A look at some effective supply chain risk management strategy
Risk, by definition, means unpredictability. The Covid-19 pandemic was a lesson in every way. It taught everyone about the importance of sound risk management and for those involved in the MRO – maintenance, repair, and operations process to take note of.
Adding extra layers of protection to the existing risk management in place, especially for those in the supply chain on the MRO procurement professional's radar, MRO solutions help identify and check for weak links in the chain.
Tracking five important MRO supply chain metrics
Industrial MRO focuses on the equipment and machinery used in an integrated supply chain model. MRO has played a pivotal role in sourcing and procurement in supply chain management ever since more attention started to be given to this activity during the economic downturn globally.
An ineffective MRO process carries significant risks that include the following:
- Unplanned machinery downtime
- Out of stock of critical parts
- High cost of freight
- Frustration among stakeholders
Thus, it is evident that an ineffective MRO will impact downstream fulfilment in an integrated supply chain management and an internal business area. Industrial buyers who do not have a proper MRO will tend to have disorganized and reckless buying, leading to spare wastage and overall losses for the organization.
The question now is whether one MRO strategy is working? Or are there inflated costs in production cycles due to ineffective MRO practices?
5 Key Performance Areas (KPI) for a better MRO Management
MRO expenses as % of the Procurement budget repair and maintenance expenses should constitute a low percentage of the total production inventory. They should be in the range of 3% to 10% of the total procurement spending.
- Control of suspense or unaccounted expenses
Poor accuracy in inventory controls and impulsive buying can inflate the budget and cause unnecessary bloated inventory. More controls, lower spending, efficient consumption, and greater supplier accountability will make the expenses transparent. Ideally, managers should keep this discrepancy to less than 2 % of the procurement budget.
- Managing Suppliers
MRO buyers need to manage suppliers who cater to 80% of supplies to the organization. The one-stop industrial MRO integrators, distributors, and buyers, should consolidate suppliers to 15% who can serve up to 80% of deliveries for better control.
- The ratio of rush orders to normal orders
From time-to-time rush orders are necessary; the replenishment order should be planned in such a way so that the rush orders are in the ratio of 8% to 10% of the total orders. Too heavy rush orders lead to increased spending, cost overruns, and lower profit margins. Once the acceptable ratio gets stabilized, procurement should coordinate with operations to maintain that ratio.
- Stock Outs
One of the negative impacts a manufacturing setup can face is stockouts. Shortage of parts leads to production delays, higher MRO costs, and rush orders. There should be measurable metrics that keep track of the number of stocks out occurrences compared to the total items in the inventory. Stocks outs should not be more than 1% daily to weekly basis.
Conclusion
By implementing the above MRO solutions, an organization will forecast its operational expenses better, manage disruptions, and reduce impact in areas, including procurement, operations, Maintenance, and Finance.
