MRO (Maintenance, Repair, and Operations)
MRO (Maintenance, Repair, and Operations) refers to the activities a business executes outside of its core operations but which are nonetheless crucial to keeping the business running smoothly. These functions include extraneous tasks like inventory management, IT software upgrades, and maintenance.
Despite the importance of MRO, it is typically considered a cost center. As such, activities and purchases within this category often receive less attention in budgeting, financial planning, and workforce management than capital expenditures that are directly related to production such as IT or facilities.
Why Is MRO Important?
Defining the Maintenance, Repair, and Operations category is the first step to managing the associated expenditures and supplier relationships. This is important for managing maintenance budgets. The MRO market is estimated at $1.7 trillion annually – $200 billion of which is in the industrial segment. The cost of individual items tends to be low, so although these purchases quickly add up, they tend to be overlooked during spend analysis. Maintenance, Repair, and Operations is a vital part of keeping supply chains running efficiently. For example, the effects of a PPE shortage during a pandemic on healthcare delivery are well-documented. Failure to manage it properly can result in production slowdowns or shutdowns.
Types of MRO
MRO is a blanket term for miscellaneous purchases not related to core capital expenditures.
According to a 2020 survey by SCMR, the most common items were maintenance and cleaning supplies, used by 70% of respondents. Safety equipment came in second at 68%, while third was forklift repair services at 66%.
- Personal protective equipment (PPE): gloves, masks, safety glasses, hard hats, and earplugs
- Cleaning supplies: disinfectant, mops, brooms, brushes, and buckets
- Office supplies: notebooks, pens, papers, batteries, staplers, and folders
- Industrial equipment: valves, compressors, lubricants, motors, gears, and spare parts
- Technology and hardware: computers, printers, scanners, and paper shredders
Benefits of a MRO Program
Despite upfront costs, MRO asset management provides many benefits in the long term. It also presents an opportunity to transform a perceived cost center into an asset management system that provides your organization with a competitive edge.
Reduce unscheduled downtime
Manage inventory more efficiently
Reduce parts spending and consumption
Increase technician productivity and wrench-on time
Make proactive supply chain decisions
Reduce stockouts and production delays
What Is MRO Inventory?
The average annual MRO inventory spend is nearly $6 million. In most manufacturing companies, it’s around 10% of supply chain spend. Average spend typically ranges from 5-10% of the cost of goods sold (COGS). Organizations with complex processes approach an MRO spend of 45%. In resource-intensive industries like manufacturing, Maintenance, Repair, and Operations represents roughly one third of a manufacturing company’s spending divided between parts costs and processes associated with supporting and using those parts.
Inventory analysis is typically reserved for traditional types of inventory, such as raw materials. Inventory analysis is a technique to determine the optimal level of inventory for a firm by analyzing the stock/product mix against the demand for a stock/product. Choosing the right MRO supply model can have quite an impact on savings and performance.
There are three ways to manage MRO inventory:
1. In-house – Using internal staff to manage inventory is the least expensive option but manually monitoring stock levels can be time-consuming. You can use ABC analysis, the just-in-time method, or other inventory management techniques. Organizations with in-house MRO usually partner with vendors specializing in specific categories or subcategories.
2. Outsourced – Airlines once relied almost entirely on outsourced MRO since the mid-1990s, but now some carriers are electing for in-house to become more cost-competitive.
3. Hybrid – Outsourcing certain parts of MRO, such as managing supplier relationships or sourcing vendors, while keeping procedures like inventory analysis in-house.
What is MRO Procurement?
Maintenance, Repair, and Operations procurement refers to indirect spend on MRO-related supplies and tasks. In other words, it refers to the assortment of small purchases that keep the production line in good repair and keep staff equipped with the tools and services they need to do their jobs.
There are a number of ways to optimize MRO procurement.
1. Segment parts – Maintenance, Repair, and Operations spend consists of a mix of specialty parts (25-35% of MRO spend) and commodity parts. Specialty parts tend to be more expensive and less substitutable—meaning it’s important to have relationships with good suppliers—whereas commodity parts tend to be cheaper and low-stakes. Distinguishing between the two can help you find ways to better manage purchases and control costs.
2. Use refurbished components where possible – Refurbishing components rather than purchasing brand-new replacements enables your business to cut down on costs and industrial waste, while making procurements less vulnerable to shortages and other supply chain disruptions.
3. Leverage scale – Centralizing MRO procurements and collecting data enables you to start coordinating purchases internally and building relationships with suppliers so your organization can take advantage of economies of scale.
How to More Effectively Manage MRO With a CMMS
A CMMS enables you to proactively manage your inventory and track how much you’re spending on maintenance. By performing periodic cycle counts, you can ensure your MRO supplies are properly stocked at all times.
Effective MRO management is also a crucial component of a preventive maintenance strategy. Your team needs to have replacement parts and tools on hand to perform repairs and conduct inspections.
Finally, a CMMS has data reporting capabilities that can help you track metrics that are key to MRO management such as:
- Full lists of required MRO items generally used
- Lead times needed to resupply each item
- Item usage and depletion rates
What Does MRO Stand For?
MRO stands for Maintenance, Repair, and Operations. It includes everything the maintenance team does to keep a facility in operating condition. Bear in mind that MRO not only refers to supplies but the labor and processes associated with maintaining business-as-usual.
What Are MRO Supplies?
The most common items purchased under this category include valves, fittings, personal protective equipment (PPE), paint, vehicle maintenance, and complicated service relationships.
- Production equipment repair and maintenance
- Infrastructure repair and maintenance
- Tooling and consumables
- Material handling equipment maintenance
- Supply chain management and procurement
How to Get Your Company to Take MRO Seriously
Often, MRO is used as a catch-all term to describe miscellaneous expenditures such as office supplies or replacement parts for heavy machinery. Maintenance, Repair, and Operations materials do not come into contact with the customer and are often considered non-strategic, thereby receiving less attention from management even though these procurements underpin everything the business does.
Neglecting MRO can lead to unscheduled downtime
If you run out of a vital tool used as part of the production process, production lines can come to a grinding halt. For example, if a machine’s gears start grinding and there’s no lubricant on hand, production will have to be suspended to avoid machine failure.
Lack of budgetary oversight leads to overspending and poor planning
MRO is a spending category in procurements, but the responsibility of buying and securing supplies often falls to operations or administrative personnel. Additionally, businesses tend not to track these expenditures or plan inventory ahead of time. While individual items represent small purchases (eg: a box of ballpoint pens), the expenditures add up exponentially throughout the fiscal year. This lack of planning means businesses aren’t necessarily sourcing materials in the most economic way possible, by purchasing in bulk and having long-term relationships with suppliers, even though these items constitute a recurring purchase.
Non-standardized MRO data is hard to make sense of
MRO datasets tend to be extremely large and feature nonstandard descriptions, thereby leading to noisy data that is difficult to parse. Secondly, each production facility has its own unique jargon to describe a specific part, and there is little consistency from plant to plant. The lack of industry standards has prevented the creation of a Maintenance, Repair, and Operations dictionary and standardized product descriptions.
Lack of MRO planning leads to employee attrition
A poorly maintained facility with rundown equipment and poor lighting does not make for a pleasant work environment. Also, if technicians are routinely missing the parts and tools they need to do their jobs, this leads to frustration and decreased wrench-on time.