What is MRO inventory and how to manage it? Best guide and tips
What is the meaning of MRO? Why is MRO inventory important? What is MRO inventory management? How to manage MRO inventory? Best practices of MRO inventory management
There is a special type of nonprofit inventory that businesses must maintain to produce and stock finished goods. The maintenance, repair, and operations (MRO) inventory is used to keep equipment and operations optimized at all times. Without MRO supplies, machines can experience increased technical difficulties, malfunctions, and breakdowns.
It is important to optimize the MRO inventory management process with a minimum cost to ensure the return on investment and profit of the company. So what is MRO inventory and why is it important?
In this article, we will give you the best guide by explaining the meaning of MRO inventory, its importance to your business, its best practices, and especially how to manage MRO inventory.
What is the meaning of MRO?
MRO means maintenance, repair, and operations. MRO inventory includes all the materials or supplies that need to fabricate the finished goods in the producing stage. These costs can therefore relate to spare parts, technical services, inventory replenishment, etc. Usually, this MRO inventory is controlled by the maintenance department of the organization.
MRO inventory supports the company's production processes while being, by nature, dispersed across many different departments. Maintenance and repair can indeed involve multiple business departments and are often one-time expenses, sometimes unpredictable.
In addition, because maintenance products and services are extremely varied, the company typically uses many different suppliers. This dispersion and this wide variety of products and services, therefore, make centralization and visibility of MRO spending particularly difficult.
Although companies do not make a profit from MRO inventory, it is necessary to produce goods and services. This MRO inventory requires systematic replenishment and therefore its own cost to maintain a healthy stock.
Without MRO supplies, companies cannot perform maintenance, repairs, or diagnostics on internal operations. MRO inventory prevents equipment malfunctions so your team can maintain a smooth workflow.
Indirect purchases (so-called non-production purchases), and in particular the MRO items, are often the subject of decentralized management causing lots of costs and numerous financial losses.
More and more companies are now realizing the need to regain control of these costs, which represent significant hidden costs. In an effort to optimize the purchasing strategy in order to improve the overall performance of a company, looking into the specific case of MRO is crucial.
Common MRO articles include:
- Maintenance supplies such as repair supplies are the most used MRO equipment with a use rate of 70% according to Peerless Research Group;
- Personal protective equipment (PPE) such as gloves, safety glasses, masks, hats,… are also important types of equipment to protect employees;
- Industrial equipment like hand tools, machines, ovens, oils, valves, gears,...;
- Office supplies including pens, pencils, notebooks, papers,...;
- Cleaning products like brushes, disinfectants, trash cans,...;
- Other types of technical equipment such as computers or laptops, scanners, fax machines,…
Why is MRO inventory important?
The importance of maintenance, repair, and operating inventory becomes evident when discussing the various direct and indirect costs that businesses need to make if they do not ensure the maintenance of these materials in the stock.
Production process interruption
MRO items keep production lines operational so that companies can continue to produce goods. If these supplies are exhausted in the stock, all manufacturing activities must cease, which means that all employees must be on standby. During this time, the company must pay its pending employees as well as expedited shipping costs to get the MRO inventory as soon as possible.
Even after the materials arrive, technicians can take days or weeks to repair the machines, resulting in another cost. During this time, the business is losing potential sales due to downtime, which has a significant impact on its bottom line.
Therefore, organizations should actively monitor their MRO items maintenance to ensure that they are still sufficient to support current stock operations.
Keeping too much MRO inventory on hand will result in inflated storage costs. However, many companies need to make this mistake in an effort to prevent MRO inventory.
In fact, storing too many products can clutter up maintenance rooms, making it difficult to navigate and stock certain materials. When supplies are not found, managers may need to order more, knowing they already have more on hand.
To avoid this, companies should keep an organized stock with accurate product records on-site to avoid over-ordering.
Besides stock events, poor MRO inventory management can affect daily operations. It can therefore have a negative impact on the various sectors of the company and generate additional unforeseen costs. Studies show that maintenance technicians spend up to 25% of their time finding parts. While this only extends the downtime by a few minutes, any recurrence will dramatically decrease productivity.
Maintenance workers can avoid this by keeping their own separate MRO inventory log that shows where tools and materials are located to facilitate retrieval.
Only companies that manage to diligently maintain MRO inventory can act in a timely manner. To ensure that all MRO items are available when they are needed, it can be helpful to adopt maintenance systems and software to monitor, manage and control MRO inventory, but also to have appropriate space in which they store equipment.
