MRO implications

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MRO Implications
3. Purchasing costs
Purchasing costs cover the core purchasing
processes, such as: identifying the need, the
raising of requisitions, route approval, creation of
purchase orders, receiving goods and matching
invoices.
Direct purchases account for 20% of total
numbers of purchase orders, yet indirect
purchases account for 80% of total numbers of
purchase orders.5 (Figure 01).
Although companies may have standardised their
direct materials, MRO procurement systems tend
not to be standardised. This is because in general
when companies purchase direct materials, a
procurement division controls the orders. When it
comes to indirect or MRO materials, procurement
divisions cannot manage them efficiently because
those processes are outside standardised
procurement and financial management systems.
Supplier reduction – Consolidation of spend
to larger, more flexible suppliers can eliminate
managing multiple negotiations and suppliers.
E-procurement solutions – Offer a reduction in
purchasing costs - automated purchase orders, or
blanket purchase orders can be set up, ordering
directly from supplier websites, automated invoice
matching.
4. Sourcing costs
Sourcing costs are similar to purchasing costs,
but also include spend analysis, demand
management, contract negotiation and contract
management.
All of these areas are difficult to manage for MRO
because of the large proportion of unplanned
and non-standard items and the large volume of
suppliers.
Direct and indirect spend
Implication
FIGURE 01
Indirect
purchase
spend (20%)
Direct
purchase
spend (80%)
By misunderstanding the true nature of MRO
procurement, and by overly focusing on achieving
product discounts, organisations actually
limit their scope to gain savings in MRO. Such
savings have an impact on the organisation’s
financial performance and contribute positively
to its profitability, so they are important for the
organisation to realise.
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References:
1. Roth, 2008; 2. Bragg, 2010; 3.
Campbell, 2006; 4. Aberdeen Group,
2004; 5. Hawking, 2004;