MANAGING MRO CONTROL COSTS AND HELP THE BOTTOM LINE THROUGH MRO

MRO, known as maintenance, repair and operations (MRO) is concerned with all things related to the upkeep of a facility. MRO can also be about managing the equipment used to produce the company’s primary product and setting up preventive maintenance programs on the equipment to avoid costly downtime. There is debate about whether equipment is a part of the MRO category or is it a part of the production maintenance schedule – that is a discussion that can be had on its own. That said, what are some of the current trends in MRO that would be worthwhile to pay attention to?

Critical to managing MRO today is understanding the vast amounts of data available to be collected in your organization. You can do this by developing an MRO spend analysis. Similar to spend analysis for production components, MRO spend analytics will allow you to develop an understanding of what is happening in each of the MRO categories you create, allow you to group similar suppliers under one category, and rationalize the total number of suppliers that you’re using.

As an example, you can create categories such as janitorial services and cleaning supplies, landscaping (winter and summer), or even a travel program (air, hotel, rental vehicles). As procurement professionals, we want to focus on the most exciting, high dollar spend categories, and not on the low-hanging fruit because it is not as exciting. Our goal should be to get involved in all total spend goals, which is to reduce overall costs for your company.

For instance, in janitorial services, other than looking at the services being rendered and how they are performing (which is critical), you can analyze the cost per square foot of cleaning area being performed. If your cost per square foot is high, then you can re-evaluate the monthly charges to get the cost per square foot down, or switch service providers where the costs are more acceptable. For hotel travel programs, hotels are interested in the total number of nights being booked in a given year and will offer higher discounts on their standard rate if your organization books a higher number of hotel rooms than those that don’t. Understanding the MRO spend analytics will allow you to develop the appropriate strategies to minimize costs within your organization.

Industry Standards

To aid in grouping suppliers together, it is best to use an industry standard classification code, such as the United Nations Standard Products and Services Code (UNSPSC – www.unspsc. org), or the North American Industry Classification System (NAICS – www.siccode.com). If using UNSPSC, the code would be eight digits in length, and if using NAICS, it would be six digits. Looking up an industry standard code is free on both sites.

In selecting a code, you can be as generic as possible: 90110000 – Hotels and Lodgings and Meeting Facilities, or as very specific: 90111800 – Hotel Rooms. If using NAICS, the code would be 721110 – Hotels and Motels (Except Casinos).

The action would be to categorize all suppliers under the appropriate code being used, identify what your total spend is for the category, create supplier profiles detailing payment terms, locations, rebates, total number of nights, and so on. The goal is to create a strategy for the category as a whole that will reduce costs and improved services levels for your organization.

Another key area to focus on when developing MRO strategies is to develop a supplier diversity program for MRO commodities. If your organization is looking to do business with any level of government, developing a metric that measures how diverse your supply base is can set you apart from your competition. The diverse supply base recognizes doing business with companies that meet the following criteria: women-owned; minority-owned; Aboriginal-owned; LGBTQ+-owned, and owned by those who are physically challenged. If one of your suppliers does not meet the above criteria, they would be classified as other. Once you have built supplier profiles to identify what percentage of your total spend meets the criteria of being diverse, you can develop strategies to grow the total spend with these businesses. There are a host of organizations out there that can help you identify suppliers for specific MRO categories and services.

One such organization is the Canadian Aboriginal and Minority Supply Council (CAMSC). It is known that by diversifying your supply base, you increase the level of competition within each commodity and will reduce overall costs as a result of the increased competi- tion. More important, there is a huge social procurement opportunity for your organization that can generate increased sales and market presence by advertising your supplier diversity programs and how much total spend is diverse.

Category Management

Another growing trend in managing your MRO spend categories, particularly around facility maintenance, concerns energy and the environment, or minimizing the impact of energy consumption on the environment and managing HVAC costs. Energy costs were spiking during the pandemic due to raw materials such as natural gas (impact on heating), and have recently declined to pre-pandemic levels, but they are still a concern. Reducing your overall carbon footprint by using the proper tools and equipment can help keep energy costs to a minimum and make your facility more environmentally sustainable over the long term.

Like all spend categories, first identify how much is being spent on energy. Secondly, especially in older buildings and with your maintenance team, review HVAC and lighting to see if more energy efficient upgrades can be made. Replacing old fluorescent light fixtures with LED light fixtures can reduce your energy bill by as much as 65 per cent and LED fixtures are 30 per cent more efficient and will last three times longer, cutting down on the number of times they need replacing.

In another area, look at your windows. As our outside temperatures increase, another solution is to add window coverings to block heat penetration, but still offer external views. This strategy involves looking at installing solar shades, blackout curtains, awnings, cellular shades and reflective blinds. The goal with this technology is to keep rooms warm in the winter and cool in the summer without overtaxing the HVAC system. It has been reported that installing an awning can reduce heat build up by as much as 77 per cent, cut air conditioning use by 25 per cent and lower energy bills by 100 hours per year. Another tool to employ is internal sensors, such as smart room sensors which can determine if a room is occupied or not. This technology will ensure lights will shut off if a room is unoccupied and turn back on when someone enters the room. How many times do we drive by an office at night to see lights on and no one in the building? To alleviate this, use sensors to automatically shut off lights when the room is unoccupied.

The last thing to look at with MRO trends is managing the contracts. Just because MRO spend is in the low-hanging fruit and not as exciting as production components, we still need to manage the relationship with the key MRO suppliers. Equally important is to clearly spell out the service requirements being performed, pricing, payment terms and dispute resolutions in case there are problems or issues. Not having a properly laid-out contract could increase costs when services are not performed properly and another supplier must be brought in at a higher cost.

As purchasing professionals negotiating for production components or CAPEX equipment, we should not forget about the MRO products and services within our organization. We have an opportunity to control all costs and generate positive bottom-line results. SP

By Michael Power