MRO spending: plan for the unplanned
Unplanned maintenance — it can be the bane of a plant engineer’s existence. It can lead to hours spent on the Internet, on the phone or both, searching for suppliers that not only can supply the part needed, but supply it in a timely manner. And this can be the least of the plant engineer’s concerns. Depending on how long this process takes, the costs in lost production can be enormous.
“A lot of times, the process costs associated with getting a product is a lot more than the cost of the product itself,” said Ken House, regional sales vice president of W.W. Grainger, Inc. “Studies show that, by the time an engineer recognizes a need and goes through all of the steps to acquire the part — from identifying a supplier to getting approvals and initiating a requisition, to receiving the item and paying the invoice — it can easily cost as much or even more than five times the cost of the item.”
House defined an unplanned purchase as a product or repair part that a company does not know it needs until the need arises. “Companies consistently tell us that the purchasing situation that is most difficult for them to manage is the unplanned purchase. It’s consistently the situation that takes the most time, is the most frustrating and most challenging for them to have to respond to.”
And unplanned purchases affect the bottom line more than most might think. According to House, more than 40% of the dollars spent on maintenance requirements are directly related to unplanned needs. “They happen in every single category, and most companies don’t fully understand the impact that unplanned purchases have on the costs of their overall business,” House said.
Most unplanned purchases happen less than five times a year, according to House. “In the studies that we’ve conducted, we’ve learned that only 25—30% of a company’s unplanned needs are going to repeat from one year to the next. You can imagine how costly it would be if a company were to inventory those items that aren’t going to be used very often. It can have a huge impact on the business. So its’ really not in a company’s best interest to stock those rarely needed items,” House said.
However, managing multiple suppliers for unplanned needs can be extremely costly and time-consuming as well, so it’s in the company’s best interest to manage as few as possible. “When a company does that, it can really leverage its buying volume and its buying power and maximize its opportunity,” House said. “It’s impossible to maximize your unplanned purchasing power when you’re working with dozens and dozens of suppliers in that unplanned area of your MRO business.”
“What companies are looking for is suppliers that can inventory their unplanned needs for them, suppliers that they can turn to for all of their unplanned needs,” said House. “What’s most important to companies when they’re trying to fulfill their unplanned needs is working with suppliers that have a broad selection of products available locally. These kinds of suppliers can get products to a customer’s facility very quickly, typically the same day or the next day.”
That translates to fewer headaches for the plant engineer and a better bottom line for the company.