The term MRO is an acronym that stands for maintenance, repair, and operations. The term is used to describe the set of operations and activities that are associated with the upkeep of a plant or facility which can include the physical maintenance of the structure or building, the systems that operate within the facility, and the equipment used to produce the plant or facility’s primary business output.
What is MRO?
MRO is the abbreviation of Maintenance, Repair & Operation. Usually it refers to the materials and services that do not directly constitute products in the actual production process, but are only used for maintenance, repair, and operation of equipment. It is service-oriented.
According to statistics, the explicit cost (product price) of most industrial electrical end-user purchases only accounts for about 30% of the total purchase cost, while the implicit cost (negotiation, transaction cost, transportation, after-sales cost and others) accounts for 70% of the total purchase cost. At present, the control of hidden costs by enterprises is the key for enterprises to improve procurement efficiency and reduce overall costs. MRO procurement is an optimal and effective product circulation mode that integrates the procurement chain and the centralized distribution of all products.
Common types of MRO
MRO concerns itself with the maintenance and repair of a plant or facility, which can be subdivided into several areas, that include:
• Infrastructure repair and maintenance
• Production equipment repair and maintenance
• Material handling equipment maintenance
• Tooling and consumables
MRO materials are usually low-value and consumable commodities with various types and variable purchase volumes, so they are quite different from BOM materials in procurement and inventory management. BOM (Bill of Materials) is a list of the raw materials, sub-assemblies, intermediate assemblies, sub-components, parts, and the quantities of each needed to manufacture an end product. In the process of purchasing MRO materials and managing suppliers, manufacturers' purchasing personnel can strive for better prices and services by grasping 5 key points.
Five Things You Have to Know about MRO
Quantity is Strength
Quantity is power, and this is a fundamental principle in negotiation courses. The buyer's purchasing volume is the buyer's biggest advantage in negotiation, but how to use this advantage reasonably depends on different purchasing strategies. MRO materials are usually low-value items and have a wide variety, and the purchase scale of a single item is not necessarily large. If you still adopt decentralized procurement, you are cutting your own advantages. In this case, the same kind of goods, or even different kinds of goods, can be combined to purchase, thereby enhancing the power of negotiation.
If we want to consolidate procurement projects, the MRO supplier is not necessarily a manufacturer of materials, nor a huge organization. Sometimes a small and medium-sized company with comprehensive capabilities may better meet the needs of the buyer. For a manufacturer of a single material, the purchase volume of a single customer may not be very large. Although they have a cost advantage, they may not always offer the best price to the buyer, and they rarely reserve a large amount of inventory for a single customer alone. Large institutions do not reserve inventory for each customer due to their own system, and the delivery speed is often slower. In contrast, when purchasing through a comprehensive supplier with flexible services, buyers can often get special discounts for large purchase quantities, and they can ask suppliers to reserve a certain amount of inventory, thereby reducing their own inventory to a minimum.
The role of transportation time and cost in MRO material procurement cannot be underestimated. About a quarter of the material's lead time is spent on transportation. Since MRO materials are mostly low-value products, long-distance transportation will undoubtedly increase the cost of procurement, and sometimes may even exceed the value of the material itself. In fact, many manufacturers have noticed this.
Use ERP System
The application of ERP (Enterprise Resource Management) system can undoubtedly improve the efficiency of enterprises using various resources. For the procurement management of MRO materials, the application of the ERP system can improve the speed of operation, reduce the error rate, and enhance the accuracy of the plan, thereby bringing about a corresponding reduction in procurement costs. But it must be noted that ERP is not for everything. . But for other miscellaneous commodities, indiscriminately applying ERP may be counterproductive.
Timely and Fast Payment
Timely and fast repayment is very important for any business. A good supplier relationship is achieved through honest and mutually beneficial cooperation, in which the timely degree of payment is one of the most important criteria. A good credit record can greatly improve the buyer's position in the negotiation, and the buyer will not have a hard time asking the supplier for a longer payment period. At the same time, a good supplier relationship can often enable buyers to obtain supplies at relatively reasonable prices in a timely manner when materials are in short supply, and to obtain relatively favorable prices when supplies are abundant. Of course, this depends on the speed of the entire company's payment process and the cooperation of the financial department.