In fact, it's not just about choosing the right tools and equipment for the job; it is also about managing these resources as well as possible and storing them in an orderly manner, so that they are always available when needed and to avoid long downtime. Because good MRO inventory management is essential for the effective management of MRO items processes.
What is MRO inventory management?
When we talk about MRO inventory management, we are not talking about finished products. It is about the inventory of raw materials or semi-finished products. MRO inventory management is planning and implementing a method to maximize profitability and reduce costs.
Good MRO inventory items management is about having the right quantity at the right time. If the inventory is not large enough, it is called out of inventory, which risks interrupting the production. An excess of inventory, on the other hand, is expensive, not to mention that there is a risk of depreciation of the inventory.
Good MRO inventory management, therefore, consists in finding this balance which will help companies maximize profit while minimizing costs. Forecasting and planning are effective tools in the service of MRO inventory management.
MRO inventory management has lots of components. Here are its 4 core components:
- Determine supplies and materials that need to stock and their characteristics
- Stock the inventory, know how to organize the stock to adapt to the needs of the enterprise.
- Identify the items and quantities, select the equipment, and track order information
- Verify, follow and control the maintenance, repair, and operating inventory process
How to manage MRO inventory?
Among indirect costs, the MRO (Maintenance, Repair, and Operating) category is one of the most difficult to centralize. These costs dispersed across many business departments and across multiple vendors often make it difficult to manage. To improve the management of MRO costs, three strategic axes should be put in place as a priority. The adoption of digital purchasing solutions is one of the main axes that need to be put in place.
Rationalization of suppliers
The multiplicity of centralized purchasing for maintenance and repair is indeed one of the main factors in wasting time and money.
Reducing the catalog to a limited number of suppliers will make it possible to centralize costs, to obtain better visibility but also to be able to set up partnerships giving rise to preferential rates.
The idea is therefore to select a minimum of suppliers, favoring those who offer a wide range of products and services.
Reduce unnecessary costs
We can outsource inventory responsibility, for example through the implementation of VMI (Vendor Managed Inventory) programs. Thanks to these programs, MRO inventory items management is no longer taken over by the purchaser but entrusted to the suppliers. Purchases are therefore made only when necessary, for better expenditure control and simplified purchasing processes.
Adopting digital purchasing solutions
E-procurement systems (online procurement) are now essential for drastically increasing overall visibility, facilitating processes, and centralizing purchasing. For the MRO inventory items, making purchases through Punch-Outs is one of the best solutions. Thanks to these interfaces accessible online, buyers have real-time access to supplier offers. Purchases are made in a few clicks and automatically centralized.
Best practices of MRO inventory management
Companies can prevent problems arising from poor MRO (Maintenance, repair, operating) inventory management by considering best control practices.
Establish key performance indicators for MRO management
The organizations can effectively monitor their MRO inventory by establishing measurable benchmarks or key performance indicators (KPIs). Key performance indicators quantify various elements of performance so that managers can determine when to intervene.
While businesses can establish as many KPIs as they see fit, all businesses should monitor:
- Supplier performance
- MRO inventory turnover rate
- Maintenance, repair, and operating costs
- MRO percentage of the procurement budget
- Rush order to replenishment ratio orders
- Inventory frequency
- Total inventory
- The cycle of life of inventory
Train staff in procurement and supply chain management
An MRO (maintenance, repair, operating) management system is only as effective as the employees who run it. Therefore, companies should prioritize training staff on how to procure MRO items and manage the supply chain.
Training should cover how to acquire MRO inventory items and interact with employees from different departments. This creates a healthy and harmonious work environment where workers understand their role. As problems arise or additional training is required, supervisors can organize special workshops.
Locate MRO inventory centrally
Departments that operate independently tend to duplicate purchase orders, resulting in excess MRO inventory items and procurement costs. By keeping inventory records in a centralized location, businesses can improve the control and efficiency of their MRO inventory items.
Implementation of management systems
Businesses can optimize their internal communication and data exchange by implementing MRO inventory items management and ordering systems. These solutions automate standard inventory tasks, such as cycle counting and procurement, ensuring businesses have minimal product on-site.
The software also establishes a centralized interface, where company employees can access MRO inventory data. Advanced ordering solutions even connect businesses to their suppliers to facilitate sourcing. This feature extends visibility into the supply chain and allows managers to monitor supplier performance.
Consider using supplier-managed inventory management services
Some companies do not have enough employees to devote themselves to MRO inventory management and procurement, while others prefer to leave it in the hands of companies specializing in this department. In either case, organizations can use third-party services to improve the management of their MRO items.
By leaving this process to companies with expertise, companies can experience increased productivity and increased operational efficiency.