for plant managers and engineers is to keep their plants running smoothly. To support that mission, plants tend to accumulate piles of excess—and sometimes obsolete—inventory. When downtime can easily cost 10s or $100,000s an hour, it’s easy to see why plants hold on to all this inventory. It’s always easier to keep something “just in case” it’s ever needed.
However, this inventory is deadweight on the company and there are better ways to avoid downtime than tying up capital in inventory that will never be used. For starters, partner with a national MRO supplier that has local distributors near your plants so spare parts are always close by. The local angle is critical for Just in Time (JIT) inventory management, where parts are delivered exactly when you need them.
Next, your MRO solution provider can implement a three-pronged approach to ensure maximum factory uptime:
- Predictive analytics to determine when things are likely to break
- Preventative maintenance to fix things before they break
- Strategic buying to keep critical items in stock
With a solid MRO partner always at the ready, your plants can switch from the old “just in case” hoarding mindset to the more effective Just in Time delivery model.
Centralizing a localized system
Many companies operate MRO locally and give plant managers a great deal of leeway to choose vendors and the parts they want. This lack of centralization results in a profusion of MRO suppliers and an environment where parts are purchased haphazardly. Plants buy different parts for the same job and, even worse, people buy parts when the company already has the same parts in excess at other locations.
Centralizing this system eliminates these headaches. When the company partners with a national MRO supplier with a wide distributor network, plants maintain the same local service they are used to.
The main problem is that MRO purchases tend to be of inexpensive items and they are not centrally organized. But small expenses add up, which is why MRO is a $1.7 trillion global industry. Also, MRO keeps plant operations running. If a part will fix a stopped assembly line, no one will question what it costs—the priority is getting the plant back up. But, a more strategic approach can prevent the downtime situation from happening at all, while also lowering overall spend through steps, such as preventative maintenance and strategic buying. Learn more about optimizing your MRO solutions with IM Supply.